Affiliated Service Group and 401(k) testing

[Guest philc]

My understanding was that a plan maintained by an affiliated service group is treated as one employer, the plan is a single employer plan (Prototype if they see fit) and tested (including ADP/ACP) as one plan.

Situation is this - 5 separate entities. 4 of the 5 constitute a controlled group. The 5th is not part of the CG but is part of an affiliated service group with the other 4 because one of the 4 is a management company and the client's attorney determined an ASG existed under the ASG management service organization analysis under 414(m)(5).

The client's attorney is telling them that even though a 5 member ASG exists, the plan needs to test (ADP/ACP) the 4 CG members separate from the non-CG member and the attorney is citing reliance on Proposed Reg. 1.414(m)-3©.

Doesn't appear to me that this is what that Proposed Reg. is stating ? Plus, those regs. were withdrawn, can they/should they be relied on?

[R. Butler]

I'm not sure I understand the question. Are you asking whether the 5th company should be exlcuded from ADP/ACP? Is that 5th company covered under the plan? Just because you have a related group doesn't mean they are all covered.

[Guest philc]

Yes, the 5th company is part of the plan and part of the 5 member ASG. The question came as a result of their attorney interpreting Proposed Reg. 1.414(m)-3© as meaning they must be tested separately from the other 4 for ADP/ACP.

[Alf]

Isn't the correct answer different from either of your listed options? I believe the ASG (5th entity and the management company) is tested as one employer and the controlled group (four related entities) is tested as one employer.

The who is the employer Q&A column has answered this several times I believe though, so that should be a great resource.

[R. Butler]

I still don't follow the question well. I am guessing that you have 2 separate related groups. One consisting of the management co. & co. 5, the other consisting of the management co. & the other 3. If this is correct then we take the position that you do not treat co. 5 as part of the same group as co. 1-4.

[Guest philc]

Not sure if this makes it clearer or not but appreciate the feedback -

Cos. A,B,C,D,E are all part of the same ASG under the management function rules (A being the Mangm't Co.).

Cos. A,B,C,D are all part of the same controlled group. Co. E doesn't have the ownership percentage to be included as a member.

The intent is to have A,B,C,D,E part of the same plan and treat it as a single employer plan.

Their attorney states because of Proposed reg 1.414(m)-3© including all would amount to a multiple employer plan and therefore the ASG would be tested separate from the controlled group.

I have read a couple of Derrin's Q & A's (#31 and #229) and although he states that's what he thinks the Proposed reg. and what certain IRS officials state, he doesn't necessarily think that follows the intent of the Code. This gets to his if A=B and B=C doesn't A=C?

What if the plan is drafted to define the adopting employer as the Management Co. (A) and furthermore the employer shall include any member of a controlled group or affilicated service group of the adopting employer. And then go on to administer and test the plan of the "employer." The intent is to avoid a multiple employer plan.