Affiliated Service Group

[Guest cxs]

My client has a 401(k) plan. Until this year the employer was a controlled group consisting of two nursing homes and a company managing the homes. In 2004 the group split apart and now the three are individually owned; however their functional relationship has not changed. The sole function of one company is to provide management services for the other two. Is this an affiliated service group?

I would be happy if it is since the plan is on a prototype and we are relying on the prototype determination letter. My understanding is that an affiliated service group is treated the same as a controlled group. Is there some complication here? Do we need to file anything to get a determination that this is an affiliated service group?

Thanks

[Archimage]

I am assuming there is no shared ownership among the three companies. I am also assuming the mgt company has no other clients but these two companies. This doesn't sound like it would be an A-org or a B-org ASG. It could be considered an ASG under the Management Group rules. However, the regs state that the managment company must derive MORE THAN 50% of its principal business from services to another company. This mgt company only receives 50% from each. However, if one company receives more fees from company A then I would believe this would be an ASG consisting of the mgt company and company A.

I normally recommend hiring an attorney to decide whether or not a group of businesses is an ASG. The rules are somewhat vague and a legal opinion usually will give you piece of mind.

[Ron Snyder]

Your question ("Is this an affiliated service group?") is a trick question. In fact, as pointed out above, it may not be an affiliated service group under IRC 414(m). However, it may still be a controlled group under IRC 414(b) or ©, an employee leasing arrangement under IRC 414(n), or an "other arrangement" under IRC 414(o)(3). I also recommend that an attorney or CPA who is expert in such issues review the facts and provide an opinion.