Deduction Limit, ASGs, and IRC 413(c)(6)

[Guest Pennysaver]

If a plan was established as a single employer plan before 1989, but after 1988 the plan sponsor became a member of an affiliated service group and the other ASG members adopted the plan so that it became a multiple employer plan after 1988, is the plan treated as a plan established after 1988 for purposes of IRC 413©(6)(A) so that each participating employer separately calculates its deduction limit under IRC 404?

Or is it only the original effective date of the plan, regardless of whether it was a single employer plan or multiple employer plan as of the date it was established, that dictates its classification for purposes of IRC 413©(6)(A)?

Does anyone know of any guidance on this issue?

[rcline46]

Members of an Affiliated Service Group are treated the same as members of a controlled group. Therefore, post-1988 the plan was still a single employer plan.

Language is very critical to anything we do. If you mean related employers joined the plan, but the relationship did not rise to controlled group or affiliated service group status, then you do have a multiple employer plan.

[Guest Pennysaver]

Members of an Affiliated Service Group are treated the same as members of a controlled group. Therefore, post-1988 the plan was still a single employer plan.

Language is very critical to anything we do. If you mean related employers joined the plan, but the relationship did not rise to controlled group or affiliated service group status, then you do have a multiple employer plan.

Hmmmm. See Derrin Watson's Q&A column re IRC 404(a) deduction limits for ASG members: http://benefitslink.com/modperl/qa.cgi?db=...loyer&id=36

For purposes of determining whether a separate or combined deduction limit applies, ASG members are not always treated the same as CG members.

Q 13:35 of Watson's book, "Who's the Employer?", sets forth the following:

"How are the IRC §404 deduction limits applied to ASG members that jointly sponsor plans with other ASG members or cover their employees?

It depends on the situation. There are three categories of plans and sponsors with two alternative results:

1. If the ASG members sponsoring the plan are also part of a controlled group or a common control group (under IRC §414(b) or ©), then the deduction rules of those sections apply. (Treas. Reg. 1.414(m)-3©(2).) In the case of a controlled group, that means that the IRC §404 limits are applied on an aggregate basis (Q 10:28). It probably means the same in the case of a common control group, although potentially, common control groups fall in one of the categories below (Q 12:7).

2. If the plan was established after 1988, then each employer computes its IRC §404(a) deduction limit separately. (IRC §413©(6)(A).)

3. Otherwise (i.e., in the case of a plan established before 1989) all participants are deemed employed by a single employer and a single IRC §404(a) limit is shared between the group members. However, if the employer elects under IRC §413©(4)(B) to have the IRC §412 funding requirements computed separately (see Q 13:25), then each employer has a separate IRC §404(a) deduction limit. (IRC §413©(6)(B).)"

What is not clear from this discussion, or IRC 413©(6), is what exactly is meant by "established" with respect to the plan. Is its original effective date the determining factor with respect to when it was "established"? Or is it the date on which the plan sponsor became an ASG member and other ASG members acted to jointly sponsor the plan?

Edit: P.S. IRC 414(m), which defines ASG, does not cross-reference IRC 404. Proposed Treasury Regulation §1.414(m)-3©(1) states that if an ASG member maintains a plan that covers the employee of another ASG member, that other ASG member is deemed to be maintaining the plan. This makes the plan a multiple employer plan for deduction purposes under IRC 413©(6).

[ETA Consulting LLC]

RCline is correct. It's a single employer plan because all members are part of a related group. The question, however, speaks only to deductibility, not coverage (or nondiscrimination).

You have to remember that IF these members are ALSO PART OF A CONTROLLED GROUP, then it's a moot point and they are aggregated for deduction purposes. Your question, then pertains to them being "ONLY" an ASG and you want to know if they have separate deduction limits. I'd say so. "Why?" Coin toss (basically). It has become common understanding in the retirement community (at least from my vantage point) that members of an ASG have separate deduction limits. Hence, when something is debateable (or close to the line), then I would err on the side of common understanding.

Even Derrin acknowledges that there is some confusion on how to determine where the line is drawn. (I own his book, by the way. It's a must have. Very enlightening). When that exists, then following common understanding should not be construed as eggregious.

Good Luck!

[Guest Pennysaver]

Your question, then pertains to them being "ONLY" an ASG and you want to know if they have separate deduction limits. I'd say so. "Why?" Coin toss (basically). It has become common understanding in the retirement community (at least from my vantage point) that members of an ASG have separate deduction limits. Hence, when something is debateable (or close to the line), then I would err on the side of common understanding.

Thank you, ERISAtoolkit, but that was not my question. I did not ask whether ASG members have separate deduction limits. IRC 414©(6)(A) makes it clear that the "common understanding" is correct, at least in the case of plans established after 12/31/1988. But IRC 414©(6)(B) makes it equally clear that the "common understanding" would be incorrect in the case of plans established before 1/1/1989, as it specifically states that the deduction limit for such plans shall be determined as if all participants in the plan were employed by a single employer. That is what Derrin Watson is saying in 2. and 3.

The question I did ask was whether, for purposes of IRC 404 and 414©(6) only, a plan that was not maintained by more than one employer before 1/1/1989, but was maintained by more than one employer after 12/31/1988, would be considered as "established" (again, for purposes of IRC 404 and 414©(6) only) before 1/1/1989 or after 12/31/1988?