Who's the Employer?

Answer: No, but A and C are a parent-subsidiary controlled group under 414(b), or a group of trades or businesses under common control under 414(c). If you are dealing with a wholly owned entity, that is the case.

Now, A and B are a management function group under 414(m)(5). The manager of a management function group must have as its principal business purpose providing management functions for 1 other entity (or for 1 entity and businesses related to that entity). Whether measured by time or revenue, in this case it appears that this 1 entity is B. However, C is not related to B, and is technically not part of the management function group.

So, here you have A in a controlled group with C and in an ASG with B. All employees of A and C are deemed to be employed by a single employer for most plan purposes (as defined in 414(b) and (c)), and all employees of A and B are deemed to be employed by a single employer for most plan purposes (as defined in 414(m)).

What are the differences? Well, for one thing, A and C could be broken apart for testing under the Qualified SLOB rules (there's no SLOB like a Qualified SLOB), but A and B cannot. For another, if all three jointly sponsor a plan, A and C can compute a single deduction limit, while B would have its own separately computed limit (assuming the plan was adopted after 1988).

One interesting question arises as to whether the three are treated as a single entity for purposes of 410 and 401(a)(4). I say yes. If A=B and A=C, then A=B=C. Dick Wickersham and Jim Holland disagree, thinking that you must test separately for the group of A and B and then test for the group of A and C.

Management function groups, and other affiliated service groups, are discussed at length in Chapter 13 of my book, Who's the Employer?

• Other Q&A Columns