Who's the Employer?

Answer: Like so many terms, the definition depends on the context. Why are you asking?

I'm going to be bold enough to assume that you are asking in the context of this column, which deals with retirement plans. When I use the phrase "related employer," or say "these employers are related" when talking about qualified retirement plans, I am referring to businesses that are treated as a single employer under the law. This includes:

1. Members of a controlled group of corporations under Code §414(b);
2. Members of a group of trades or businesses under common control under Code §414(c); and
3. Members of an affiliated service group under Code §414(m), which can include an A-Org relationship, a B-Org relationship, or a management function group.

The same rules apply to other issues. Suppose A and B (still related) each sponsors a profit sharing plan and each contributes $49,000 to Oscar (who owns both companies). If A and B were not related, that would be just fine (better than fine, in fact, if you're Oscar). But since A and B are related, the law treats them as one employer. One employer cannot provide, under any and all defined contribution plans it sponsors put together, more than $49,000 of employer contributions to an employee during 2011.

Technically, there's one other way to be a related employer. The IRS has authority to write rules under Code §414(o) to make two businesses related. There are proposed regulations that have been sitting on the books for over 20 years, and the IRS has never finalized them. Until they are finalized, they have no effect.

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