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February 17, 2009

Affiliated Service Group (ASG)

Your Guide

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Definition

An affiliated service group is one type of group of related employers and refers to two or more organizations that have a service relationship and, in some cases, an ownership relationship, described in IRC section 414(m). An affiliated service group can fall into one of three categories:

    1. A-Organization groups (referred to as “A-Org”), consists of an organization designated as a First Service Organization (FSO) and at least one “A organization”,
    2. B-Organization groups (referred to as “B-Org”), consists of a FSO and at least one “B organization”, or
    3. Management groups.

If businesses that are part of a controlled group do not meet the percentage requirements that would result in common control, they may still need to be treated as one employer for retirement plan purposes, because of the affiliation  resulting in an ASG between the businesses.

To obtain some assurance whether they are part of an affiliated service group, employers/plan sponsors may obtain a determination from the IRS by filing IRS Form 5300- Application for Determination for Employee Benefit Plan.

The general rule of section 414(m) is that employees of employers that are members of an affiliated service group are considered to be employed by a single employer for purposes of certain provisions of section 401(a), and sections 408(k), 408(p), 410, 411, 415 and 416.

Referring Cite

IRC §414(m); Prop Treas Reg §1.414(m)-2(c)(1); Rev Rul 81-105, Form 5330, Instructions for Form 5330

Additional Helpful Information

  • An attorney experienced in the area of ERISA should be consulted  to determine whether an affiliated service group  exists
  • If there is common ownership for both businesses, it could be determined that the businesses are part of a controlled group. However, determining whether an affiliated service group exists is a very complex process.
  • Section 414(m) was enacted to prevent circumvention of the controlled group rules by expanding the idea of control to separate, but affiliated, entities. Proposed Treas. Reg. § 1.414(m) provides that all employees of the members of an affiliated service group shall be treated as if a single employer employed them.
  • IRS Worksheet Number 10 (Form 8388) and IRS Explanation Number 10 are designed to aid the specialist in identifying and resolving issues pertaining to affiliated service groups

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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