The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Massachusetts is representative of a common inquiry related to making a controlled group determination. The advisor asked:
"I believe one of my plan sponsor clients may be part of a controlled group of employers. Who can make a definitive controlled group determination?”
Highlights of Discussion
The final determination of whether a business is part of a controlled group (or affiliated service group) of businesses can only be made by the business owner working with his or her tax and legal advisors.
An accurate determination is essential because all members of a controlled or affiliated service group are treated as a single business for many retirement plan qualification requirements, including:
• Nondiscrimination under IRC §401(a)(4)
• Compensation limit under IRC §401(a)(17)
• Minimum participation test under IRC §401(a)(26)
• Eligibility under IRC §401(a)(3) and §410(a)
• Coverage under IRC §410(b)
• Vesting under IRC §401(a)(7) and IRC §411
• Annual additions under IRC §415
• Top heavy rules IRC §416
The controlled and affiliated service group rules also apply to simplified employee pension (SEPs) under IRC §408(k) and savings incentive match plan for employees (SIMPLE) plans under IRC §408(p).
In order to make a controlled or affiliated service group determination, the business owner and his or her advisors must consider numerous factors such as ownership interest, familial connections, attribution rules, service contracts and use or provision of support staff. The IRS has a devoted a chapter ("Controlled and Affiliated Service Groups") to the topic in the compliance manual available on its website.
Conclusion
The final determination of whether a business is part of a controlled group (or affiliated service group) of businesses can only be made by the business owner working with his or her tax and legal advisors. Financial advisors can underscore the importance of an accurate determination by encouraging their plan sponsor clients to seek competent tax and legal advice.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.
