Retirement Plans and Family Reunions: Why Controlled Groups and Affiliated Service Groups Matter

Imagine you’re at a family reunion. You’ve got your cousins, second cousins, and that uncle who tells the same story every year. Even your neighbor somehow made it onto the invite list. Everyone’s there to have a good time, but there’s always someone keeping track—making sure everyone has a plate, no one’s left out of the games, and ensuring Aunt Margie’s famous potato salad is shared equally. In the world of retirement plans, controlled groups (CG) and affiliated service groups (ASG) play a similar role.

The Family You Didn’t Know You Had

In retirement plan terms, a controlled group or affiliated service group is like that extended family. You might think your business stands alone, but if you’re linked through ownership and/or services with other organizations, you might just have a larger “family” than you thought.

Controlled groups and affiliated service groups ensure that when it comes to retirement plans, all companies in the group are considered together. This prevents businesses from splitting into smaller parts to skirt retirement plan rules and regulations, like nondiscrimination testing. Just like at a family gathering, everyone’s actions can affect the whole group, and the IRS wants to make sure no one slips through the cracks.

Why It Matters

Ignoring the rules of controlled and affiliated service groups is like forgetting to invite Uncle Bob to the reunion—trouble. The IRS and DOL require corrections and potentially impose penalties on businesses that fail to comply with their rules and regulations. Thus, the time and effort plus the cost can ruin the reunion vibe. Failure to identify a controlled group or affiliated service group can result in failures that threaten the plan’s tax qualification status. This occurs when a plan omits coverage of a CG/ASG member. A plan may also get in trouble when it is improperly assumed that the employer is part of a CG/ASG and it actually is not.

How to Identify Your Business “Family”

Picture this—your business is like the host of a family reunion. You want to make sure you’re inviting all the right people. Here’s a high-level overview of items to research further when determining if your business is part of a controlled or affiliated service group:

Professional Services: For companies offering professional services (law, healthcare, etc.), affiliations often occur within peer groups. If your business partners with another to offer a comprehensive service, you may be considered an affiliated service group.

Common Ownership: Two or more businesses that have some of the same owners. For example, Jennifer has ownership in both a car dealership and a restaurant. Jennifer needs to disclose how much ownership she has in each to determine whether the two companies need to be combined for plan purposes.

Service Connections: Affiliated service groups are like your close-knit cousins who always hang out together. If your company works closely with another to provide services, even if not directly owned, you could be linked.

Keeping It Together

Just like the best family reunions, retirement plans thrive on preparation and participation. To keep everything running smoothly:

Stay Informed: IRS regulations evolve, so stay updated on rules affecting controlled and affiliated service groups. Knowledge is key to compliance.

Consult an Expert: Although EGPS loves to help guide plan sponsors in navigating these rules, plan sponsors may need an ERISA attorney to provide a legal review and determination based on the facts and circumstances. They’ll help you map out your business “family tree.”

Regular Reviews: Like that annual family catch-up call, keep tabs on business changes. Ownership shifts or new partnerships may alter your group status.

Conclusion

Controlled and affiliated service groups are complex. Yet, understanding them is crucial for smooth sailing in the world of retirement plans. They ensure all businesses and employees are treated fairly, much like how everyone at the family reunion gets a fair share of food and fun.

Think of it this way—by recognizing your business “family” and following the rules, you’re not only complying with regulations but also fostering a stronger community within your organization. Plus, you’ll avoid those awkward, penalty-filled conversations with the IRS and DOL. Now that’s something to toast to at the next family reunion!