What Is an Affiliated Service Group for 401(k) Plans?

A failed controlled-group test is not a clearance certificate.

Congress enacted Section 414(m) because ownership-based controlled-group rules did not catch every structure that could separate highly paid service professionals from employees who historically supported their work.^[1][2]

An affiliated service group, or ASG, can treat separate organizations as one employer for major retirement-plan rules even when ordinary controlled-group ownership thresholds are not met.^[1][3]

The most important example is also the easiest to miss:

A management affiliated service group can exist with no common ownership at all.^[1][3]

That means this analysis cannot be reduced to an ownership spreadsheet.

It requires a map of:

• who owns each organization
• which organizations are service businesses
• which entity performs services for which other entity
• what type of services are performed
• whether the relationship is regular
• how economically significant the service relationship is
• whether one organization principally manages another

Key Takeaways

- Section 414(m) is separate from the controlled-group rules in Sections 414(b) and 414(c).^[1] - It was designed to aggregate specified service relationships that can exist without enough common ownership to form a controlled group.^[2][3] - There are three principal ASG structures: 1. First Service Organization + A-Org 2. First Service Organization + B-Org 3. management affiliated service group.^[1][3] - A service organization is statutorily an organization whose principal business is performing services.^[1] - An A-Org must: - be a service organization - be a shareholder or partner in the First Service Organization - regularly perform services for the FSO or regularly work with it in providing services to third parties.^[1][3] - The A-Org statute does not impose the ordinary controlled-group 80% ownership test. - A B-Org can be another organization when: - a significant portion of its business provides specified services to the FSO or A-Orgs - those services are of a type historically performed by employees in that service field - at least 10% of the B-Org is owned by HCEs of the FSO or A-Orgs.^[1][3] - A management ASG can exist when an organization's principal business is regularly and continuously performing management functions for a recipient organization or its related organizations.^[1][3] - The management-ASG statute does not require common ownership.^[3] - Section 318 constructive-ownership principles apply to ASG ownership determinations, subject to current Section 414(m) family-attribution modifications.^[1] - ASG members are generally treated as one employer for specified qualified-plan requirements, including Sections 410, 411, 415 and 416.^[1][2] - A controlled-group relationship and an ASG relationship can overlap. One does not cancel the other.^[7] - ASG status does not automatically require all members to adopt one plan.

Why Section 414(m) Exists

Controlled groups focus heavily on ownership.

INV-090 explains:

• parent-subsidiary control
• brother-sister control
• combined groups
• constructive ownership

Those rules can fail when professionals split operations among separate service entities without enough common ownership.

Congress addressed that gap with Section 414(m).^[1][2]

The question became broader:

Are these organizations economically connected through specified service relationships strongly enough that retirement-plan law should treat their employees as one employer?

That is a different inquiry from:

Does one owner hold 80%?

Controlled Group vs. Affiliated Service Group

Do not ask which label is "better."

Run both analyses when the facts support both.

The Three ASG Structures

The statute creates two service-organization structures under Section 414(m)(2) and a separate management structure under Section 414(m)(5).^[1][3]

The tests should not be blended.

A-Org

Ownership plus regular service relationship involving service organizations.

B-Org

Specified service dependence plus at least 10% ownership by HCEs of the FSO/A-Org.

Management ASG

Principal-business management relationship, with no common-ownership requirement in the statutory structure.

Start With the First Service Organization

For A-Org and B-Org analysis, identify the First Service Organization, or FSO.

Section 414(m)(3) defines a service organization as an organization:

the principal business of which is the performance of services.^[1]

Common examples can include organizations operating in professional or service fields such as:

• medicine
• law
• accounting
• consulting
• engineering
• other professional services

The label on the entity is not enough.

The business actually performed matters.

An LLC Can Be a Service Organization

A service organization can be structured as:

• corporation
• partnership
• LLC
• another organization

Section 414(m)(6) defines "organization" broadly as a corporation, partnership or other organization.^[1]

So this statement is useless:

"It is an LLC, not a professional corporation."

Entity form does not end the ASG inquiry.

A-Org: The Ownership-and-Service Structure

An A-Org affiliated service group generally consists of an FSO and another service organization that:^[1]

1. is a shareholder or partner in the FSO, and
2. regularly performs services for the FSO or is regularly associated with the FSO in performing services for third parties.

Both the FSO and A-Org are service organizations.^[3]

The ownership requirement is real.

But it is not an ordinary:

80% controlled-group test.

No General 80% A-Org Threshold

Suppose a physician-owned professional corporation holds a relatively small partnership interest in a medical service partnership and regularly works through that partnership to provide patient services.

A sponsor can make a serious mistake by saying:

"The corporation owns only 15%, so it cannot be related."

Section 414(m)(2)(A) asks whether the service organization is a shareholder or partner and whether the required service relationship exists.^[1]

It does not copy the parent-subsidiary controlled-group threshold from Section 414(c).

This is one reason ASG review follows the controlled-group review rather than duplicating it.

A-Org Example: Professional Entities and Shared Practice

Assume:

Medical Partnership

Principal business:

providing medical services

Physician PC A

Owns an interest in Medical Partnership.

Its physicians regularly perform patient services through the partnership.

Physician PC B

Also owns an interest and regularly performs patient services through the partnership.

The statutory facts can create an A-Org affiliated-service-group structure because:

• the FSO is a service organization
• the A-Orgs are service organizations
• they are partners/shareholders in the FSO
• they regularly provide or jointly provide services.^[1][3]

The fact that each PC maintains its own payroll does not remove the service relationship.

"Regularly Associated" Reaches Joint Service Delivery

A-Org analysis is not limited to:

A invoices FSO for services.

The statute also reaches an organization that is regularly associated with the FSO in performing services for third persons.^[1]

That matters in professional structures where several entities jointly serve:

• patients
• clients
• customers

rather than billing each other internally.

The commercial form of the payment flow can obscure the underlying service arrangement.

An Investment Alone Is Not Enough

Assume a service company buys a small passive interest in another service organization.

It performs no services for the FSO.

It is not regularly associated with the FSO in delivering services to customers.

Ownership alone does not satisfy the A-Org service requirement.

The statute requires both:

• ownership relationship
• service relationship.^[1]

That prevents every passive professional investment from becoming an ASG automatically.

B-Org: A Different Test

A B-Org does not use the A-Org formula.

Section 414(m)(2)(B) reaches another organization when:^[1]

1. a significant portion of its business consists of performing services for the FSO, A-Orgs, or both
2. the services are of a type historically performed by employees in that service field
3. at least 10% of the interests in the organization are held by HCEs of the FSO or A-Orgs.

The 10% test belongs here.

Do not import it into every ASG analysis.

B-Org Need Not Be the Same Type of Professional Firm

The statute calls the B-Org:

any other organization.^[1]

That is important.

A B-Org can provide support functions rather than the core professional service.

Potential fact patterns include:

• billing
• laboratory support
• technical support
• administrative processing
• clerical services
• staffing
• other functions historically performed by employees in the service field

The actual statutory analysis depends on how substantial the relationship is and how the services fit the field.

Example: Medical Billing Company

Medical Group is the FSO.

Billing Company:

• performs billing and collections work for Medical Group
• derives a significant portion of its business from that relationship
• performs functions historically handled by employees of medical practices
• is 15% owned by HCE physicians of Medical Group

Those facts can fit the B-Org framework.^[1][3]

The billing company does not become part of the ASG merely because it sends invoices.

The combination of:

• significant service relationship
• historical employee function
• HCE ownership

is what matters.

The 10% B-Org Threshold Is Easy to Underestimate

Suppose HCEs of an FSO collectively own:

10%

of a support organization.

For the statutory B-Org ownership condition:

10% can be enough.^[1]

That is far below the familiar:

80% controlled-group threshold.

A retirement-plan review that stops after finding:

"Only 10% common ownership"

can miss the exact threshold Section 414(m) uses for a B-Org.

The HCE Owners Matter

The B-Org test does not simply ask whether:

anyone connected to the FSO owns 10%.

The statute specifies ownership by persons who are HCEs of:

• the FSO
• an A-Org.^[1]

INV-084 explains HCE status.

The B-Org analysis therefore depends on two classifications at once:

1. service/ownership relationship between organizations
2. HCE status of the individuals holding the ownership

Bad HCE data can become bad ASG data.

"Significant Portion" Is Not a Universal Revenue Percentage

Do not reduce the B-Org test to:

"More than X% of revenue means significant."

The statute uses the phrase:

significant portion of the business.^[1]

Detailed administrative analysis has historically relied on facts, proposed regulations and IRS guidance addressing service relationships and related percentages.^[2][4]

This is an area where a precise fact pattern matters more than a generic web threshold.

Ask:

• how much revenue comes from the relationship?
• how much employee time supports it?
• how recurring is the work?
• how dependent is the provider on the FSO/A-Orgs?
• what type of services are being performed?

Historically Performed by Employees

The B-Org services must also be of a type historically performed by employees in the service field.^[1]

That is designed to catch a familiar restructuring:

Before

Professional practice employs billing, clerical or support staff directly.

After

Those functions are moved into a separate organization partly owned by the professionals.

If the separate entity structure could remove support employees from retirement-plan coverage while professionals retain rich benefits, Section 414(m) can pull the organizations back together.

The rule focuses on economic function, not the new vendor label.

Ordinary Vendor vs. Potential B-Org

No single row decides the result.

The combination matters.

Buying Payroll Services Does Not Create an ASG

A medical practice uses a national payroll company.

The payroll company:

• serves thousands of unrelated clients
• is not owned by the practice's HCEs
• does not derive a significant portion of its business from this one practice

That is not the fact pattern Section 414(m)(2)(B) is designed to aggregate.

A service contract alone is not an ASG.

Management ASG: The Ownership Exception

Section 414(m)(5) creates the third ASG structure.

A management affiliated service group can exist when an organization's principal business is performing, on a regular and continuing basis, management functions for:^[1]

• one recipient organization, or
• one recipient organization and organizations related to it.

The group includes:

• the management organization
• the recipient
• related recipient organizations.^[1]

IRS explains that this type of ASG requires no common ownership.^[3]

That is the fact most likely to surprise a business owner.

Example: Independent Management Company

ManagementCo is owned by:

Investor A

OperatingCo is owned by:

Investor B

No common ownership.

ManagementCo's principal business is providing executive and operational management to OperatingCo on a regular and continuing basis.

OperatingCo pays most of ManagementCo's revenue.

The lack of shared stock ownership does not automatically prevent a management ASG.^[1][3]

The management relationship itself can be the aggregation trigger.

Recipient Does Not Have to Be a Service Organization

IRS guidance states that the recipient organization in a management-ASG structure need not itself be a service organization.^[2]

That makes the management rule broader than the A-Org structure.

A management company can potentially manage:

• operating company
• manufacturing business
• service business
• other recipient organization

and still require Section 414(m)(5) analysis.

Do not limit management-ASG screening to professional firms.

Principal Business Matters

A company that occasionally advises another business is not automatically a management organization.

Section 414(m)(5) requires that the organization's principal business be performing management functions for the recipient relationship on a regular and continuing basis.^[1]

IRS administrative guidance describes this as a facts-and-circumstances question and looks at factors such as:

• percentage of gross receipts from management functions
• time spent performing them
• nature of the activities
• duration and continuity of the relationship.^[2]

Example: Diversified Consulting Firm

ConsultingCo has:

• 200 unrelated clients
• no client representing more than 2% of revenue
• occasional strategic consulting projects
• no ongoing control of day-to-day management

One client happens to sponsor a 401(k).

Those facts are materially weaker for a management ASG than a company whose principal business is continuously managing one recipient group.

The word:

consulting

does not equal:

management affiliated service group.

Regular and Continuing Is More Than a One-Off Project

Suppose a firm is hired for a six-week restructuring engagement.

It recommends:

• new reporting lines
• cost reductions
• executive roles

Then the engagement ends.

That can involve management advice.

It does not necessarily mean the firm's principal business is performing management functions for that recipient on a regular and continuing basis.

Duration matters.

So does how much of the firm's business the relationship represents.^[2]

Management Functions Are Functional, Not Branding Terms

A contract can call services:

administrative support

while the provider actually:

• hires senior managers
• directs budgets
• controls operating policies
• manages staffing
• supervises business functions

The label does not settle Section 414(m)(5).

Likewise, a contract titled:

Management Services Agreement

does not automatically create an ASG when the actual relationship is limited.

Read what the provider does.

Ownership Attribution Still Matters

For Section 414(m) ownership determinations, the statute generally applies Section 318(a) constructive-ownership principles.^[1]

That can attribute ownership through:

• family
• partnerships
• estates
• trusts
• corporations
• options

subject to the statutory modifications.

Direct ownership is not always the testing percentage.

SECURE 2.0 Changed Family Attribution Here Too

Current Section 414(m)(6) incorporates family-attribution reforms similar to those relevant to controlled groups.^[1]

The statute now expressly addresses:

• disregarding community-property laws for the specified ownership analysis
• limiting specified spouse attribution that would otherwise flow through a minor child
• limiting situations where stock attributed to a minor child from separate parents creates an ASG by itself.^[1]

An ownership memo prepared before these changes should not be reused without review.

Community Property Is Not an Automatic ASG Bridge

Spouses can own separate service businesses in a community-property state.

Community-property law alone does not automatically answer the Section 414(m) ownership question under the current statutory rule.^[1]

Other attribution or direct ownership can still matter.

The reform removes an automatic shortcut.

It does not create a universal spouse exception.

What ASG Status Changes for Retirement Plans

Section 414(m)(1) treats all employees of ASG members as employed by a single employer for specified employee-benefit requirements.^[1]

The listed requirements include major provisions involving:^[1]

• qualification/nondiscrimination
• SEP and SIMPLE rules
• Section 410 coverage
• Section 411 vesting
• Section 415 contribution and benefit limits
• Section 416 top-heavy rules

IRS training summarizes the practical effect directly:

all employees in the ASG must be considered as though employed by one employer.^[2]

Coverage Is Usually Where the Problem Appears First

INV-089 covers Section 410(b).

Assume:

Professional Practice

8 physicians 5 support employees rich 401(k)

Separate Support Company

35 administrative employees no plan

If the organizations form an ASG, the practice cannot automatically test its plan using only:

13 employees on its payroll

The support-company employees can enter the statutory employer population.

A plan that looked broadly available inside the practice can fail coverage once the ASG is recognized.

ADP and ACP Can Change

INV-087 covers ADP.

INV-088 covers ACP.

ASG status can change:

• employee population
• HCE/NHCE classifications
• plan aggregation
• coverage architecture

A test that passed separately can fail after the employers are treated as one statutory group.

The service-group analysis belongs before the nondiscrimination report.

Section 415 Can Combine Plans

Section 415 limits do not disappear because related employers maintain separate plan documents.

Current regulations provide that defined contribution or defined benefit plans maintained by a member of an affiliated service group can be treated as maintained by all members for Section 415 aggregation.^[7]

That can matter when the same person receives contributions under multiple plans across ASG members.

A second company does not automatically create a second full federal annual-additions limit.

Vesting Service Can Cross the Group

Because Section 411 is among the employee-benefit requirements listed in Section 414(m), service across ASG members can matter for vesting.^[1]

An employee who transfers between affiliated organizations should not automatically be treated as if prior service vanished.

The plan terms and applicable service rules still control the exact result.

The payroll change is not the legal analysis.

Top-Heavy Testing Can Change

Section 416 is also on the statutory list.^[1]

INV-086 explains top-heavy testing.

ASG status can affect:

• who is a key employee
• which plans require aggregation
• which balances enter the relevant testing group

A standalone top-heavy result can be incomplete when the employer group was identified incorrectly.

ASG Status Does Not Automatically Put Everyone in One Plan

Single-employer treatment for qualification rules is not the same as a command that every employee be enrolled in every plan tomorrow.

Organizations can maintain separate plans.

The plans still must collectively satisfy the rules that apply after ASG aggregation.

This is the same distinction explained for controlled groups in INV-090.

The real question is:

After treating the organizations as related, do the plans satisfy federal qualification rules?

One Organization Can Belong to More Than One Aggregated Group

IRS Technical Advice Memorandum 201715001 illustrates an important principle: controlled-group rules and affiliated-service-group rules can apply at the same time, and satisfying one relationship does not eliminate obligations arising from the other.^[7]

An entity can sit at the intersection of:

• controlled group A
• affiliated service group B

The applicable rules must be analyzed separately.

That can expand the relevant employee and plan universe beyond one neat ownership chart.

Example: Management Company Bridges Groups

ManagementCo is in a controlled group with Entity A.

ManagementCo also provides qualifying management services to unrelated Entity B.

If Section 414(m)(5) applies to the management relationship, ManagementCo's involvement can create an additional aggregation issue.

Do not collapse the analysis into:

"ManagementCo already belongs to Group A."

One relationship does not necessarily neutralize another.

ASG vs. Leased Employee

Section 414(n) contains a separate leased-employee rule.

A leased employee can be treated as an employee of the service recipient when the statutory conditions are met.^[1]

That is not the same as saying the entire leasing organization becomes an ASG member.

The questions differ:

Section 414(m)

Should organizations be aggregated as one employer?

Section 414(n)

Should a particular leased worker be treated as an employee of the recipient?

A workforce arrangement can require both analyses.

Professional Employer Organizations Need Separate Analysis

A PEO arrangement can involve:

• payroll
• HR administration
• benefits
• co-employment language
• leased-employee issues

IRS training treats PEOs separately from the basic ASG rules.^[2]

Do not assume:

PEO = affiliated service group

or:

PEO prevents affiliated service group

The contract and actual employment/service structure need their own review.

Independent Contractor Labels Do Not Settle the Population

ASG rules answer employer aggregation.

Worker classification answers whether an individual is an employee.

Those are separate layers.

A business cannot remove workers from retirement-plan testing merely by issuing:

Form 1099

if the workers are employees under the applicable federal standard.

Likewise, correctly classified independent contractors do not automatically become employees just because two businesses form an ASG.

First identify the employer group.

Then identify its employees.

The ASG Review Should Start With Service Flows

A controlled-group review begins with ownership.

An ASG review should add a second map:

Who performs what services for whom?

For each entity, record:

• principal business
• percentage of revenue by client/entity
• services performed
• whether work is recurring
• whether entities jointly serve third parties
• ownership in recipient/service entities
• ownership by HCEs
• management functions
• management revenue concentration

Without that map, the analysis is mostly guesswork.

A Practical A-Org Checklist

Ask:

1. Is there a First Service Organization?
2. Is the potential A-Org also a service organization?
3. Does the A-Org own an interest as shareholder or partner in the FSO?
4. Does it regularly perform services for the FSO?
5. If not, is it regularly associated with the FSO in serving third parties?

A yes/no answer to:

"Do they have common ownership?"

is not enough.

A Practical B-Org Checklist

Ask:

1. What percentage of the potential B-Org's business serves the FSO/A-Orgs?
2. What services does it perform?
3. Are those services historically performed by employees in that service field?
4. Who owns the B-Org?
5. Which owners are HCEs of the FSO/A-Orgs?
6. Do those HCEs own at least 10% in aggregate under the applicable ownership rules?

The 10% question belongs at the end, after the service facts are known.

A Practical Management-ASG Checklist

Ask:

1. Does one organization perform management functions for another?
2. Is that activity the management organization's principal business?
3. Is it performed on a regular and continuing basis?
4. Is there one principal recipient or recipient group?
5. What percentage of revenue comes from the management relationship?
6. How much personnel time is devoted to management?
7. Which related recipient organizations are included?

Do not ask about common ownership first.

The management rule does not require it.^[3]

Red-Flag Structures

Medical practices split among physician PCs

Especially when the PCs own interests in a central partnership and jointly provide patient services.

Law or accounting firms using professional entities

Separate professional corporations do not eliminate Section 414(m).

Billing or support company owned by professionals

The B-Org 10% HCE ownership test can become relevant quickly.

Management company created to employ non-owner staff

If its principal business is managing a recipient group, Section 414(m)(5) deserves immediate review.

One management provider with one dominant client

Economic dependence can make the principal-business question more serious.

Businesses that "failed controlled group" and stopped there

Section 414(m) exists precisely because some related service structures fall outside Sections 414(b) and (c).

When to Recheck ASG Status

Retest when:

• ownership changes
• a new entity is formed
• a service line is outsourced
• professionals move into separate PCs
• a management company is created
• a billing/staffing company is sold to insiders
• one client becomes a dominant share of provider revenue
• an acquisition or disposition occurs
• a spouse or family ownership structure changes
• the retirement-plan design changes

The relationship can change without a single employee moving desks.

The TPA Needs More Than a Census

A standard employee census often contains:

• name
• compensation
• date of hire
• ownership percentage

That may be insufficient for ASG analysis.

The sponsor may also need to provide:

• entity organizational chart
• service agreements
• client/revenue concentration
• management agreements
• ownership by HCEs
• partnership interests
• professional-corporation relationships
• related recipient entities

INV-083 explains the broader principle:

A TPA cannot analyze a business relationship it was never told exists.

A PASS Report Can Still Be Incomplete

Suppose the TPA reports:

410(b): PASS ADP: PASS ACP: PASS

The sponsor never disclosed a support organization that may be a B-Org.

The arithmetic can be flawless.

The legal population can still be wrong.

Before accepting the report, ask:

Which organizations were included in the employer-group analysis?

That is a better control than asking only which testing software was used.

IRS Determination Procedures Treat ASG Status as a Real Qualification Issue

Current IRS Form 5310 instructions tell a sponsor uncertain whether it is a member of an affiliated service group not to use Form 5310 for the requested determination; the sponsor is directed to Form 5300 instead.^[6]

That procedural detail is useful because it shows the issue is not merely advisory terminology.

ASG status can be part of a formal plan-qualification determination.

Detailed ASG Rules Require Care With Old Guidance

The statute is current.

The IRS also continues to use longstanding proposed-regulation concepts and administrative guidance for detailed ASG analysis.^[3][4]

That matters because older articles sometimes present every proposed-regulation threshold as if it were a simple final statutory rule.

The safer hierarchy is:

1. current Section 414(m)
2. current final law affecting attribution
3. applicable regulations
4. IRS administrative guidance
5. longstanding proposed-regulation framework where still relevant

For borderline fact patterns, retirement-plan counsel or an experienced TPA/ERISA specialist should document the reasoning rather than rely on a one-page checklist.

Frequently Asked Questions

What is an affiliated service group?

It is a group of organizations that Section 414(m) treats as one employer for specified employee-benefit rules because they satisfy statutory service, ownership or management relationships.^[1]

Is an ASG the same as a controlled group?

No. Controlled groups are principally ownership/control structures under Sections 414(b) and (c). ASGs arise under Section 414(m) and focus on specified service relationships plus ownership or management facts.^[1][3]

Can businesses be an ASG if they are not a controlled group?

Yes. Section 414(m) was enacted in part to aggregate organizations that could fall outside ordinary controlled-group ownership rules.^[2][3]

Does an ASG require 80% common ownership?

No. There is no universal 80% ASG rule. A-Org and B-Org tests use different ownership requirements, and a management ASG can exist without common ownership.^[1][3]

What is a First Service Organization?

A service organization whose principal business is performing services and that serves as the first organization in the Section 414(m)(2) analysis.^[1]

What is an A-Org?

A service organization that is a shareholder or partner in the FSO and regularly performs services for the FSO or regularly works with it in performing services for third parties.^[1]

Is there a minimum 80% A-Org ownership requirement?

Section 414(m)(2)(A) does not impose the ordinary controlled-group 80% threshold. It requires shareholder/partner status plus the statutory service relationship.^[1]

What is a B-Org?

Another organization can be a B-Org when a significant portion of its business provides qualifying historically employee-performed services for the FSO/A-Orgs and at least 10% is owned by HCEs of those service organizations.^[1][3]

Does a B-Org have to be a professional service firm?

The statute calls it "any other organization." The focus is the nature and significance of the services and the HCE ownership test.^[1]

What is a management affiliated service group?

A group in which an organization's principal business is regularly and continuously performing management functions for a recipient organization or related recipient organizations.^[1]

Does a management ASG require common ownership?

No. IRS expressly explains that the Section 414(m)(5) management group can require no common ownership.^[3]

Can a payroll vendor become part of an ASG?

A routine vendor relationship does not automatically create an ASG. The statutory A-Org, B-Org or management-ASG conditions must actually be satisfied.

Do employees of every ASG member automatically enter every 401(k)?

Not automatically. ASG members are treated as one employer for applicable qualification rules, but plan eligibility still depends on plan terms and federal requirements. Separate plans can exist.

Does ASG status affect 401(k) coverage testing?

Yes. Section 410 is expressly listed among the employee-benefit requirements subject to Section 414(m).^[1]

Can ASG status affect vesting?

Yes. Section 411 is on the statutory list, so service across ASG members can matter under the applicable vesting rules.^[1]

Can ASG status affect contribution limits?

Yes. Section 415 is included, and applicable plans maintained across ASG members can require aggregation.^[1][7]

Can ASG status affect top-heavy testing?

Yes. Section 416 is included in the Section 414(m) employee-benefit requirements.^[1]

Can an entity be in a controlled group and an ASG at the same time?

Yes. IRS technical guidance confirms that the applicable aggregation regimes can overlap and each must be respected.^[7]

Do Section 318 attribution rules apply?

Yes. Section 414(m)(6) generally incorporates Section 318(a) ownership principles, subject to current statutory modifications including family-attribution provisions.^[1]

When should an employer review ASG status?

When forming or acquiring entities, outsourcing services, creating management companies, changing professional-entity structures, changing ownership, or whenever annual testing depends on which related businesses belong in the employer population.

The Service Map to Build Before Testing

For every related or economically connected organization, document:

1. principal business
2. owners
3. HCE owners
4. ownership in other organizations
5. services provided to each entity
6. percentage of revenue tied to each relationship
7. whether entities jointly serve third parties
8. whether services were historically employee functions
9. management functions performed
10. duration and regularity of each management relationship
11. retirement plans maintained by each organization

Then run:

controlled group → A-Org → B-Org → management ASG → leased employee

in that order.

Stopping after controlled-group ownership fails is the exact mistake Section 414(m) was designed to expose.

Sources & References

1. 26 U.S.C. §414 — Employees of an Affiliated Service Group
2. IRS: Chapter 7 — Controlled and Affiliated Service Groups
3. IRS: FAQs — Aggregation Rules That Apply to Affiliated Service Groups
4. IRS: Related Employers Phone Forum Transcript
5. IRS: Policies, Procedures and Internal Controls Self-Audit
6. IRS: Instructions for Form 5310
7. IRS: Technical Advice Memorandum 201715001

Educational Disclaimer

ROIStreet publishes educational content about retirement-plan employer aggregation and compliance. This article is not legal, tax, fiduciary or plan-administration advice. Affiliated-service-group status depends on ownership, attribution, service relationships, business concentration, management functions, plan terms and current law.

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