Who's the Employer

A Guide to Employee and Aggregation Issues Affecting Qualified Plans

Third Edition
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Rev Prov 2002-21

Comparison of IRC 414(m) in 2002 with 414(m) as adopted

Material added to 414(m) since it was adopted is in red italics.  Material deleted is in blue strikeout type.

(m) Employees of an affiliated service group

(1) In general

For purposes of the employee benefit requirements listed in paragraph (4), except to the extent otherwise provided in regulations, all employees of the members of an affiliated service group shall be treated as employed by a single employer.

(2) Affiliated service group

For purposes of this subsection, the term "affiliated service group" means a group consisting of a service organization (hereinafter in this paragraph referred to as the "first organization") and one or more of the following:

(A) any service organization which--

(i) is a shareholder or partner in the first organization, and

(ii) regularly performs services for the first organization or is regularly associated with the first organization in performing services for third persons, and

(B) any other organization if--

(i) a significant portion of the business of such organization is the performance of services (for the first organization, for organizations described in subparagraph (A), or for both) of a type historically performed in such service field by employees, and

(ii) 10 percent or more of the interests in such organization is held by persons who are officers, highly compensated employees, or owners officers,  highly compensated employees (within the meaning of section 414(q)) of the first organization or an organization described in subparagraph (A).

(3) Service organizations

For purposes of this subsection, the term "service organization" means an organization the principal business of which is the performance of services.

(4) Employee benefit requirements

For purposes of this subsection, the employee benefit requirements listed in this paragraph are--

(A) paragraphs (3), (4), (7), and (16) (16), (17), and (26) of section 401(a), and

(B) sections 408(k), 408(p), 410, 411, 415, and 416.

(C) section 105(h), and

(D) section 125

(5) Certain organizations performing management functions

For purposes of this subsection, the term "affiliated service group" also includes a group consisting of--

(A) an organization the principal business of which is performing, on a regular and continuing basis, management functions for 1 organization (or for 1 organization and other organizations related to such 1 organization), and

(B) the organization (and related organizations) for which such functions are so performed by the organization described in subparagraph (A).

For purposes of this paragraph, the term "related organizations" has the same meaning as the term "related persons" when used in section 144(a)(3).

(5)(6) Other definitions

For purposes of this subsection--

(A) Organization defined

The term "organization" means a corporation, partnership, or other organization.

(B) Ownership

In determining ownership, the principles of section 267(e)318(a) shall apply.

(6) Prevention of avoidance.

The Secretary shall prescribe such regulations as may be necessary to prevent the avoidance with respect to service organizations, through the use of separate organizations, or any employee benefit requirement listed in paragraph (4).

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Copyright 2005, S. Derrin Watson.  All rights reserved.