I have a client who has been operating with one plan for three companies as brother-sister, common ownership. Two of the common owners are divesting their stake, removing a link between the common ownership. However, the companies may be related under affiliated service groups. For example, both companies share leadership and operational functions and one leases staff to the other.
What is the threshold of relationship for affiliated service groups?
Could they be considered common control for one medical (dental, vision, disability) group plan but separate for benefits like 401(k)?
There are three types of Affiliated Service Groups:
- A-Organization: You need a First Service Organization (FSO) and one or more A-Organizations. An FSO is a company that is principally engaged in the performance of services (as opposed to manufacturing, for example). An A-Organization is also a service organization that has an ownership interest in the FSO and either regularly performs services for the FSO or is regularly associated with the FSO in performing services for third persons.
- B-Organization: You need an FSO and one or more B-Organizations. A B-Organization is an organization that devotes a significant portion of its business to the performance of services for an FSO of a type historically performed in the FSO’s field. Further, 10% or more of the ownership interests in the B-Organization must be held by individuals who are highly compensated employees of the FSO or an affiliated A-Organization.
- Management Group: This involves a company performing management functions and the company for which such functions are performed.
It looks like there could be an affiliated service group relationship, but many more facts and analysis are needed. Note that while affiliated service group status allows separate companies to participate in the same retirement plan, it does not allow those same companies to participate in the same welfare plans unless the insurance company agrees as the medical plan will likely be considered a multiple employer welfare arrangement.
The common ownership rules for 401(k) plans are the same for medical, dental, vision and other welfare plans.