A parent company owns 51% of a smaller company. They qualify as an affiliated services group (ASG) under 414(m). May the subsidiary’s employees participate in the parent’s 401(k)? If so, would the 401(k) plan be a multiple employer plan?

I've read on these message boards that a 401(k) sponsored by a parent company for its controlled group or ASG would not constitute a multiple employer plan. However, I have not found any justification for that.

Though the parent is considered the employer of all the employees of the ASG for testing purposes, 414(m) does not seem to pertain to 401(a), which states that qualified plans are for the exclusive benefit of the employer’s employees. (In the health benefits world, their health plan would be a MEWA because they would not be a single employer.)

Thank you for your help in advance.

If they are an ASG, then this isn't a "multiple employer plan" under IRC 413©. See 1.413-2.

S 1.414-2(a)(2)(ii) does state that multiple employers are not common controlled groups described in 414(b) or businesses under common control described in 414©. However, it does not mention ASGs or Section 414(m).

Is there something I'm missing that says an ASG is deemed to be a controlled group, even if the parent owns less than 80% of the subsidiary?

You;'ve got a bad site there - I couldn't figure out which reg it was.

But an ASG doesn't need to worry about anything that a multiple employer plan needs to worrry about, that's for sure! It is treated as one employer for everything.

Take a look at S 1.414(m)-3©

The problem is that the reg I cited was written before the affiliated service group regulations. I've always taken the interpretation that ASG's should be treated no differently for these purposes than a CG.

I finally found Proposed Treas. Reg. 1.414(m)-3©. I'm pasting it below to clarify that ASGs differ from CGs because ASGs actually are treated as multiple employer plans for some purposes. I trust this proposed rule from 48 Fed. Reg. 8293 (Feb. 28, 1983) has not been revoked and is the most current. Apparently, the sections in 413 to which this regulation refers have since been revised, and I am not sure how those changes affect the impact of the regulation.

© Multiple employer plans--
(1) General rule.
If a plan maintained by a member of an affiliated service group covers an individual who is not an employee of that member, but who is an employee of another member of that affiliated service group,
the plan will be considered to be maintained by the member that does employ that individual.

Thus, the plan will be considered to be maintained by more than one employer for purposes of section 413© (2) (relating to the exclusive benefit rule), (4) (relating to funding), (5) (relating to liability for funding tax), and (6) (relating to deductions).
Therefore, a member of an affiliated service group may deduct contributions on behalf of individuals who are not employees of that member, if the individuals are employed by another member of that affiliated service group.

(2) Special rule. The multiple employer plan rule contained in paragraph ©(1) shall not apply in the case of a controlled group of corporations (as described in section 414(b)) or a group of trades or businesses under common control (as described in section 414©).