Rev. Proc. 81-12

Section 1. Purpose

This revenue procedure prescribes the procedures (1) for obtaining a ruling on whether particular entities are members of an affiliated service group within the meaning of section 414(m) of the Internal Revenue Code, and (2) for obtaining determination letters on the qualification, under sections 401(a) or 403(a), of an employees' pension, profit-sharing, stock bonus, annuity, or bond purchase plan established by a member of an affiliated service group.

Sec. 2. Background

.01 Statutory Requirements. Section 414(m) of the Code was added by Pub. L. 96-605, 1980-2 C.B. 702 (February 9, 1981). In general, section 414(m) provides that for purposes of certain employee benefit requirements under sections 105(h), 125, 401(a), 408(k), 410, 411, and 415 of the Code, employees of an affiliated service group as defined in section 414(m), shall be treated as employed by a single employer. Thus, for example, if an employer that is a member of an affiliated service group establishes or maintains an employees' qualified pension, annuity, profit-sharing, stock bonus, or bond purchase plan, employees of other members of the affiliated service group must be considered employees of that member in determining whether its plan meets applicable requirements of section 401(a).

.02 Impact of Statutory Requirements. Section 414(m) of the Code does not impact on any qualified plan unless the employer maintaining the plan is part of an affiliated service group. In the case of an employer that is part of an affiliated service group, section 414(m) affects several important areas of plan qualification. For example, being part of an affiliated service group expands the group of employees who must be considered in applying the coverage requirements of section 410(b). Also, certain form requirements are changed. This includes plan language for crediting years of service with respect to members of the affiliated service group for purposes of the minimum participation standards in section 410(a) and the minimum vesting standards in section 411. For a discussion of these requirements, see Rev. Rul. 81-105, page 256, this Bulletin.

.03 Applicable Procedures.

(1) Rev. Proc. 80-24, 1980-1 C.B. 658, sets forth the general procedures of the Internal Revenue Service for issuing National Office rulings and opinion letters, and for issuance of determination letters by an Employee Plans Key District Director.

(2) Rev. Proc. 80-30, 1980-1 C.B. 685, sets forth the general procedures pertaining to issuance of determination letters by Employee Plans Key District Directors on the qualification of pension, annuity, profit-sharing, stock bonus, and bond purchase plans involving sections 401, 403(a), 405(a), 409A, and 4975(e) of the Code.

.04 Effective Dates of Section 414(m). Section 414(m) is effective immediately for plans established after November 30, 1980. However, for plans in existence on November 30, 1980, section 414(m) is effective for plan years beginning after November 30, 1980.

Sec. 3. Responsibilities of Employers and Plan Administrators

.01 In General. An employer is responsible for determining at any particular time whether it is a member of an affiliated service group, and if so, whether its plan(s) continues to meet the requirements of section 401(a) of the Code after the effective date of section 414(m). An employer or plan administrator also is responsible for taking appropriate action relative to their qualified plan if the employer is, becomes, or ceases to be a member of an affiliated service group.

.02 Employers Not Affected by Section 414(m). Any employer that is not a member of an affiliated service group is not required to change its qualified plan or plans to satisfy section 414(m) of the Code.

.03 Rulings Program. Employers may wish to receive rulings from the Service with respect to several issues that may arise under section 414(m) of the Code. One issue is whether the employer is part of an affiliated service group. Section 4 of this revenue procedure describes how the National Office will issue rulings on whether or not an employer is part of an affiliated service group. This issue impacts on other areas of the Code as well as qualified retirement plans. (See section 2.01 of this procedure.) Furthermore, the issue of whether an employer is part of an affiliated service group depends on the relationship of this employer to other employers and is independent of whether or not that employer or any other employer maintains a plan. Such rulings will not consider the qualified status of any plan.

.04 Determination Letter Program. An employer that is informed it is a member of an affiliated service group under section 414(m) of the Code may want a determination as to the effect of such membership on the employer's plan. For example, questions may arise whether certain form requirements are satisfied or coverage is adequate. Section 5 of this revenue procedure provides that Service district offices will issue determination letters which consider (1) whether an employer is a member of an affiliated service group; and (2) the impact of section 414(m) on the plan. This determination letter procedure will be available (a) in the case of an initial request for a determination letter, (b) for a determination letter request on a plan amendment, and (c) in certain circumstances, even though the plan has not been amended.

Sec. 4. Rulings

.01 Ruling Requests Considered. An employer may request a ruling from the National Office of the Internal Revenue Service on whether that employer is a member of an affiliated service group within the meaning of section 414(m) of the Code. All such ruling requests shall include a statement from the employer which sets forth all the information specified in section 6 of this revenue procedure, and any further information the employer believes relevant to the issue of whether or not it is part of an affiliated service group under section 414(m). Employers are not required to have a plan, or to amend any existing plan or plans to obtain such a ruling.

.02 Compliance with Other Service Procedures. Employers seeking a ruling under this section shall comply with provisions of Rev. Proc. 80-24, pertaining to the issuance of rulings by the National Office.

.03 Scope of Rulings. Rulings issued by the National Office under this section shall be limited to the question of whether the employer is a member of an affiliated service group, and if so, which other entities also are part of that group. Such rulings do not consider the qualified status of any plan under section 401(a) of the Code.

Sec. 5. Determination Letters

.01 Procedures for Obtaining Determination Letters. An employer that has adopted a new employee plan, or an employer that has amended an employee plan to satisfy section 414(m) of the Code, may request a determination, under Rev. Proc. 80-30 and this revenue procedure, on whether the plan is qualified, taking into consideration employees of any other organization that must be treated as employees of that employer under section 414(m). Generally, a determination letter issued with respect to the plan will cover section 414(m) only if the employer submits, with the determination letter application, the information specified under section 6.

.02 Special Coverage Determinations. Generally, in the case of a plan amendment, the Service will only consider the impact of the plan amendment upon the qualified status of the plan. However, when the information submitted indicates that the employer's affiliated service group status under section 414(m) of the Code has changed, the Service also will consider the acceptability of coverage under section 410(b)(1), and whether the limitations on contributions and benefits under section 415 are satisfied. Also, if the employer believes that the current plan, without amendment, will satisfy the requirements of section 410(a), but the employer's affiliated service group status has changed, the plan may be submitted for a determination letter which will consider the change in status and its effect on the plan.

.03 Omission of Material Facts. Failure to properly indicate that there is or may be an affiliated service group and to provide the information specified in section 6.01 and 6.02 of this procedure (or a National Office ruling and other documents in lieu of such information as specified in section 6.01), is an omission of a material fact that will result in the applicant beng unable to rely on any favorable determination concerning the effect of section 414(m) of the Code on the qualified status of the plan.

.04 Statement in Determination Letters. If the Service considers whether the plan of an employer or group of employers satisfies the requirements of section 414(m) of the Code, the determination letter issued to the employer(s) will state that questions arising under section 414(m) have been considered, and that the plan satisfies qualification requirements relating to that section. Absent such a statement pertaining to section 414(m), a determination letter does not apply to any qualification issue arising by reason of section 414(m).

Sec. 6. Required Information

.01 Information to Be Submitted for Rulings. The issue of whether an employer is a member of an affiliated service group shall be considered during the processing of a ruling request only if that employer provides the following information:

(1) A description of the business of the employer, specifically discussing whether it is a service organization including the reasons therefor;

(2) The identification of other members (or possible members) of the affiliated service group;

(3) A description of the nature of the business of each member (or possible member) of the affiliated service group, specifically discussing whether such member is a "service" organization;

(4) The ownership interests between the employer and the members (or possible members) of the affiliated service group (include ownership interests as described in section 414(m)(2)(B)(ii) or 414(m)(5)(B) of the Code);

(5) A description of services performed for the employer by the members (or possible members) of the affiliated service group, or vice versa (including an opinion whether the services are a significant portion of the member's business, and are of a type historically performed in the employer's service field by employees);

(6) A description of how the employer and the members (or possible members) of the affiliated service group associate in performing services for other parties.

.02 Information to Be Submitted with Applications for Determination Letters. Determination letters issued with respect to a plan's qualification under section 401(a) or 403(a) of the Code will be a determination as to the effect of section 414(m) upon that plan's qualified status, only if the application includes:

(1) The information specified in section 6.01 of this procedure, except where a ruling is issued to the employer under section 4 of this procedure and the facts on which that ruling was based have not changed;

(2) A brief description of any other plans maintained by the members (or possible members) of the affiliated service group, if such other plan(s) is designated as a unit for qualification purposes;

(3) A description of how the plan(s) satisfies the coverage requirements of section 410(b) if the members (or possible members) of the affiliated service group are considered part of an affiliated service group with the employer;

(4) A copy of any ruling issued by the National Office to the employer under section 4 and, if known, a copy of any such ruling issued to any other member or possible member of the same affiliated service group, accompanied by a statement as to whether the facts upon which the ruling was based have changed. Sec. 7. Times for Compliance with Section 414(m)

.01 Date for Plan Amendments. A plan shall satisfy the requirements of section 414(m) of the Code for a particular plan year if it is amended to comply with that section by the latest of:

(1) December 31, 1981;

(2) The last day of such plan year; or

(3) The last day of the sixth month after the month in which the employer obtains a National Office ruling on whether it is a member of an affiliated service group, provided such ruling is requested by the later of the dates specified in paragraphs (1) and (2). Thus, a calendar year plan that must be amended to comply with section 414(m) in order to retain its qualified status for 1981, must be amended by December 31, 1981, unless a ruling or determination letter is requested by that date.

.02 Effective Date of Plan Amendments. All plan amendments under this section to conform any employees' qualified plan to section 414(m) of the Code shall be effective on the effective date of section 414(m) applicable to that plan.

.03 Extension of Time for Conforming Plans. If a plan or proposed plan amendment is submitted for a determination letter in accordance with the procedures prescribed in this revenue procedure by the dates specified in section 7.01 above, the time for correcting any deficiency in the plan provisions designed to satisfy section 414(m) of the Code shall be extended to 91 days after the issuance of any determination letter with respect to such plan provisions.

Sec. 8. Effect on Other Documents

.01 Rev. Proc. 80-24, 1980-1 C.B. 658, is amplified to prescribe the procedure for obtaining a letter ruling on the issue of whether or not an employer is a member of an affiliated service group.

.02 Rev. Proc. 80-30, 1980-1 C.B. 685, is amplified to prescribe the procedures for obtaining determination letters on the plan of an applicant that is a member of an affiliated service group.

Sec. 9. Effective Date

This revenue procedure is effective as of April 6, 1981.