Controlled Group vs. Affiliated Service Group: What’s the Difference?

When it comes to retirement plan compliance, few topics create more confusion or risk than Controlled Groups and Affiliated Service Groups (ASGs). They sound like formal structures, but they’re simply IRS-defined groupings of companies that must be treated as a single employer for the purpose of retirement plan testing and compliance.

In our latest video, Mirador Partners, Rachel Rosner and Alison Quesada dig into the details. Here, we expand on that discussion to define these terms clearly and walk through common examples of how they apply.

Why These Rules Matter

Every year, compliance teams revisit this topic for a reason: misunderstanding these group structures can lead to failed nondiscrimination tests, disqualified plans, and significant financial penalties.

If you own multiple businesses, or are affiliated with other entities through service relationships, you must know whether you’re part of a Controlled Group or an Affiliated Service Group. Your retirement plan’s compliance depends on it.

What Is a Controlled Group?

A Controlled Group exists when one or more businesses are under common ownership or control. The IRS defines two main types:

Parent-Subsidiary Controlled Group

Occurs when a parent company owns 80% or more of another company.
Example: You own 100% of Business A and 85% of Business B. These two are in a controlled group.

Brother-Sister Controlled Group

Occurs when five or fewer individuals, estates, or trusts own at least 80% of two or more businesses, and the same group owns more than 50% of the voting power or value of each.
Example: You and your spouse own 100% of Business A and 90% of Business B. These companies likely form a controlled group.

Why It Matters

If a controlled group exists, all companies in the group must be aggregated for retirement plan purposes. That includes:

  • Nondiscrimination testing
  • Coverage testing
  • Top-heavy testing

If one company offers a retirement plan and another doesn’t, the unbenefited employees must still be included in testing, and that can lead to compliance failure.

What Is an Affiliated Service Group?

An Affiliated Service Group (ASG) exists when businesses are linked through service relationships, even if common ownership is less than 80%.

There are two common ASG types:

A-Organization ASG

Occurs when a service organization (A) has an ownership interest in a second organization (B), and the second organization regularly performs services for A or is associated in performing services.

Example: A law firm owns 40% of an administrative support company that exclusively serves the law firm’s clients.

B-Organization ASG

Occurs when a company is economically dependent on providing services to a related business or group, even with no ownership.

Example: You don’t own the marketing firm that exclusively supports your accounting practice, but the same partners operate both companies and refer services back and forth. That may be a B-Organization ASG.

B-Organization ASG


Occurs when one company performs management functions for another business, and there is some degree of common ownership or control, which is not explicitly defined by the IRS.

Example: A management company owned by the same partners who own an architecture firm handles all day-to-day operations (payroll, HR, etc.) for the firm. This may lead to Management ASG consideration.

Common Compliance Pitfalls

Rachel and Alison describe a scenario we see all too often:

“A business owner acquires another company with 10 employees, but doesn’t bring them into the retirement plan. Now that owner controls both companies, and we have a controlled group.”

In this case, all employees across both companies must be included in nondiscrimination testing. If one company’s employees don’t receive benefits, your plan could fail.

It’s Murky and That’s the Point

There’s no single checklist to determine whether you’re in a controlled or affiliated group. The rules are complex, and IRS guidance continues to evolve.

“Technically, we don’t have final guidance on controlled groups. This has been a gray area for years,” says Alison Quesada.

Because of that, most businesses navigating these issues need support from:

  • A retirement plan consultant
  • An ERISA attorney
  • An experienced third-party administrator (TPA)

Know Before You Grow

Whether you’re acquiring another company, launching a side venture, or working with closely related service providers, the structure of your business relationships affects your plan.

Before making a move, work with your advisors to determine:

  • Does this create a Controlled Group or ASG?
  • Are we required to test employees together?
  • How will this impact compliance and contributions?
Reach out to our team to learn more