Webinar: Controlled Groups

The structure of an organization can significantly impact health and welfare benefits compliance. In this webinar, we'll review the basic types of IRS controlled groups and how controlled group status affects compliance with laws such as the ACA, COBRA, and Section 125 and 105 nondiscrimination rules. The presentation will also discuss special compliance considerations that may arise from changes in controlled group status (e.g., through mergers and acquisitions).

Agenda

• Controlled Groups: Overview and Definitions
• Impact of Controlled Group Status on:
  • ERISA Requirements
  • ACA Compliance
  • Cafeteria Plan and Nondiscrimination Rules
  • COBRA Obligations
  • Medicare Secondary Payer Requirements
  • Carrier Considerations
  • FMLA Administration
• Merger & Acquisition Considerations (throughout)
• Key Takeaways

Why were the controlled group rules created?

• In 1964, the IRS established the controlled group rules as part of a tax reform package to assist small corporations.
  • Large businesses tried to take advantage of lower rates for small corporations by organizing into many small businesses.
• In 1974, ERISA added Code Sections 414(b) and (c) that require employees of commonly controlled entities to be treated as employees of a single entity.
• In 1980, Congress enacted Section 414(m) to address employees of affiliated service groups.

Why is controlled group status important?

• Tax Impact - Status can affect tax rates and reporting.
• Liability - Joint and several liability can apply to employers who are members of a controlled group.
• Benefits - Determination impacts application of laws for:
  • Executive compensation
  • Retirement plans
  • Health and welfare plans (our focus)
• Mergers & Acquisitions - Knowledge of the status is essential for the parties to properly structure the transaction and understand their respective obligations.

What do the controlled group rules address?

• The rules answer, 'Who is the employer?'
• Application of most benefit compliance laws consider employees of 'the employer'.
  • For example, the ACA employer mandate and COBRA apply only to an employer of a certain size.
• If an organization is comprised of multiple entities, determining 'the employer' typically requires analysis.
  • Code Section 414 treats two or more entities as a single employer if there is sufficient common ownership or a combination of joint ownership and common activity.
  • This idea of aggregating numerous entities into one employer due to common ownership applies to corporations, partnerships, sole proprietorships, and other forms of business entities.

What are the key takeaways for employers?

• Know that controlled group status impacts the application of many laws.
• Determine your organization's status before beginning any benefits program.
  • It's a threshold issue.
• Consult with counsel or a tax professional for assistance. 
  • The laws in this area are complex!
• Consider controlled group status when designing your benefit plans.
  • Be careful not to inadvertently create a MEWA.
• Understand how controlled group status specifically affects requirements under ERISA, the ACA employer mandate, nondiscrimination rules and other laws.
• In the merger or acquisition context, assess how a change in ownership will impact your benefit compliance obligations, especially to affected employees.