Why Controlled Group Status Matters to Both Health and Welfare Benefits and Retirement Plans

A controlled group is a group of businesses that have common control by ownership.  The most common form of this arrangement is a parent company that owns 80 percent or more of the subsidiary company.  One or more of these relationships form a controlled group. Just as there can be multiple subsidiaries there can also be multiple, but common, parent companies.

Defining the Controlled Group

While the 80% control rule seems straightforward, there are additional situations that may result in the same controlled group status. A brother-sister controlled group includes five or fewer owners (where the owner is an individual, trust, or an estate) with 80 percent common ownership and 50 percent identical ownership in two or more companies. Further, if there is an option for one owner to purchase additional ownership rights, this can in some cases be treated as actual ownership for the purposes of determining controlled group status. The rules only get more complicated from there and applying them in different fashions can lead to different results, especially when affiliated service groups get involved.

Health and Welfare Benefit and Retirement Plans

Controlled group status matters because it is part of determining the application of ERISA requirements for everything from executive compensation to benefit plans. Being part of a controlled group means becoming jointly and severally liable for the obligations of the group, meaning that one company that is in the controlled group is responsible for another company’s pension liabilities, notice failures, and other regulatory issues. COBRA and ACA obligations are also calculated based on the number of employees within a controlled group.

With the new regulations on association retirement plans, controlled group status may control whether businesses can choose to participate in a MEP plans or are required to use a single-employer plan.  The hope is that MEP plans allow smaller businesses the ability to offer plans similar to those larger businesses offer due to their pooled purchasing power.

When running data for important tests to determine a benefit plan’s eligibility for different types of treatment, HR must consider the controlled group of companies.  This applies to retirement plan nondiscrimination and coverage tests. Under the Affordable Care Act, applicable large employer status (i.e., whether an employer is subject to the Employer ‘Pay or Play’ penalty) is determined by counting all full-time employees and full-time equivalents in the controlled group.

The experienced benefits attorneys at Hall Benefits Law are here to help plan administrators understand what regulations are relevant to them and whether they are part of a controlled group. Learn more about what we do by calling 678-439-6236 or visiting the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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