Benefits Q&A: How do "Controlled Groups" Comply with the ACA?
February 1, 2024
Julie Athey discusses controlled groups and how they determine which companies are required to comply with the ACA's employer mandate.
Julie Athey discusses controlled groups and how they determine which companies are required to comply with the ACA's employer mandate.
I recently became responsible for ACA compliance and reporting at my company, a corporation with about 1,000 employees. The company owns varying percentages of more than a dozen smaller companies. Employees at some (but not all) of those companies are allowed to participate in our health plan.
An attorney was recently looking at our corporate structure in connection with our 401(k) plan, and he started talking about which companies were considered part of a “controlled group” and which were not. He indicated this could impact ACA compliance and reporting, but I’m not sure exactly what he was referring to. Can you help?
The term“controlled group” refers to a group of two or more companies under common ownership, which are seen as a single employer for some legal purposes. Whether a controlled group exists can determine which companies are required to comply with the ACA’s employer mandate. This mandate requires employers with 50 or more full-time employees to provide health coverage.
Individual companies that are a part of a controlled group that has 50 or more full-time employees combined are required to offer health coverage or pay a penalty to the IRS. This includes any of the individual companies that have fewer than 50 full-time employees.
The ACA treats companies as a single employer for some purposes (i.e., whether they are required to comply with the employer mandate) but as individual employers for other purposes (i.e., whether they actually comply with the employer mandate).
Yes, it is confusing.
The first factor to consider when determining whether a controlled group exists is the percentage of common ownership. Generally, 80% common ownership between two or more companies is sufficient to create a controlled group.
However, you can’t draw a definitive conclusion as to the existence of a controlled group – or which companies are included in it – based solely on ownership percentages. For less than 80% common ownership, many other factors must be considered.
For a group of related companies such as you have described, this will likely be a complicated analysis. In addition, you will probably also need to consider whether an affiliated service group exists, which can result in the same ramifications as the existence of a controlled group.
Considering the number of related companies you have described that own and/or provide services to each other, I think it would be worthwhile for you to have a comprehensive analysis completed by an attorney.
