For companies under common ownership, is there a requirement to offer only one plan to the different companies, or can the different companies sponsor their own separate plans?

Companies under common control are considered a ‘single employer’ for purposes of ERISA, the Internal Revenue Code (IRC) and for benefit offerings. That means one plan can be offered to the employees of all of the companies under common control. That said, there’s no requirement to offer the same plan to employees of all the commonly-controlled companies. It’s really up to the companies—and perhaps the parent company, if there is one—to decide how to offer benefits among the different companies. However, there are several compliance considerations.

First, the group of employers needs to consider the ACA’s employer mandate. All employees of all companies under common control must be included in the full-time employee/equivalent count in determining if the mandate applies. This means a smaller company that’s owned by a larger company may be subject to the mandate, even though on their own they may have fewer than 50 full-time employees/equivalents. In addition, the plans offered to full-time employees for all members of the controlled group would need to meet the minimum value and affordability standards under the mandate. Otherwise, the employer may be risking mandate penalties. Also, while each member of the controlled group is separately liable for such penalties, the group could come together and have one company offer the plan and perform reporting on behalf of the other controlled group members. But whatever the approach, the commonly-held companies would need to review their compliance obligations under the employer mandate.

Second, careful review of controlled group status should be made to avoid multiple employer welfare arrangement (MEWA) status. A MEWA is a plan that covers the employees of two or more separate (non-controlled group) companies. While MEWA status isn’t necessarily prohibited, it brings additional (and in some instances onerous) compliance obligations (such as Form M-1 filings and state requirements). Employers should ensure there’s sufficient common ownership before offering a single plan to companies within a controlled group in order to avoid additional MEWA obligations.

Third, if the group of commonly-owned companies offers different plans to different companies, there may be nondiscrimination testing required. The nondiscrimination rules prohibit a plan design that somehow favors highly compensated individuals (HCIs). There are two sets of rules that may apply: IRC Section 105 (if one of the offerings is self-insured) and IRC Section 125 (if employees can pay their portion of the premium pre-tax through salary reduction). While employers can vary plans (and employer contributions, among other things) by company (that is to say, different tax ID numbers/business lines within a controlled group), the result must not favor HCIs (which could happen if one of the companies had a much richer plan in place and that company had a disproportionate number of HCIs as compared to non-HCIs).

Fourth, whether the group offers one or multiple plans, arrangements should be outlined in related plan documents. Employers as plan sponsors have the ERISA obligation to create written plan documents and SPDs, and those should describe which company is sponsoring the plan and which companies’ employees are eligible to participate. So, after deciding to offer one plan versus multiple plans, the group should appropriately and sufficiently document their arrangements and offerings. They will also have to comply accordingly with other ERISA obligations (such as the Form 5500 and SAR reports).

Finally, the group of employers should work with outside counsel in running through the different considerations. Not only is the determination of actual controlled group status a tax and legal issue, but it also has consequences beyond benefits (primarily, employment tax and labor/employment law issues). Outside counsel would be in the best position to access and understand all of the facts and circumstances, and to advise the group of companies accordingly.