The Company You Keep: When Benefits Laws Treat Related Organizations as One Employer

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Amber Posthauer: Okay.

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Amber Posthauer: Good afternoon, everyone. Thank you for joining us today. We're going to get started here in 60 seconds to allow for everyone to get connected. We'll get started shortly.

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Amber Posthauer: Welcome everyone to The Company You Keep, when benefits laws treat related organizations as one employer.

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Amber Posthauer: Thank you all so much for joining us.

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Amber Posthauer: The Benefits Compliance team will be answering the questions you send through the Q&A today. We'll try our best to answer all of your questions, but if for whatever reason we're unable to get to your question today, please follow up with your advisor for further assistance.

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Amber Posthauer: Today's presentation is being recorded. We'll be sharing the recording in the follow-up email and on the NFP website. If there are any portions of this call that you missed, by Monday you'll receive an email with a link to the full recording. The PowerPoint slides used during this presentation will be shared in the same email.

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Amber Posthauer: At this time, I'll turn it over to Sarah Burns, Vice President and Senior Counsel of Benefits Compliance at NFP, and Benjamin Mary, Vice President and Counsel of Benefits Compliance at NFP. Ben, the floor is yours.

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Benjamin Merry: Hey, thanks, Amber. And hello, everyone. Thanks for joining us on this Wednesday afternoon in the middle of the summer. My name is Benjamin Mary. I'm joined by my esteemed colleague, Sarah Burns, today

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Benjamin Merry: And today, we're going to be talking about employer aggregation rules. These are the rules that determine when two or more employers are treated as one employer for employee benefits purposes.

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Benjamin Merry: As you'll see, if your business is related to another business, either through common ownership, common control, or a service relationship, it's going to be super, super important to know how the employer aggregation rules apply to your situation.

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Benjamin Merry: As Amber mentioned, if you have questions during today's presentation, please drop them into the Q&A feature. We will not be monitoring the chat, but NFP's benefits compliance team is standing by to answer any questions you send us through that Q&A feature. And if we have time at the end, we may answer one or two questions live.

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Benjamin Merry: We'll start as we always do with a quick disclaimer. Sarah and I are both lawyers, but we are not your lawyers. So today's presentation is intended as general guidance only. It's not intended to be tax or legal advice. You need to go to your own trusted advisor for that.

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Benjamin Merry: And all the information is current as of today's date, July 15, 2026.

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Benjamin Merry: Here's our agenda for the hour. Sarah is gonna walk us through the basic concepts of the employer aggregation rules.

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Benjamin Merry: And these rules answer the questions, who is the employer for purposes of employee benefits laws?

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Benjamin Merry: And the 2 big concepts here are controlled groups.

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Benjamin Merry: Which look at common ownership or common control.

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Benjamin Merry: And affiliated service groups, which look less at common ownership and more to the service relationship between the two entities.

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Benjamin Merry: After that, we're going to warm up a big old bowl of alphabet soup. We're going to look at how the control group status and affiliated service group status affect an employer's obligations under the ACA.

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Benjamin Merry: ERISA, the Internal Revenue Code.

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Benjamin Merry: COBRA, the Mental Health Parity and Addiction Equity Act, the Medicare Secondary Payer Rules, and the Family and Medical Leave Act, all of the acronyms.

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Benjamin Merry: As we'll see, in some cases, being a part of an aggregated employer group gives employers more flexibility in how they offer benefits.

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Benjamin Merry: In other cases, being part of an aggregated employer group may require employers to comply with benefits requirements, even though they might not be large enough to trigger application of those laws on their own.

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Benjamin Merry: And then at the end, we'll leave you with some key takeaways and potentially take a couple of questions.

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Benjamin Merry: As luck would have it, we just published a new guide on benefits compliance considerations for control groups and other related employers. So everything we're discussing today is covered in that guide.

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Benjamin Merry: So if you'd like more information about anything we're discussing today, please ask your NFP broker or consultant for a copy of our new guide.

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Benjamin Merry: Of course, you'll be getting a copy of these slides emailed to you after the presentation, and I believe there's also a link to the slides in the chat right now, if you'd like to follow along

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Benjamin Merry: So Sarah is going to walk us through the basic types of aggregated employer groups. And Sarah, we've teed up a really simple question here. Who is the employer?

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Benjamin Merry: Is the answer as obvious as that question would suggest?

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Sarah Burns: No, but we're going to try to make it as simple as possible. And if it was simple, what would we talk about, right? So, yeah, it's complicated and it gives us plenty to talk about. So let's just jump right into an overview.

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Sarah Burns: When we say employer aggregation status in this context, what we generally mean is controlled group or affiliated service group status, right? So these rules, they're found in the Internal Revenue Code, the federal tax law. They determine when multiple entities are considered one employer.

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Sarah Burns: Now, the rules were… they were originally created to prevent large employers from breaking up into smaller entities to then take advantage of lower tax rates and avoid certain obligations that only fall on large employers. Things like federal employee benefit mandates, which we're going to talk more about.

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Sarah Burns: But… It's important to know that employer aggregation status impacts many aspects of running a business.

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Sarah Burns: Taxes, liability, executive compensation, retirement plans, all of those things are out of our scope, but within our scope, and what we're going to focus on, is how aggregation status impacts health and welfare benefits compliance.

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Sarah Burns: Now…

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Sarah Burns: We're gonna say this, a few times, but note that these aggregation status rules are highly fact-specific, really complicated tax rules, and they impact so much beyond benefits compliance. So today, we're only gonna discuss the rules at a very high level.

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Sarah Burns: with the intention that you have just a basic understanding to know when your entity, when your business, might be considered either a controlled group or an affiliate service group. And again, our focus is going to be how that status impacts health and welfare benefits compliance, the alphabet soup that Ben mentioned.

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Sarah Burns: So…

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Sarah Burns: If your business is related to other entities, either by ownership or control or shared services, and we're going to talk more about what that means, you need to have legal counsel review the specifics and make a legal determination on controlled group or affiliate service group status.

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Sarah Burns: NFP cannot make that determination, it really is squarely legal advice.

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Sarah Burns: Okay.

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Sarah Burns: So that's our overview. Let's move on to…

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Sarah Burns: The question that aggregated status answers, which, as Ben said, is who is the employer? Meaning, when are two or more related entities considered a single employer?

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Sarah Burns: So…

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Sarah Burns: two different types that we're going to look at a bit closer. First, controlled groups, which look to the degree of common ownership or common control. And then second, affiliated service groups, which look to relationships among certain service organizations and how they perform services together.

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Sarah Burns: But…

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Sarah Burns: And the rules, you know, are relevant to health and welfare benefits compliance, largely because the question who is the employer, it impacts the employee count for certain small employer exceptions, like under the ACA, COBRA, mental health parity, Medicare, secondary payer rules. And we'll get into all of this.

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Sarah Burns: But know that,

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Sarah Burns: each of these employee benefits laws, they apply the aggregation rules and the employee counting rules a little differently. They do not make it easy.

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Sarah Burns: And so the point is, though, that even if, on your own, you're operating your business day-to-day as a single, small employer, right, you consider yourself to be a small employer based on your own employee count.

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Sarah Burns: You may actually be subject to these laws as a large employer because you're in, a controlled group or an affiliate service group.

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Sarah Burns: And then it's not just about the employee count and the application of the small employer exception. Controlled group rules, they also impact how employees of related entities can be offered benefits under the same plan as one employer. And Ben's going to discuss that more when we get into the ERISA section.

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Sarah Burns: Okay, so let's look a bit closer at controlled groups specifically.

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Sarah Burns: So again, this is about common ownership or control. There has to be a fairly high degree of common ownership or control to be a controlled group under Section 414 of the Internal Revenue Code.

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Sarah Burns: That ownership or control is key. Businesses can have different EINs, they can operate in different industries, they can be headquartered in different states, they could be a corporation or a non-profit, and they still can be in a controlled group together.

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Sarah Burns: So note that I'm citing the section here, section 414, because we'll get to another type of control group under another section that requires a lesser degree of common ownership. But for right now, we're talking about section 414, and there are three basic types. We've got parent, subsidiary, brother, sister, and combined.

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Sarah Burns: So, in a parent subsidiary controlled group, and this is a… Simple one.

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Sarah Burns: We have a common parent organization that needs to own at least 80% of at least one subsidiary. So that's the first requirement. And the second requirement is that for any other subsidiary not directly owned by that common parent, at least 80% of that subsidiary must be owned by another subsidiary.

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Sarah Burns: So, there needs to be this chain of at least 80% ownership. That's how I like to think about it.

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Sarah Burns: I've got a really simple example here on the slide. Let's walk through it. The parent organization here, Handy Hardware Holdings, owns three subsidiary entities.

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Sarah Burns: In shares of 90% ownership, that's Durable Drill, 80% ownership, that's Sal Saws, and then 70%, that's Building Supply Emporium.

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Sarah Burns: Then, one of those subsidiaries, Durable Drill, owns 80% of another subsidiary, Select Screws.

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Sarah Burns: So, if we go back to the rules here, those two bullets under parent subsidiary, first question is, is there a common parent that owns at least 80%?

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Sarah Burns: And yes, right, at least in part, Handy Hardware owns 90% of durable drill and 80% of cell saws.

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Sarah Burns: Not building supply, right? Handy Hardware only owns 70% of that. So then second is at least 80% of any of the other entities owned by another subsidiary.

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Sarah Burns: And again, yes, 80% of Select Screws is owned by Durable Drill. So Select Screws is like a sub subsidiary or a second level subsidiary.

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Sarah Burns: So the result here is that handy hardware holdings, durable drill, sow saws and select screws, they're in a section 414 controlled group because the ownership level of building supply though is only 70%. It's not in that same controlled group, right? There's not that 80% ownership link.

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Sarah Burns: So that's parent subsidiary.

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Sarah Burns: Now, brother-sister control group, this is a bit more difficult to illustrate, so please stay with me. The basic concept is that there are several entities that are closely held by a small number of owners, right? Those owners can be individuals, estates, or trusts.

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Sarah Burns: And together, those owners have to have two things. First, they have to have controlling interest, meaning, collectively, they own at least 80% of stock in each corporation.

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Sarah Burns: And then, two, they have to have effective control, meaning they hold identical ownership of at least 50% of stock in each corporation.

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Sarah Burns: So, I personally find that effective control element a little tricky,

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Sarah Burns: But if you just think about it as for each owner, count the lowest percentage of their ownership in the entities. So in this really simple example here, because in the real world, as you can imagine, these arrangements get really complicated. We have 5 shareholders that each have separate ownership shares in 2 corporations.

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Sarah Burns: pink tie catering and fun rentals. So, first question, is there controlling interest? This is the easy one, right? Just add up each individual's ownership share, and we get total 100% for pink tie catering and 95% for fun rentals.

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Sarah Burns: Which means that there is controlling interest in these two companies among those five individuals, so that's the first test.

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Sarah Burns: So then second, is there effective control? Well, there's really two steps here, right? So first for each owner, identify the lower percentage of their ownership in the two entities. That's really the first part of the identical ownership.

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Sarah Burns: So, for Henry, he owns 50% of Pink Tie Catering and 20% of Fun Rentals. 20% is the lesser between the two, so we count 20%.

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Sarah Burns: Then for Casey, she owns 15% of Pink Tie Catering and 20% of Fun Rentals. We count 15% identical ownership there, and so forth.

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Sarah Burns: I don't need to go through the whole thing.

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Sarah Burns: But then the second step there is to then add those identical ownership amounts. It is greater than 50, which means there's also effective control in those two companies among these individuals. So yes, this is a brother-sister controlled group.

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Sarah Burns: Now, there's also combined controlled groups, which, as you can imagine, gets even more complicated, well beyond our basic discussion here, but simply know that that's a hybrid of the parent, subsidiary, and brother-sister groups we just discussed.

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Sarah Burns: And also know that, you know, we've been using simple corporation ownership examples, but

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Sarah Burns: Partnerships or nonprofits can also be in a controlled group. For a partnership, this may be based on profit share. For nonprofits, where there is no ownership, control looks to things like who has the right to appoint or remove trustees or directors, rather than that ownership share.

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Sarah Burns: And then a last note on controlled groups. A couple of slides ago, I pointed out that when we say controlled groups, we mean Section 414 of the Internal Revenue Code, which requires 80% of controlling… 80% controlling interest.

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Sarah Burns: But there's also a control group definition in another section of the Internal Revenue Code, Section 52, that reduces that 80% threshold to 50%, right? It's a different definition.

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Sarah Burns: So, for health and welfare benefits compliance purposes.

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Sarah Burns: Section 52 controlled group status is it's only relevant to the Medicare secondary payer rules, which we'll get into in a bit. But know that even if an entity is in a controlled group under section 414, they don't hit that 80% ownership or control mark, they might be one under section 52.

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Sarah Burns: But for the rest of this presentation, other than we're talking about those MSP, those Medicare secondary payer rules, when we're using the term control groups, we mean that definition under 414, with that 80% ownership or control threshold.

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Sarah Burns: Okay, so… The other aggregate employer status that's relevant to health and welfare benefits compliance is affiliated service groups.

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Sarah Burns: So, an affiliated service group is made up of entities that are related through joint service activity, but it doesn't require a high degree of common ownership, so joint service activity can mean

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Sarah Burns: services the entities provide to each other, or services they provide to a third party. One of the entities needs to be a service organization in specific fields. They're listed there, health, law, engineering, accounting,

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Sarah Burns: And the status looks to how the entities perform the same or similar services, or provide services to the other.

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Sarah Burns: So, do they work together to provide services to the same clients? Does one entity provide management, administrative, or professional services to the other?

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Sarah Burns: Are they professionals who work together in those fields? Are employees shared between entities? Those are all things that could suggest an affiliated service group.

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Sarah Burns: And so we've got a simple example here.

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Sarah Burns: in the health field, so it's one of those identified fields. We've got Dr. Smith.

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Sarah Burns: She's an orthopedic, and she owns 100% of Smith Orthopedics, right? So that's her outpatient practice.

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Sarah Burns: She's also a partner in Community Surgery Center, where she performs surgeries for patients of the surgery center.

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Sarah Burns: Excuse me, and she also performs surgeries for patients she sees in her own practice.

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Sarah Burns: So there's joint activity to provide services to the same patients.

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Sarah Burns: So this is a classic example of a potential affiliate service group between Smith Orthopedics, right, her own private practice, and then Community Service Center. Legal counsel would need to review specifics to confirm, but just know that that's a classic example.

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Sarah Burns: Okay, so before we move on to the impact of… on benefits compliance requirements, here's… here's a…

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Sarah Burns: series of questions that suggest you would need to confirm a control group or affiliate service group status with legal counsel, if you've never done so, or if you haven't done so in a while, right? Like, are you owned by a parent company or a private equity firm? Do you own subsidiaries?

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Sarah Burns: Do you have… do any of your owners have interests in multiple businesses?

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Sarah Burns: Has your organization recently acquired any other organizations, or were you recently acquired, meaning any recent mergers or acquisitions?

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Sarah Burns: Has ownership otherwise recently changed? Are you operating under multiple EINs, which could also indicate multiple legal entities?

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Sarah Burns: Are you a service organization in those identified industries I just talked about, right? Health, law, accounting, that performs shared services.

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Sarah Burns: So, if you answer, you know, if the answer to any of these questions is yes, or potentially yes, right, if it's maybe, then legal counsel would need to run a full control group and affiliate service group analysis.

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Sarah Burns: So you can then understand the impact of that status on how you comply with all these employee benefit laws.

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Sarah Burns: So, okay, so Ben, so now that we've outlined what we mean by a controlled group and affiliated service group.

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Sarah Burns: Can you walk us through that impact?

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Benjamin Merry: I would be happy to, Sarah. Thank you. Thank you for that explanation. And I feel like I should mention that there will not be a test on any of those rules later.

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Sarah Burns: No, there will not.

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Benjamin Merry: But now that we have a baseline understanding of what the employer aggregation rules are, we'll turn to applying those rules to a number of benefits compliance laws in order to understand how an entity's control group status or its affiliated service group status affects its benefits compliance obligations.

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Benjamin Merry: So we'll start with the ACA and the employer mandates.

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Benjamin Merry: The employer mandate applies to employers who averaged 50 or more full-time employees, including full-time equivalents in the preceding calendar year.

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Benjamin Merry: Employers who are subject to the employer mandate are called applicable large employers, or ALEs. We love our acronyms here.

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Benjamin Merry: ALEs are required to offer affordable minimum value coverage to substantially all of their full-time employees and their dependents, or they risk paying a penalty.

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Benjamin Merry: And there are two, potential penalties under the ACA, employer mandate.

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Benjamin Merry: So there's penalty A is more severe.

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Benjamin Merry: And that one can be imposed if an ALE doesn't offer coverage to at least 95% of its full-time employees, and at least one employee, full-time employee, receives subsidized coverage on the exchange.

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Benjamin Merry: Penalty B is less severe, but it can be imposed if the coverage offered to a full-time employee either isn't affordable or it doesn't provide minimum value.

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Benjamin Merry: And then that particular employee goes out and receives subsidized coverage on the exchange.

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Benjamin Merry: But for entities that belong to a controlled group, or an affiliated service group.

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Benjamin Merry: ALE status counts all of the full-time employees, including those full-time equivalents employed by every entity in the control group or the affiliated service group.

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Benjamin Merry: So we have an example to illustrate this.

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Benjamin Merry: And in our example, we have T Wine Bar, Tara's Kitchen, and Bella's Catering.

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Benjamin Merry: And these are 3 separate LLCs, but they all have the same owner, so they're all in one controls group. And if we really want to get specific, they're a brother-sister controls group.

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Benjamin Merry: T Wine Bar has 15 full-time employees.

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Benjamin Merry: Tara's Kitchen has 25 full-time employees.

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Benjamin Merry: And Bella's Catering has 20 full-time employees.

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Benjamin Merry: So we add those up, and the control group has 60 full-time employees.

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Benjamin Merry: So, because the control group has at least 50 full-time employees between each of the businesses.

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Benjamin Merry: The controlled group is considered, an aggregated ALE group.

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Benjamin Merry: So each,

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Benjamin Merry: Each entity, T-Wine Bar, Tara's Kitchen, and Bella's Catering, they're considered ALE members, and so they're each subject to the employer mandate.

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Benjamin Merry: So even though none of these businesses is big enough to trigger the employer mandate on its own.

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Benjamin Merry: Each one is required to offer affordable minimum value coverage to its full-time employees.

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Benjamin Merry: And we'll head to the next slide here, Sarah.

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Benjamin Merry: And so, while membership in a controlled group or affiliated service group can cause an employer to become subject to the employer mandate, even though they might not be big enough to trigger the employer mandate on their own.

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Benjamin Merry: When it comes to compliance responsibilities and liability, each ALE member is on its own.

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Benjamin Merry: Meaning, each ALE member has its own individual responsibilities and its own individual liabilities.

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Benjamin Merry: So each ALE member is responsible for offering coverage only to its own full-time employees.

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Benjamin Merry: And then, at the end of the year, each ALE member is responsible for the Section 6055 or Section 6056 reporting to the IRS, where they report on their offers of coverage to their full-time employees.

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Benjamin Merry: If there are any penalties due at the end of the year, those penalties are calculated and they're imposed separately for each ALE member to which they apply.

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Benjamin Merry: One of the ALE members can certainly submit all of those reports to the IRS on behalf of the other members, if they don't all want to submit their reports separately.

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Benjamin Merry: But each ALE member is ultimately liable for any failures if it doesn't get done.

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Benjamin Merry: So we have another example here, using our same businesses from our last slide.

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Benjamin Merry: And here we're gonna pick on Bella's Catering

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Benjamin Merry: So we have T-Wine Bar, Terrace Kitchen, and Bella's Catering. Like we said, they're all ALE members, they're in

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Benjamin Merry: And everyone offers coverage to their full-time employees, but Bella's Catering charges its employees too much for their coverage. It's not affordable.

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Benjamin Merry: Well, if one of Bella's Catering's employees goes out and gets subsidized coverage on the exchange, then the IRS could penalize Bella's Catering for offering coverage that isn't afford

00:24:45.130 - 00:24:54.309
Benjamin Merry: T-wine Bar and Tara's Kitchen, they're gonna be off the hook. They're not at risk, they did what they're supposed to do, so it's only the entity that falls short that gets

00:24:55.150 - 00:25:06.699
Benjamin Merry: Then at the end of the year, T Wine Bar agrees to submit all of the information reports to the IRS for all three businesses. For whatever reason, T Wine Bar doesn't submit the reports for Bella's Catering.

00:25:06.960 - 00:25:12.660
Benjamin Merry: The IRS is gonna penalize Bella's Catering, but T-Wine Bar is actually off the hook there.

00:25:12.800 - 00:25:21.900
Benjamin Merry: It doesn't matter that T Wine Bar told Bella's Catering that they'd submit their reports. It was ultimately Bella's Catering's responsibility to submit those reports.

00:25:21.960 - 00:25:33.940
Benjamin Merry: So as far as the IRS is concerned, it's their penalty if their reports don't get sent to the IRS. The IRS doesn't care about those side agreements. Any issues there are between T-Wine Bar and Bella's Catering.

00:25:37.140 - 00:25:46.729
Benjamin Merry: So sticking with the ACA, we'll talk next about the insured group market size. And this is the one topic today that personally I think is the most surprising.

00:25:47.260 - 00:25:57.570
Benjamin Merry: The ACA instituted various insurance reforms that apply to health insurance issuers or carriers or insurance companies, whatever your preferred terminology is there.

00:25:57.720 - 00:26:04.220
Benjamin Merry: It split the group insurance market into two segments. So there's the small group market and the large group market.

00:26:04.730 - 00:26:12.009
Benjamin Merry: Insurers in the small group market are more limited in the ways that they can rate premiums and the things they can consider when setting premiums.

00:26:12.220 - 00:26:17.740
Benjamin Merry: And they're also required to offer coverage for essential health benefits, which aren't required in the large group market.

00:26:18.340 - 00:26:31.050
Benjamin Merry: So because the rules are different for insurers based on whether an employer is in the small group market or the large group market, it's essential that the insurers have accurate information about group market size.

00:26:31.700 - 00:26:33.280
Benjamin Merry: So under the ACA,

00:26:33.560 - 00:26:40.970
Benjamin Merry: Small employers are generally those who employed at least one, but not more than 50 employees in the preceding calendar year.

00:26:41.300 - 00:26:46.199
Benjamin Merry: And then large employers are those that employed at least 51 employees in the preceding calendar year.

00:26:46.970 - 00:26:55.189
Benjamin Merry: States do have the option to expand those definitions so that the small group market includes employers with up to 100 employees.

00:26:55.610 - 00:26:59.369
Benjamin Merry: And so that's what's happened in California, New York, and Vermont.

00:26:59.470 - 00:27:06.089
Benjamin Merry: In those states, small employers are those with 100 or fewer employees, and then the large group market is 101 or more.

00:27:06.540 - 00:27:13.130
Benjamin Merry: Colorado was actually part of this group until, this year, actually, but now they're back to that 50 employee cutoff.

00:27:13.330 - 00:27:21.850
Benjamin Merry: So really, in the vast majority of your states, small employers are going to be 50 and fewer, and then large employers are going to be 51 or more employees.

00:27:22.490 - 00:27:35.409
Benjamin Merry: But here's where I think it gets surprising, is that group market size is based on the total number of employees in the control group or affiliated service group, regardless of how many employees are going to be covered by the policy.

00:27:36.290 - 00:27:45.019
Benjamin Merry: So when an employer is shopping for insurance coverage, they actually need to disclose the total number of employees in their controlled group or their affiliated service group.

00:27:45.160 - 00:27:48.910
Benjamin Merry: Even if it's only going to be their employees who will be covered by the policy.

00:27:49.390 - 00:27:56.589
Benjamin Merry: So we'll take a look at an example to illustrate this. And here we have four businesses that are part of a control group.

00:27:56.910 - 00:27:58.740
Benjamin Merry: We have Rosie's Cafe.

00:27:58.970 - 00:28:07.300
Benjamin Merry: Bobby Jean's Thrift Store, Kitty's Pet Store, and Sandy's Fireworks. Bonus points if you can guess what I was listening to when I came

00:28:08.150 - 00:28:10.899
Benjamin Merry: Together, they have 55 total employees.

00:28:11.650 - 00:28:17.690
Benjamin Merry: So, these businesses would all belong in the large group market in every state except for California, New York, or Vermont.

00:28:17.920 - 00:28:21.510
Benjamin Merry: If the businesses are in one of those states, they're still in the small group market.

00:28:21.930 - 00:28:26.150
Benjamin Merry: But let's say they're not. Let's say, for no reason at all, they're all in

00:28:26.550 - 00:28:31.459
Benjamin Merry: And because there are over 50 employees in their controlled group, they're in the large group market.

00:28:32.470 - 00:28:38.500
Benjamin Merry: So if Rosie's Cafe, employs 20 of those 55 employees in the control group.

00:28:38.680 - 00:28:44.140
Benjamin Merry: If Rosie's goes out to purchase fully insured group health coverage for its employees.

00:28:44.300 - 00:28:49.669
Benjamin Merry: Rosie's actually must disclose to the carrier that there are 55 employees in the control group.

00:28:49.950 - 00:28:53.020
Benjamin Merry: And that lets the carrier know that they're in the large group market.

00:28:53.600 - 00:29:01.080
Benjamin Merry: It seems counterintuitive because Rosie's is only trying to get coverage for its 20 employees, but that's how it works.

00:29:01.480 - 00:29:08.950
Benjamin Merry: Employer size is based on the total number of employees in that aggregated employer group, regardless of how many covered lives are going to be on the insurance policy.

00:29:09.500 - 00:29:25.350
Benjamin Merry: What the insurance carrier does with that information is up to the carrier. It may be that they'll still treat Rosie's like they're in the small group market, but Rosie's, as the employer, always has that duty to provide accurate and truthful information so that the carrier is able to follow its legal requirements.

00:29:27.830 - 00:29:32.610
Benjamin Merry: Let's move on from the ACA And we'll get into ERISA.

00:29:33.010 - 00:29:40.790
Benjamin Merry: ERISA is the law that governs employer-sponsored health plans, among other things, for most employers except for public entities and churches.

00:29:42.200 - 00:29:51.779
Benjamin Merry: And ERISA permits an employer to establish a welfare plan for the benefit of its own employees, its former employees, like retirees, and their dependents.

00:29:52.260 - 00:30:00.459
Benjamin Merry: And typically, one employer can't offer its health plan or other benefits to employees of a different employer without jumping through additional hoops.

00:30:01.060 - 00:30:12.559
Benjamin Merry: When they do offer benefits to employees of another employer, that creates what's called a Multiple Employer Welfare Arrangements, or a MEWA, and you're gonna hear MEWA a lot today.

00:30:12.820 - 00:30:20.660
Benjamin Merry: Mewas are subject to additional federal reporting obligations. There's, something called a Form M1 that you have to file with the Department of Labor.

00:30:20.770 - 00:30:24.179
Benjamin Merry: And they're also subject to state insurance regulation.

00:30:24.480 - 00:30:34.110
Benjamin Merry: And many states have really strict laws about MIWAs, like who can operate them, what kind of financial requirements they need to satisfy, and how they must be funded.

00:30:34.190 - 00:30:44.889
Benjamin Merry: If they allow them to operate at all. Many states are really leery of self-insured MIWAs. So a lot of states require MIWAs to be backed by insurance.

00:30:45.760 - 00:30:51.680
Benjamin Merry: But here's where ERISA is different than the ACA and most of the other laws that we're going to discuss today.

00:30:52.250 - 00:30:55.749
Benjamin Merry: ERISA treats members of a controlled group as one employer.

00:30:56.200 - 00:31:00.410
Benjamin Merry: But it does not treat members of an affiliated service group as one employer.

00:31:01.200 - 00:31:09.049
Benjamin Merry: So this means that entities that belong to the same controlled group may offer benefits jointly to their employees through one benefit plan if they want.

00:31:09.410 - 00:31:14.539
Benjamin Merry: And in that case, their plan is treated as a single employer plan. It's not treated as a MEWA.

00:31:15.260 - 00:31:30.499
Benjamin Merry: Of course, controlled group members are also free to operate separate plans if they want. Many of them do. They're not required to offer a single plan for all of their combined employees. They just have the little extra flexibility to offer benefits jointly if they choose to do so.

00:31:31.600 - 00:31:48.050
Benjamin Merry: If controlled group members do want to offer benefits together, their plan documents should reflect their intent to do so. So that generally means that the plan document should clearly indicate the name of the plan sponsor as well as the names of the participating entities.

00:31:48.510 - 00:32:02.169
Benjamin Merry: Additionally, all funds under the plan must be available to provide benefits to all participants and beneficiaries. So you can't say that, you know, 60% of the funds go to pay benefits of XYZ employer.

00:32:02.290 - 00:32:06.369
Benjamin Merry: You can't earmark them to pay benefits for certain employers.

00:32:06.950 - 00:32:21.719
Benjamin Merry: And then if the plan is subject to the requirement to file a Form 5500, it's the plan sponsor's responsibility to file that document and to distribute the summary annual report to participants. So, each employer doesn't have that, it's only the plan sponsor.

00:32:22.870 - 00:32:33.400
Benjamin Merry: But I do want to stress, again, that ERISA doesn't treat members of an affiliated service group as one employer, so that's the reason for our big bright red caution on this slide.

00:32:33.630 - 00:32:48.099
Benjamin Merry: Members of an affiliated service group can't jointly offer benefits to their employees without creating a MEWA, unless they also have enough common ownership or common control to also belong to a controlled group. So that 80% that Sarah talked about earlier.

00:32:48.990 - 00:32:56.149
Benjamin Merry: And if members of an affiliated service group do try to offer benefits together to their employees under one plan, the plan would be considered a MEWA.

00:32:56.360 - 00:33:04.259
Benjamin Merry: It would be subject to federal reporting requirements, the Form M-1 that I mentioned, and state oversight, state restrictions, state requirements.

00:33:04.770 - 00:33:20.160
Benjamin Merry: Obviously, I know your MIWA would do everything by the book, but just due to a history of other MIWAs engaging in abusive practices over the years, most states and the DOL really prioritize enforcement of MIWA laws. So it's super, super important to know

00:33:20.210 - 00:33:27.339
Benjamin Merry: Ahead of time, whether you're in a controlled group or an affiliated service group, before trying to offer benefits to the employees of a related employer.

00:33:28.580 - 00:33:33.580
Benjamin Merry: Sarah, I think I've stressed me was enough, so let's go to the internal revenue code here.

00:33:35.810 - 00:33:45.349
Benjamin Merry: Section 125 of the Internal Revenue Code is the section that allows employees to make pre-tax elections to pay for qualified benefits through their cafeteria plan.

00:33:45.990 - 00:33:52.309
Benjamin Merry: So, for example, anytime employees can pay their share of medical premiums or contribute to a health FSA,

00:33:52.500 - 00:33:55.709
Benjamin Merry: Or contribute to their HSA on a pre-tax basis.

00:33:55.870 - 00:33:59.479
Benjamin Merry: Section 125 cafeteria plan is the way they do that.

00:34:00.060 - 00:34:08.889
Benjamin Merry: And Section 125 treats members of a controlled group or an affiliated service group as one employer for purposes of offering a cafeteria plan.

00:34:09.310 - 00:34:15.710
Benjamin Merry: So that means that members of a control group can establish a single cafeteria plan if they want, or they can maintain separate ones.

00:34:16.110 - 00:34:25.139
Benjamin Merry: But unlike ERISA, which we just talked about, members of an affiliated service group also can establish a single cafeteria plan if they want.

00:34:26.310 - 00:34:28.079
Benjamin Merry: So I've got a few examples here.

00:34:28.380 - 00:34:35.309
Benjamin Merry: We have Big Box Holdings, which wholly owns large mart stores, bulk warehouse stores, and small town pharmacies.

00:34:35.550 - 00:34:44.229
Benjamin Merry: So they're a controlled group because Big Box Holdings owns 100% of each entity. Again, if we're getting really technical, they're a parent subsidiary controlled group.

00:34:45.030 - 00:34:52.530
Benjamin Merry: If they wanted, Big Box could sponsor one cafeteria plan for, for all four entities. It would be open to all employees.

00:34:52.929 - 00:34:58.850
Benjamin Merry: Another option is, each entity could sponsor their own cafeteria plan, they could all do everything separately.

00:34:59.340 - 00:35:14.539
Benjamin Merry: And then a third option is somewhere in between. So big box could sponsor a cafeteria plan for itself and for large mart. Bulk warehouse could sponsor one just for itself and for small town. Or bulk warehouse and small town could each maintain their own separate ones.

00:35:14.850 - 00:35:25.120
Benjamin Merry: The point being here that there's just really a lot of flexibility to decide how, members of a control group or an affiliated service group, want to structure their cafeteria plan.

00:35:25.910 - 00:35:29.610
Benjamin Merry: But the caution here, again, we've got the big red caution.

00:35:29.800 - 00:35:36.600
Benjamin Merry: These are tax rules. These rules govern whether health benefits are excluded from an employee's income.

00:35:37.260 - 00:35:47.940
Benjamin Merry: Joint cafeteria plan administration doesn't mean that entities may jointly offer the underlying benefit plan without creating a MEWA. Those are the ERISA rules that I just talked about in the last slide.

00:35:48.800 - 00:35:51.210
Benjamin Merry: So I have another example here.

00:35:51.730 - 00:36:00.429
Benjamin Merry: We have Fritz Laser, which is a professional corporation. Fritz Laser and Silver Cosmetic Surgery Group belong to the same affiliated service group.

00:36:00.580 - 00:36:02.629
Benjamin Merry: They do not form a controlled group.

00:36:03.060 - 00:36:12.769
Benjamin Merry: So Fritz and Silver can offer one cafeteria plan governing, pre-tax elections, because they're one employer for purposes of Internal Revenue Code Section 125.

00:36:13.130 - 00:36:20.570
Benjamin Merry: Their cafeteria plan can set out the procedures for making elections, when employees can be permitted to change their elections, so on.

00:36:20.680 - 00:36:38.850
Benjamin Merry: But because they're not one employer for ERISA purposes, they may not jointly offer a medical plan or another underlying benefit plan without creating a MEWA. It's just the cafeteria plan that they can offer together. So they can offer a joint cafeteria plan, but if they're going to offer medical benefits, they would generally need to maintain separate medical plans.

00:36:41.480 - 00:36:49.080
Benjamin Merry: All right, Sarah, let's move on to the cafeteria plan non-discrimination rules. We're sticking with the internal revenue code here.

00:36:49.330 - 00:37:02.079
Benjamin Merry: The nondiscrimination rules generally prohibit variances in eligibility, benefits, and contributions if those variances disproportionately favor highly compensated employees.

00:37:02.200 - 00:37:06.399
Benjamin Merry: Highly compensated employees, or HCCEs.

00:37:06.550 - 00:37:11.550
Benjamin Merry: Under Section 125 are officers, more than 5% owners.

00:37:11.770 - 00:37:16.110
Benjamin Merry: And individuals whose earnings exceeded an indexed compensation threshold.

00:37:16.360 - 00:37:28.090
Benjamin Merry: So for plan years starting in 2026, that compensation threshold is $160,000. So any employee who earned more than $160,000 last year would be considered an HCE.

00:37:28.540 - 00:37:44.529
Benjamin Merry: If a plan design is discriminatory under Section 125, meaning it favors highly compensated employees, then there can be adverse tax consequences for those highly compensated employees, but there are no tax consequences for non-highly compensated employees.

00:37:45.680 - 00:37:58.920
Benjamin Merry: The Section 125 non-discrimination rules look at the control group or affiliated service group as a whole, regardless of whether, the entities maintain a single cafeteria plan for all entities, or they maintain separate ones.

00:37:59.670 - 00:38:06.420
Benjamin Merry: Which means that highly compensated employees are, based on the entire controlled group or affiliated service group.

00:38:06.900 - 00:38:17.050
Benjamin Merry: Any employees whose compensation exceeded that $160,000 threshold last year would be considered highly compensated employees regardless of which entity employs them.

00:38:17.790 - 00:38:24.280
Benjamin Merry: At the same time, if you have one entity in your, control group or your affiliated service group.

00:38:24.630 - 00:38:42.180
Benjamin Merry: that has a high concentration of those HCEs compared to the other entities, and it offers more generous benefits than the other entities, then there could be a higher risk of a non-discrimination testing failure there. But, again, you would need non-discrimination testing to really reveal that.

00:38:43.040 - 00:38:50.560
Benjamin Merry: There are other non-discrimination rules, that also aggregate employees in a controlled group or affiliated service group in a similar manner.

00:38:51.300 - 00:39:00.040
Benjamin Merry: So you have Section 105H, which governs self-insured group health plans. Section 129, which governs your dependent care FSAs.

00:39:00.150 - 00:39:04.029
Benjamin Merry: And section 79, which governs group term life insurance.

00:39:04.170 - 00:39:11.499
Benjamin Merry: Those all take into account the employees of other members of a controlled group or affiliated service group for purposes of their non-discrimination rules.

00:39:11.760 - 00:39:21.229
Benjamin Merry: But just note that… that the definition of who is a highly compensated employee, varies slightly between each set of non-discrimination rules.

00:39:24.850 - 00:39:30.189
Benjamin Merry: So the last topic I'll discuss before I turn it back over to Sarah is COBRA.

00:39:30.260 - 00:39:49.820
Benjamin Merry: And COBRA requires employers that sponsor group health plans to offer continuation coverage to employees, their spouses, and their dependent children in certain circumstances when they would otherwise lose that coverage. Your classic case is termination of employment. An employee and their family are offered COBRA when they leave their job.

00:39:50.700 - 00:40:03.249
Benjamin Merry: For private employers, COBRA generally applies to group health plans that are maintained by employers with at least 20 employees on more than 50% of their typical business days during the preceding calendar year.

00:40:03.760 - 00:40:20.020
Benjamin Merry: So once an employee count reaches or exceeds 20 on more than half of an employer's typical business days in a given calendar year, then the employer is going to be subject to COBRA for the entire following calendar year, regardless of whether the employee count later falls under 20.

00:40:20.740 - 00:40:23.880
Benjamin Merry: But for, for purposes of determining.

00:40:24.080 - 00:40:25.729
Benjamin Merry: Cobra applicability.

00:40:26.010 - 00:40:31.279
Benjamin Merry: All full and part-time employees of all employers in the same controlled group or affiliated service group.

00:40:31.540 - 00:40:32.870
Benjamin Merry: Count toward the 20.

00:40:33.480 - 00:40:38.649
Benjamin Merry: And the 20 employees is total employees. It's not just participants in the group health plan.

00:40:39.140 - 00:40:45.670
Benjamin Merry: Full-time employees each count as… as one employee, and then part-time employees count as a fraction of an employee.

00:40:45.900 - 00:40:59.760
Benjamin Merry: based on the number of hours an employee needs to work to be considered full-time by their employer, up to 8 hours per day, or 40 hours per week. So if a full-time employee is someone who's expected to work 40 hours per week.

00:40:59.920 - 00:41:04.430
Benjamin Merry: Somebody who works 20 hours a week for that employer counts as half of an employee.

00:41:05.600 - 00:41:06.630
Benjamin Merry: So…

00:41:06.930 - 00:41:15.160
Benjamin Merry: But while the count of employees in the entire affiliated service group is relevant for determining if an entity is actually subject to COBRA in the first place.

00:41:15.440 - 00:41:18.129
Benjamin Merry: It's only the members of a controlled group.

00:41:18.260 - 00:41:22.400
Benjamin Merry: Who are treated as one employer, for planned continuation purposes.

00:41:23.040 - 00:41:25.929
Benjamin Merry: And what I mean by that is,

00:41:26.170 - 00:41:30.810
Benjamin Merry: Ordinarily, bankruptcy is not a COBRA triggering event for active employees.

00:41:31.170 - 00:41:47.120
Benjamin Merry: But for retirees and their dependents, those retirees and dependents have the right to elect COBRA continuation coverage following the loss of coverage due to bankruptcy if the employer or any member of its controlled group continues to offer any group health plan.

00:41:48.050 - 00:42:01.619
Benjamin Merry: Cobra doesn't extend this requirement to continue covering retirees and their dependents due to a bankruptcy, where there's still another employer in the affiliated service group that offers a group health plan. It only looks to group health plans that continue to exist within the controls group.

00:42:02.290 - 00:42:05.100
Benjamin Merry: And it's… it's a similar rule for plan termination.

00:42:05.280 - 00:42:14.750
Benjamin Merry: In the case of plan termination, plan sponsors ordinarily may terminate COBRA continuation coverage earlier than the maximum coverage period if they stop maintaining any group health plan at all.

00:42:15.140 - 00:42:26.509
Benjamin Merry: But if there's another employer in the employer's controlled group or a successor employer, excuse me, that maintains a group health plan, then COBRA continuation coverage can't be terminated early.

00:42:26.640 - 00:42:41.609
Benjamin Merry: That treatment doesn't extend to members of an affiliated service group, so if an employer terminates their plan and there's still another member of its affiliated service group that still offers a group health plan, there's no requirement for that employer to continue offering COBRA continuation coverage in that instance.

00:42:42.060 - 00:42:50.420
Benjamin Merry: So, just to recap, to determine whether an employer is subject to COBRA, you count the total number of employees in the controls group or affiliated services group.

00:42:50.670 - 00:42:59.470
Benjamin Merry: But for determining whether or determining what an employer's responsibilities are for planned continuation purposes, COBRA is only concerned with controlled groups.

00:43:00.830 - 00:43:08.410
Benjamin Merry: So Sarah, I think our audience is probably ready for a break from my voice for a little while. So what can you tell us about MAPIA?

00:43:08.760 - 00:43:14.700
Sarah Burns: Okay. Yeah. Thanks, Ben. And we've got we've got three more laws to get through here. So we are in the home stretch.

00:43:14.820 - 00:43:33.279
Sarah Burns: So yeah, so MHPAEA at the most basic level, because MHPAEA is a very complicated law, but most basic level, right? And the acronym is Mental Health Parity and Addiction Equity Act. I always need to stop myself to actually say out the acronym because it's so commonplace for us just to use the acronym.

00:43:33.310 - 00:43:46.800
Sarah Burns: but the Mental Health Parity and Addiction Equity Act, it requires group health plans that cover mental health benefits to do so on par with medical benefits. So, very simple example is that plans can apply

00:43:46.800 - 00:43:56.150
Sarah Burns: Cannot apply higher co-pays on mental health therapy or cover fewer visits as compared to what they're covering for, like, physical therapy.

00:43:56.190 - 00:44:05.620
Sarah Burns: Most health plans are subject to MHPAEA. However, there is an exemption for self-insured plans sponsored by employers with 50 or fewer.

00:44:06.300 - 00:44:19.919
Sarah Burns: 50 or fewer employees during the preceding calendar year. So this count includes part-time employees without prorating, meaning each part-time employee counts as one employee, regardless of the number of hours that they work.

00:44:20.670 - 00:44:21.650
Sarah Burns: Now…

00:44:21.830 - 00:44:33.260
Sarah Burns: When counting employees for the small employer exemption, all employees of all members of a controlled group or affiliated service group are counted.

00:44:33.400 - 00:44:44.790
Sarah Burns: But while that small employer exemption is assessed at the controlled group or the affiliate service group level, actual MHPAEA compliance is assessed at the plan level.

00:44:44.790 - 00:45:02.299
Sarah Burns: So this means that parity considers any combination of mental health benefits and medical benefits that a participant can receive at the same time. So each controlled group members, their plan bundle of offerings, of health benefit offerings, are assessed separately.

00:45:02.580 - 00:45:18.109
Sarah Burns: So we have an example here. With two employers, we've got Southern Hotel and Single Letter Cafe. They're in the same controlled group, and they sponsor completely separate group health plans, and each plan has a separate telehealth point solution program.

00:45:18.210 - 00:45:31.320
Sarah Burns: So Southern Hotels' plan provides no-cost, unlimited physical therapy, virtual. And then Single Letter Cafe's plan provides no-cost, unlimited mental health therapy, virtual.

00:45:32.210 - 00:45:37.310
Sarah Burns: So, we're just looking for obvious MAPIA issues here, based on the very limited facts that we have, but…

00:45:37.450 - 00:45:43.380
Sarah Burns: Remember that those benefit offerings are going to be assessed separately based on each employer's plan.

00:45:43.420 - 00:45:59.649
Sarah Burns: Meaning, the combination of benefits that any participant can receive. So, Southern Hotel needs to factor in their no-cost, unlimited virtual physical therapy, and Single Letter needs to factor in their no-cost mental health therapy.

00:45:59.980 - 00:46:03.360
Sarah Burns: Depending on the extent of Southern Hotels,

00:46:03.400 - 00:46:17.979
Sarah Burns: Mental coverage of mental health services under, say, their major medical plan because we don't have all the facts, we don't know what co-pays or visit limits they charge for mental health visits. The plan could be non-compliant if they are charging co-pays.

00:46:17.980 - 00:46:28.140
Sarah Burns: or applying visit limits, more on the mental health side than they are on the physical side, right? They've got this no-cost, unlimited physical therapy.

00:46:29.050 - 00:46:36.050
Sarah Burns: The point is that they don't get to factor in a controlled group member's mental health benefits, right? They can only look at their own plan.

00:46:36.740 - 00:46:44.479
Sarah Burns: So, single letters telehealth program, it's not a MAPIA issue, because plans can provide more favorable mental health coverage.

00:46:44.580 - 00:47:03.819
Sarah Burns: The law uses the term parity, but it's really more about offering mental health coverage that's at least as good as medical, so it can certainly be better. I think maybe as least as good as doesn't have the same ring as parity, so they went with parity, but parity doesn't necessarily mean equal under this law.

00:47:04.410 - 00:47:12.249
Sarah Burns: So that's MHPAEA. If we go on to the next slide, it's Medicare Secondary Payer Rules. So these generally prohibit

00:47:12.370 - 00:47:31.040
Sarah Burns: Group health plans from taking into account Medicare entitlement of a current employee or their spouse or dependent, and this relates to the Medicare coordination of benefit rules where, for active employee claims, the employer group health plan is the primary payer and Medicare is the secondary payer.

00:47:31.050 - 00:47:50.979
Sarah Burns: It also means that employers can't offer Medicare eligible individuals a financial incentive to waive employer coverage or to encourage them to enroll in Medicare. So the age based MSP rules here, we call them MSP rules, apply to employers with 20 or more employees.

00:47:50.980 - 00:47:59.700
Sarah Burns: Including part-time, without prorating, for each working day in at least 20 calendar weeks in either the current or preceding calendar year.

00:48:00.020 - 00:48:17.890
Sarah Burns: So under the MSP rules, the age based MSP rules, the 20 employee count needs to be made at the time the individual receives Medicare covered services. So it's actually a rolling measurement period that can be pretty tricky for employers around that 20 employee mark.

00:48:18.480 - 00:48:33.820
Sarah Burns: And then the disability-based MSP rules, they apply to employers with 100 or more employees, also including part-time employees without prorating, on at least 50% of their business days during the previous calendar year.

00:48:34.300 - 00:48:48.929
Sarah Burns: So, for purposes of counting employees for the small employer exceptions under either age-based or disability-based MSP rules, all employees in a controlled group or affiliate service group must be counted.

00:48:49.620 - 00:49:04.150
Sarah Burns: But as I flagged earlier, the MSP rules, they apply a control group definition with a lower percentage of common ownership than we've been talking about, right? That's under Section 52 of the Internal Revenue Code.

00:49:04.150 - 00:49:12.699
Sarah Burns: So under Section 52, for these MSP rules, it's 50% ownership or control instead of 80% under Section 414.

00:49:13.270 - 00:49:33.110
Sarah Burns: So the MSP rules are unique in that way. And what this means is that a greater number of related entities are going to be considered a controlled group. Therefore, one employer under section 52, meaning that the small employer exemption to the MSP rules is less likely to be available.

00:49:34.420 - 00:49:35.950
Sarah Burns: Okay.

00:49:37.100 - 00:49:45.469
Sarah Burns: So that brings us to the last benefits compliance law that we're going to review. And it's the Family Medical Leave Act FMLA.

00:49:46.020 - 00:50:05.839
Sarah Burns: And it's very different. So FMLA provides eligible employees of covered employers with unpaid leave for certain family medical reasons. It's generally going to be up to 12 weeks of leave in a 12 month period. And then in addition to job protection, FMLA requires employees to maintain health benefits during leave.

00:50:06.190 - 00:50:18.969
Sarah Burns: Fmla-covered employers, this is federal FMLA, include those with 50 or more employees in 20 work weeks in the current or prior calendar year. And this includes part-time employees without prorating.

00:50:19.330 - 00:50:34.380
Sarah Burns: But, and this is the curveball, right, FMLA doesn't look to the IRC controlled group or affiliated service group rules that we've been talking about to determine which entities are collectively considered one employer.

00:50:34.790 - 00:50:43.440
Sarah Burns: Right? Instead, FMLA applies an integrated employer definition that is specific to the FMLA statute.

00:50:43.550 - 00:50:53.749
Sarah Burns: So, where these other laws that we've talked about are borrowing controlled group or affiliated service group definitions from the Internal Revenue Code, the IRC,

00:50:53.920 - 00:50:59.130
Sarah Burns: FMLA applies its own integrated employer test. That's the curveball.

00:50:59.570 - 00:51:02.029
Sarah Burns: And what the test looks to is whether.

00:51:02.040 - 00:51:14.160
Sarah Burns: The separate businesses, whether they have common management, whether they have interrelated operations, centralized control of daily operations, and the degree of common ownership, to a certain extent.

00:51:14.160 - 00:51:23.990
Sarah Burns: But, common ownership alone may not be enough for two employers to be considered one integrated employer for FMLA applicability purposes.

00:51:24.670 - 00:51:39.650
Sarah Burns: the test is… the integrated employer test is really fact-specific, but we see that courts typically focus on how employment and HR decisions are made if they're made together between more than one entity… between multiple entities.

00:51:40.150 - 00:51:41.760
Sarah Burns: But like with…

00:51:41.950 - 00:51:54.519
Sarah Burns: the other rules that we've been talking about, the controlled group or affiliated service group status, employers really need to consult with legal counsel for a specific determination on this, probably Employment Law Counsel.

00:51:55.400 - 00:52:12.100
Sarah Burns: We've got an example here. So, two businesses, we have a painting business and we have a ramen restaurant, that have fewer than 50 employees on their own. So, there's common ownership between the two, let's say to the extent that they're a Section 414 controlled group.

00:52:12.750 - 00:52:13.720
Sarah Burns: But.

00:52:13.920 - 00:52:24.270
Sarah Burns: they operate completely separately. They're in different industries, they're providing different services, they're under different management, they provide different benefits, they have separate HR,

00:52:24.620 - 00:52:34.490
Sarah Burns: So because employment and their day-to-day operations are completely separate, it's likely that a court would not consider them to be an integrated employer.

00:52:34.620 - 00:52:54.179
Sarah Burns: And because they each have fewer than 50 employees on their own, they would not be subject to federal FMLA. However, many states have similar protections that apply to similar employers that are not covered by federal FMLA. They have like mirror statutes at the state level.

00:52:55.930 - 00:53:06.219
Sarah Burns: But if we look back, we look at this example and then look back to the other laws that we've discussed, since they're in a controlled group and again, assuming section 414.

00:53:06.220 - 00:53:16.389
Sarah Burns: Employees of both businesses would be counted together to determine size applicability under the ACA employer mandate, ACA market rules, COBRA, MAPIA,

00:53:16.390 - 00:53:24.830
Sarah Burns: Medicare secondary payer rules, and they'd be considered one employer under ERISA, and Section 125 cafeteria plan rules.

00:53:25.580 - 00:53:33.819
Sarah Burns: Okay, so let's hand it back to Ben to bring it all together, starting with this quick reference chart that we have right here.

00:53:34.940 - 00:53:45.179
Benjamin Merry: Thanks, Sarah. In this slide, we have included a quick reference chart showing which employer aggregation rules are implicated by each of the employee benefits laws that we discussed today.

00:53:45.440 - 00:53:56.129
Benjamin Merry: As we saw today, most laws consider the employers in a controlled group or an affiliated service group, but, you know, there are those few outliers. Erisa only considers a controlled group.

00:53:56.390 - 00:54:03.899
Benjamin Merry: COBRA considers affiliated service groups only to the extent of determining if an employer is actually subject to COBRA in the first place.

00:54:04.280 - 00:54:14.410
Benjamin Merry: Medicare secondary payer rules use the more expansive definition of control groups from, Section 52 of the Internal Revenue Code, which casts a wider net.

00:54:14.800 - 00:54:19.920
Benjamin Merry: And then FMLA is on its own island using its own concept of an integrated employer.

00:54:20.210 - 00:54:34.009
Benjamin Merry: So hopefully this chart can be a handy cheat sheet to review after the presentation, and it's also included in our guide to, control groups that we recently published, so, you can get a copy of that from your NFP consultant or broker if you're so inclined.

00:54:34.840 - 00:54:37.490
Benjamin Merry: And then we have some key takeaways here for you.

00:54:39.970 - 00:54:54.880
Benjamin Merry: First, aggregated employer definitions, like control groups and affiliated service groups, determine when two or more, related entities are treated as one employer for benefits compliance purposes. That's really your top line from today.

00:54:55.190 - 00:54:57.310
Benjamin Merry: Second, because of that.

00:54:57.430 - 00:55:06.629
Benjamin Merry: An entity may be subject to benefits laws based on the size of its related entities, even if each entity isn't big enough to trigger application

00:55:06.980 - 00:55:12.650
Benjamin Merry: of the law on its own. So we saw that in particular with the ACA and with COBRA.

00:55:12.850 - 00:55:24.610
Benjamin Merry: Which tend to be areas of enforcement priority that can easily trip up smaller employers that don't know their status in an aggregated employer group, either a control group or an affiliated service group.

00:55:25.310 - 00:55:43.059
Benjamin Merry: Next, unless two entities belong to the same controlled group, they can't offer benefits together through one benefit plan without creating a MEWA. That's, that's your ERISA, ERISA only looks at, at controlled groups. It doesn't, doesn't consider affiliated service group members as one employer.

00:55:43.270 - 00:55:48.680
Benjamin Merry: So, MEWAs are subject to stricter federal and state regulation. There's more hoops to jump through.

00:55:48.780 - 00:56:02.830
Benjamin Merry: So it's really important to know your status as an affiliated service group or a controlled group member before you offer a plan together to really make sure you're doing everything by the book and avoiding having to address those things after the fact.

00:56:03.610 - 00:56:05.839
Benjamin Merry: And then lastly.

00:56:05.970 - 00:56:13.760
Benjamin Merry: Employers should verify their controlled group, affiliated service group, or other aggregated employer status with their legal or tax advisors.

00:56:13.890 - 00:56:28.570
Benjamin Merry: These rules are, are complicated, as we saw with the, the ownership, tests earlier. And they can affect liability in other contexts. They can affect executive compensation, and retirement plans. So there's, there's so many reasons to know your status.

00:56:28.680 - 00:56:31.289
Benjamin Merry: Beyond just benefits compliance purposes.

00:56:32.360 - 00:56:33.420
Benjamin Merry: Yeah.

00:56:33.530 - 00:56:41.570
Benjamin Merry: Sarah, we got just a couple of minutes left. I'm not seeing any open questions in the Q&A. Do you have any final thoughts for us?

00:56:41.790 - 00:56:56.810
Sarah Burns: Well, it looks like we have one question that was flagged to answer live. So so we can do that. The question is, if an employer has has 21 employees but only two employees qualify for a health plan, does COBRA apply there? So they've got 21 employees.

00:56:57.180 - 00:56:58.559
Sarah Burns: Ben, what are your thoughts?

00:56:58.840 - 00:57:16.359
Benjamin Merry: Yeah, that, that's a really good question. Yeah, COBRA is gonna apply. Cobra applies if you have, 20 or more employees on, on half of your business days in the, in the preceding year. And, and COBRA looks at the number of employees. It's not just the, number of, of participants who are enrolled in the group health plan.

00:57:16.670 - 00:57:29.139
Benjamin Merry: So if, if those are all full-time employees, you know, or your count of part-time employees, your fractions add up to 20 or more, then yeah, you're gonna be subject to COBRA, regardless of how many folks are actually enrolled.

00:57:29.310 - 00:57:30.070
Benjamin Merry: Right. Good question.

00:57:30.100 - 00:57:35.889
Sarah Burns: Yeah, and again, like, as we're going through, All of these laws.

00:57:35.890 - 00:57:54.679
Sarah Burns: the count is different. Not only is it different the way that they define, you know, one employer, that was the focus of today, but also, as we went through, it's like, some prorate, some don't prorate, some are 10, some are 50, some are 100. Like, it's… it's… it's really… it's really difficult. But yeah, I think…

00:57:54.770 - 00:58:09.579
Sarah Burns: As you have there on the slide, first step is to figure out what your control group status is, affiliate service group status, if you've had any sort of change in ownership or control, confirm it again with your legal counsel, and then once you have that confirmation in hand.

00:58:09.580 - 00:58:23.299
Sarah Burns: you know, we've got this great publication that can walk you through how that's going to impact all the benefit compliance laws, how they apply to you, and how you can structure your benefits. So, we'll refer everyone back to that publication as well.

00:58:23.340 - 00:58:26.340
Sarah Burns: But yep, those are all my thoughts, Ben. Thank you.

00:58:26.810 - 00:58:37.250
Benjamin Merry: Good thoughts. Well, thank you everyone for joining us today. This hour went by fast, at least for me. So thanks for joining us. And Amber, our host, I'll relinquish control back to you.

00:58:37.550 - 00:58:38.820
Amber Posthauer: Awesome. Well.

00:58:38.820 - 00:59:03.809
Amber Posthauer: Well, thank you, Sarah and Benjamin, for sharing your valuable time and expertise with us today. To reiterate, today's presentation was recorded. We'll be sharing the recording in the follow-up email and on the NFP website. If there are any portions of this call that you missed, by Monday you'll receive an email with a link to the full recording. The PowerPoint slides used during this presentation will be shared in the same email. At the end of this call, a survey will populate in a new window. Please take a brief moment to complete the survey as it lets

00:59:03.810 - 00:59:09.270
Amber Posthauer: So topics are important to our listeners and helps make our education program as current and relevant as possible.

00:59:09.320 - 00:59:14.209
Amber Posthauer: That concludes our webinar for today. Thank you everyone for joining us and have a great day.