By April Handlir, Compliance Manager, EHD
Case Study: One Owner, 20 Companies—What Common Ownership Means for Benefits Compliance
Imagine this: You’re a business owner with 20 companies across the U.S., each operating under a different name, in different states, with different FEINs, and with different employee counts. But here’s the catch—you own 80% or more of each one.
Welcome to the world of Commonly Controlled Groups under ERISA and the Internal Revenue Code (IRC).
What Is a Commonly Controlled Group?
Under IRC Sections 414(b) and (c) and ERISA, a commonly controlled group exists when two or more businesses are connected through common ownership—typically 80% or more. These businesses are treated as a single employer for benefit compliance purposes.
There are three main structures:
- Parent-Subsidiary: One company owns at least 80% of another.
- Brother-Sister: Five or fewer individuals/entities own at least 80% of each company and have effective control (more than 50% combined voting power).
- Combined Group: A mix of the two above—less common, but worth noting.
Not to Be Confused With: MEWA
A Multiple Employer Welfare Arrangement (MEWA) is when unrelated employers band together to offer benefits. MEWAs are subject to state insurance laws and ERISA, but they do not involve common ownership. That’s not the case here.
What This Means for You
Let’s say your 20 companies have a combined total of 402 employees. Here’s what you need to know:
1. You Are an ALE
Even if some companies have just 3 employees, the total count makes you an Applicable Large Employer (ALE) under the ACA. That means:
- Each entity must file Forms 1094-C and 1095-C.
- Each must list the other entities in the controlled group section, ordered by size.
2. Pay-or-Play Rules Apply
Even the smallest entity is now subject to ACA employer mandate penalties if it fails to offer coverage.
3. Coverage Requirements
Each entity must offer:
- Minimum Essential Coverage (MEC)
- Minimum Value (MV) coverage
- To all full-time employees
4. Affordability Rules
Use one of the IRS safe harbors (W-2, Rate of Pay, or Federal Poverty Line) to ensure affordability across all entities.
5. Plan Design Options
You have two choices:
- One ERISA Plan: One Form 5500, one SPD, but must clearly define each entity’s role and eligibility rules.
- Separate Plans: Each entity files its own Form 5500 and maintains its own plan documents and SPDs.
6. Disclosure Requirements
All required notices (e.g., SBCs, CHIPRA, WHCRA, etc.) must be distributed to employees at each entity.
7. COBRA Applies
Even if an entity has fewer than 20 employees, COBRA applies because the group total exceeds 20.
8. Nondiscrimination Testing
Plans must pass Section 125 and Section 105(h) (self-funded group health plan) nondiscrimination testing as a group, not per entity.
9. Section 125 Compliance
If offering pre-tax contributions, ensure cafeteria plan documents are in place and consistent across entities.
Final Thoughts
This isn’t just a paperwork issue—it’s a compliance minefield if not handled correctly. Treating your 20 companies as one employer under the law means aligning your benefits strategy, documentation, and reporting.
Pro Tip:
Document everything. From ownership structure to plan eligibility and employee notices—clear documentation is your best defense in an audit.
