The “Controlled Group” question is popping up for many employers with much greater frequency as part of various and sundry regulatory applications, audits, surveys, reporting requirements and underwriting questionnaires.
Netting it out in layman’s terms — at least as it relates to health insurance and ACA compliance — a controlled group may exist when multiple companies fall under common ownership.
The ACA includes a provision under which companies that have a common owner (or are otherwise generally related) are combined and treated as a single employer for purposes of determining if the companies collectively employ at least 50 FTEs (the combo of full-time EEs and full-time equivalent EEs).
If the combined total is 50 or greater then each of the companies in the controlled group is considered an Applicable Large Employer (ALE) and subject to the ACA “Employer Mandate” and related reporting responsibilities. This applies even if the companies individually do not employ enough employees on their own to meet the 50 EE Applicable Large Employer (ALE) threshold.
For those wanting to drill a bit more into the details, there are three primary types of controlled groups:
- Parent-subsidiary controlled group. When one or more companies are connected through stock ownership with a common parent corporation, and
- 80% of the stock of each company (except the common parent) is owned by one or more corporations in the group, and
- The common parent company owns 80% of at least one other company.
- Brother-sister controlled group. A group of two or more companies where five or fewer common owners (including individuals, estates, or trusts) own directly or indirectly a controlling interest of each group and have “effective control”
- Controlling interest: generally means at least 80% of each company (but only if the common owner owns stock in each company), and
- Effective control: generally means more than 50% of the stock of each company, taking into account the ownership only to the extent the ownership is identical with respect to each company.
- Combined group. A group of three or more corporations, each of which is a member of a group of corporations described above, and
- Each company is a member of either a parent-subsidiary or brother-sister group, and
- At least one company is the common parent of a parent-subsidiary and is also a member of a brother-sister group.
For those interested in drilling into greater detail on controlled groups and related ACA compliance implications, a much more comprehensive review including examples can be found here in the Compliance Overview of Controlled Group and Affiliated Service Group Rules.