Related Employer Analysis
Ownership and other relationships between entities can impact whether an employer can, or must, be combined with other employers for benefit plan purposes, or if a lack of relatedness creates a multiple-employer plan. This can have significant consequences for employee benefit plans. Therefore, it is critical for employers to understand whether they are part of:
- A controlled group of corporations, such as a parent-subsidiary or brother-sister group
- Trades or businesses under common control
- An affiliated service group
- An unrelated group of businesses
- A combination of the above
An analysis of a company’s related employer status involves looking at a variety of factors under IRS rules for employee benefit plans, including:
- Ownership among entities and certain related parties
- Control and voting power
- Service relationships
Mergers and acquisitions, and even internal reorganizations, can affect employee benefit plan design, compliance, and operations. We can help identify the relevant issues so they can be dealt with even before the deal is closed.
A change in related employer status can, for example:
- Make employees of new related entities automatically eligible for plan participation, resulting in operational failures if not offered enrollment or the plan document is timely amended
- Convert a single employer plan into a multiple employer plan, requiring special plan provisions and administration
- Disqualify a cafeteria plan by covering unrelated employers
- Create a multiple employer welfare arrangement, requiring special reporting and subject to each state’s insurance laws
- Changes in employer’s status as applicable large employer subject to the employer mandate under the ACA
- Cause a Prohibited Transaction for a Self-Directed IRA