Business of Health with Mike Martens

Stacy Barrow: Employee Benefit Issues During Acquisition

April 04, 2023 Mike Martens Episode 16

Business of Health with Mike Martens

Apr 04, 2023 Episode 16

Mike Martens

Stacy Barrow is a Partner at Barrow Weatherhead Lent LLP, and one of the nation’s leading experts on the Affordable Care Act. He uses a practical, business-focused approach to counsel his clients on all matters related to employee benefit plans. Today, Stacy and Mike discuss the complexities of mergers and acquisitions, particularly how two groups may end up a control group and the compliance requirements of such a situation.

When it comes to mergers and acquisitions, it is important to pay attention to control groups. Control groups are created when two groups come together, and they require companies to be treated as a single unit for certain purposes of federal tax law and ERISA. This allows a single entity, treated as a single employer for ERISA purposes, to offer a single employer group health plan.

There are various types of control groups. A parent-subsidiary control group is typically created when one company purchases all the stock of another, or at least 80% of it. Brother-sister control groups also require at least 80% common ownership between five or fewer of the same individuals, trusts, or estates. Additionally, there are affiliated service groups or management organizations, which can exist at an ownership of less than 80%, down to 25% or even 0%.

From an HR and benefits professional perspective, they can merge the health plans into one of the existing company's plans. It is also important to pay attention to 401K plans, as there may be certain yellow flags that need to be addressed.

Overall, it is important to pay attention to control groups when it comes to mergers and acquisitions. Understanding the various types of control groups, and what their implications can be, is key to ensuring a smooth transition.

Three Takeaways