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1 Fr a cpy f the fllwing presentatin, please visit ur website at G t the Wisdm tab and then t the HR webinar series page.

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3 This presentatin prvides general infrmatin regarding its subject and explicitly may nt be cnstrued as prviding any individualized advice cncerning particular circumstances. Persns needing advice cncerning particular circumstances must cnsult cunsel cncerning thse circumstances. Indeed, health care refrm law is highly cmplicated and it supplements and amends an existing expansive and intercnnected bdy f statutry and case law and regulatins (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.). The slutins t any given business s health care refrm cmpliance and design issues depend n t many varied factrs t list, including but nt limited t, the size f the emplyer (which depends n cmplex business wnership and emplyee cunting rules), whether the emplyer has a fully-insured r self-funded grup health plan, whether its emplyees wrk full time r part time, the imprtance f grup health cverage t the emplyer s recruitment and retentin gals, whether the emplyer has a cllectivelybargained wrkfrce, whether the emplyer has leased emplyees, the cst f the current grup health cverage and extent t which emplyees must pay that cst, where the emplyer/emplyees are lcated, whether the emplyer is a religius rganizatin, what the current plan cvers and whether that cverage meets minimum requirements, and many ther factrs. 3

4 Kathleen Barrw, Sharehlder, Jacksn Lewis, P.C. Over 20-years experience in ERISA emplyee benefit, executive cmpensatin and emplyment-related tax matters Practice fcuses n emplyer and plan defense f IRS and DOL audits f plans, payrll and cmpensatin systems Over 20-years experience litigating emplyee plan and cmpensatin-related tax issues befre the United States Tax Curt, US District Curts and Curts f Appeal Has trained ver 5000 emplyers natinwide n issues arising under the Affrdable Care Act 4

5 Under Sectin 414 related entities are treated as a single emplyer fr certain emplyee benefit plan purpses Sectin 414 defined three types f Related Entities Cntrlled Grups f Crpratins Partnerships and Prprietrships Under Cmmn Cntrl Affiliated Service Grups (including management rganizatins) 5

6 401 qualified pensin, prfit-sharing, defined cntributin plans 408(k) Simplified emplyee pensin plans 408(p) Simple retirement plans 410 minimum participatin rules 411 minimum vesting requirements 415 limitatins n benefits and cntributins 416 special prvisins fr tp heavy plans NEW Ascertaining emplyer size fr applicable large emplyer analysis and SHOP eligibility under the Affrdable Care Act 6

7 Emplyer reprting bligatins specifically Frm 1094-C reprting mandates that emplyer entities identify and reprt their related entities t the IRS! Penalty fr incrrectly reprting is $250 per frm per year up t $3 millin. Intentinal disregard penalty is $500 per return per year. 7

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11 414(b) all members f a cntrlled grup f crpratins are treated as a single emplyer Parent-subsidiary cntrlled grup--ne r mre chains f crpratins cnnected thrugh stck wnership with a cmmn parent, and the cmmn parent wns 80% f the cmbined vting pwer f all classes f stck r at least 80% f the ttal value f all classes f stck f at least ne f the subsidiary crpratins. Brther-sister cntrlled grup tw r mre crpratins if the same 5 r fewer persns wn stck with mre than 50% f the ttal cmbined vting pwer f all classes f stck, and such wnership is identical, and in these same persns the cmbined vting pwer is at least 80% f the ttal vting pwer r value f all classes f stck in the crpratins Cmbined grup three r mre crpratins, ne f which is a cmmn parent crpratin and that parent is als a member f a brther-sister grup f crpratins 11

12 A crpratin wns 80% f the cmmn stck f C crpratin C crpratin wns 40% f E crpratin A crpratin wns 80% f F crpratin F crpratin wns 40% f E crpratin 12

13 A wns 80% f C and F C wns 40% f E A is parent F wns 40% f E E Crp 13

14 One Class f Stck Individual P W X Y Z A 55% 51% 55% 55% 55% B 45% 49% C 45% D 45% E 45% 100% 100% 100% 100% 100% 14

15 A wns 80% X wns 80% Y wns 80% S Z 15

16 Partnerships and prprietrships under cmmn cntrl Determined similarly t parent-subsidiary and brther-sister relatinships Fcus is n cntrlling interest actual cntrl and effective cntrl 80% f wnership r cntrlling, vting interest Effective cntrl exists if a party wns mre than 50% interest in an rganizatin In nn-prfit analysis, the examinatin fcuses n whether 80% f the cntrl f the nn-prfits rests, directly r indirectly with the same Bard f Directr members. 16

17 Optin t wn stck is attributed t hlder f stck Stck wned by trust attributed t beneficiary wh has actuarial interest f 5% r mre in stck Stck wned by crpratin attributed t hlders f 5% f mre f the stck (prprtinate wnership) Stck wned by spuse is attributed, with exceptins fr crpratins where Individual des nt wn any stck directly Individual des nt participate in management r directrship Nt mre than 50% f incme f crpratin derived frm rent, ryalties, dividends (i.e. passive investments) N restrictins against alienatin in favr f children under age 21 Stck wned by children under age 21 is attributed A persn wh wns mre than 50% f stck has wnership f parents, grandparents, grandchildren and adult children attributed. 17

18 A grup cnsisting f A service rganizatin (the First Organizatin a prfessinal service rg.), and Anther rganizatin if A significant prtin f the business is the perfrmance f services fr the First Organizatin, and 10% r mre f the interests in the rganizatin is held by highly cmpensated emplyees; OR Anther service rganizatin which is a sharehlder r partner in the First Organizatin; and Regularly perfrms services fr the First Organizatin r is assciated with the First Organizatin in perfrming services fr 3 rd persns 18

19 A grup f rganizatins cnsisting f An rganizatin which has a principal business f perfrming management functins fr anther rganizatin; and The rganizatin which is receiving such services. 19

20 The Applicable large emplyer analysis In general, 50 r mre FTEs in the prir 12-mnth perid = Applicable Large Emplyer Cde 4980H(c)(2)(C)(i) expressly references the aggregatin rules cntained in Cde 414(b), (c), (m), and () when discussing the cunt f FTEs relevant t the Applicable Large Emplyer analysis. Treas. Reg H-2(d) highlights that the cunt f FTEs includes all members f a cntrlled r affiliated services grup as discussed in this presentatin. 20

21 An emplyer that fails t cunt all emplyees f all related entities: May fail t realize it is an Applicable Large Emplyer and thus fail t ffer minimum essential, affrdable cverage with minimum value t Full-time emplyees and thereby suffer the failure t ffer penalties under the ACA Will fail t reprt insurance cverage n Frm 1095-C and Frm 1094-C and therefre suffer the $250 r $500 per frm penalty fr such failure Will likely als have failed minimum participatin and/r discriminatin test and disqualified the tax-qualified pensin plans f the related entities. 21

22 The Small Business Health Optins Prgram r SHOP allws a small emplyer t ffer a qualified grup health plan in the small grup market t emplyees grup health plan must permit emplyee chices cncerning level f cverage T be a qualified emplyer ne eligible t ffer cverage thrugh the SHOP, the emplyer Must be a small emplyer Must elect t ffer cverage under a qualified health plan t at least all full-time emplyees Must ffer cverage thrugh SHOP servicing emplyer s area r a SHOP servicing the emplyer s wrksite. 22

23 Emplyer is Small Emplyer if the emplyer has 50 FTEs but states may elect t define Small Emplyer as ne with less than 100 FTEs. States must ntify CMS f this electin. Small Emplyer determinatin is made with cnsideratin given t the aggregatin/related entity rules f Cde 414(b), (c), (m), (). 23

24 Insurance carriers wh believe emplyer is inapprpriately participating in SHOP because the emplyer is nt Small is encuraged t ntify CMS. The CMS ntificatin is dne t assure large emplyer experience is nt mistakenly reprted as small emplyer experience Applicatin fr emplyer signed under penalty f perjury. Tax Credits must be returned t IRS, plus interest and penalties 24

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