The existence of a “control group” is important in a variety of benefit concerns. From retirement plans to welfare plans, and particularly in withdrawal liability matters, establishing whether companies are under common control is very important. Under the Affordable Care Act, it matters for determining whether you are an applicable large employer. So as we get closer to that Jan. 1, 2015, deadline, let’s revisit control group rules.

Basically there are two types of control groups. The first is a parent-subsidiary control group. In this relationship, 80% of the stock of each corporation, (except the common parent) is owned by one or more corporations in the group; and the parent corporation must own 80% of at least one other corporation. The second type is a brother-sister control group. It is a little more complex. A brother-sister controlled group is a group of two or more corporations in which five or fewer common owners own directly or indirectly a controlling interest of each group and have “effective control.” The first part, the controlling interest, means that the group holds 80% or more of the stock of each corporation (but only if such common owner own stock in each corporation). Effective control means more than 50% of the stock of each corporation, but only to the extent such stock ownership is identical with respect to such corporation.

Confused yet? Well you also have to consider the definition of person that includes, amongst other things, estates and beneficiaries of trusts. You also have to consider the attribution rules in Section 1563 of the code because ownership between spouses, children and even adult children can be attributed to other owners depending on the circumstances. So it is not just a function of who owns what, but also how the owners are related to each other.

All of this is relevant because in many instances, the IRS and DOL measure compliance by control group, not simply by individual employer. Moreover, there are many situations in the benefits arena where liability for wrongdoing flows to the entire control group, not just one member. Commonality of ownership can cause common responsibility.

Remember that being part of a control group is not in and of itself a bad thing. But make sure you know whether or not your company is part of one. It can have a substantial impact on benefit related decisions, so make sure to figure out who is in control.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at or (212) 878-7919.

The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

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