QSEHRA Employer Aggregation for 501(c)(3) organizations

[LABenefits]

Given sparsity of guidance applying IRC 414 controlled group, affiliated service group rules to 501(c)(3) organizations, in this case, specifically as it pertains to employer eligibility to offer QSEHRA for ACA purposes given 50 FTE cut-off,  I'm looking for reactions to the following situation:   employer currently offers QSEHRA, has under 50 FTEs but is nearing that mark.   The employer is a 501(c)(3) corporation so no stock ownership.   The employer runs a school for troubled youth as well as a thrift store (all within the same corporation).   Proceeds from the thrift store support school operations.   The 501(c)(3) can't afford offering ACA compliant health coverage so it is looking for ways to stay under the 50 FTE, including separating the thrift store into separate entity.   Boards would be under 80% commonality/control to avoid Treas. Reg. 1.414(c)-5 (imposing 80% board overlap/control test on 501(c)(3) orgs).  However, even if thrift store is spun off in this way, all the thrift store revenues would continue to be distributed to the school.   I need to trace through the 501(c)(3) supporting organization requirements if the thrift store were to be spun off into a separate org, but assuming we can structure and meet those requirements and stay under 80% common board overlap/control, I'm concerned with applicable of the "anti-abuse rule" for ACA purposes, which reads as follows:   

"Anti-abuse rule.—

In any case in which the Commissioner determines that the structure of one or more exempt organizations (which may include an exempt organization and an entity that is not exempt from income tax) or the positions taken by those organizations has the effect of avoiding or evading any requirements imposed under section 401(a), 403(b), or 457(b), or any applicable section (as defined in section 414(t)), or any other provision for which section 414(c) applies, the Commissioner may treat an entity as under common control with the exempt organization."

Any thoughts or reactions to this fact pattern for ACA purposes?  Or any ideas for 501(c)(3) ACA-compliant health plan options that might be affordable?   

[Brian Gilmore]

I don't think that's an ACA anti-abuse rule you cited.  But to the point--I'd suggest making sure the client gets a clear legal opinion as to controlled group status under Treas. Reg. §1.414(c)-5 and moving forward on that basis.  What you're really looking at here is the ACA employer mandate rules.  Those rules apply to ALEs, which is determined across all entities in the controlled group.  You need to have clear direction on controlled group status before you can proceed, and you're only going to get that by through a formal opinion.  That's not something that can be handled on a forum like this.

More details:

https://www.newfront.com/blog/aca-reporting-for-controlled-groups

ALE Status: Employers Subject to the ACA Employer Mandate

The ACA employer mandate pay or play rules apply to employers that are “Applicable Large Employers,” or “ALEs.”  In general, an employer is an ALE if it (along with all members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.

ALEs are subject to both the ACA employer mandate under §4980H as well as the ACA reporting requirements under §6056 via Forms 1094-C and 1095-C.

...

Regulations

Treas. Reg. §54.4980H-1(a):

(4) Applicable large employer. The term applicable large employer means, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. For rules relating to the determination of applicable large employer status, see §54.4980H-2.

…

(16) Employer. The term employer means the person that is the employer of an employee under the common-law standard. See § 31.3121(d)-1(c). For purposes of determining whether an employer is an applicable large employer, all persons treated as a single employer under section 414(b), (c), (m), or (o) are treated as a single employer. Thus, all employees of a controlled group of entities under section 414(b) or (c), an affiliated service group under section 414(m), or an entity in an arrangement described under section 414(o), are taken into account in determining whether the members of the controlled group or affiliated service group together are an applicable large employer. For purposes of determining applicable large employer status, the term employer also includes a predecessor employer (see paragraph (a)(36) of this section) and a successor employer.

 

Slide summary:

2024 Newfront ACA Employer Mandate & ACA Reporting Guide

[LABenefits]

Thank you, Brian.    I agree.