Sign up for our upcoming webinar, Preparing For the 2022 ACA Filing Season, on October 26 at 11:00 AM, PT!

Sign up for our upcoming webinar, Preparing For the 2022 ACA Filing Season, on October 26 at 11:00 AM, PT!

Home ACA Compliance ACA Compliance Concerns That May Arise During Mergers and Acquisitions

ACA Compliance Concerns That May Arise During Mergers and Acquisitions

3 minute read
by Robert Sheen
ACA Compliance

There are many factors at play when determining which company shoulders the responsibility of ACA reporting falls on during a merger or acquisition.

Ultimately, ACA reporting requirements are the obligation of the legal entity that is the employer. But, depending on the transaction, liabilities can arise for both target and acquiring companies, HR Dive reports.

Below we highlight some ACA concerns employers should look out for when going through a merger and or acquisition.

When a target company is responsible for ACA reporting

If the answer is yes to either of the questions below, the target company is subject to ACA requirements for the entire year of acquisition:

  • Is the target company an Applicable Large Employer (ALE), or an ALE group member, in the year before the transaction? An ALE is defined as an employer or group of employers under common control that average at least 50 full-time or full-time equivalent employees.
  • Has the acquiring company acquired at least 80% equity interest in an ALE or ALE group member? It’s true that the target company remains responsible for ACA reporting responsibilities for all the target company employees for the entire year of the acquisition. However, since this obligation is usually consolidated by ALE groups, the acquiring company is obligated to ensure its new group member meets its reporting requirements during that year.

When an acquiring company is responsible for ACA reporting

There are more nuances for acquiring companies during a transaction.

  • If only the assets of a target company are acquired, the acquired employees in the transaction are treated as new employees of the acquiring company. That means the acquiring company assumes responsibility of ACA reporting for those employees as of the date of acquisition. Employers should note that all ACA reporting obligations prior to the date of employee transfer to the acquiring company stay with the target company.
  • When the equity of an ALE or ALE group member is acquired, the target company’s full-time employees will be considered ongoing full-time employees and must be offered ACA coverage as of the acquisition date.
  • The acquiring company is also indirectly responsible for the target company’s ACA obligations for prior years. This includes not only responsibility for timely and accurate reporting, but also for employer shared responsibility provisions (ESRPs) incurred prior to the transaction.
  • The acquiring company, assumed to be an ALE, must provide Forms 1095-C to the target company’s employees who enroll in self-insured coverage offered by the acquiring company if it is effective for all or part of the acquisition year.

The acquisition of the equity of a company, using cash, stock or a combination thereof, may also raise a slew of questions that affect the treatment of acquired employees from an ACA reporting perspective. 

These questions may include: How did the target company determine whether the employees were full-time workers? What coverage terms were offered to full-time employees? Were part-time employees offered coverage?

A note on penalties and ESRPs

Because reporting penalties and ESRPs are the obligation of the actual employing legal entity, acquiring the equity of a target company will mean any assessments following the acquisition are due while the target company is an asset of the acquiring company. Hence, any penalties or ESRPs assessed will continue to be the obligation of the target company when it becomes a subsidiary of the acquiring company.

Note: There is no statute of limitations for assessing ESRPs — either the 4980H(a) penalty (failure to offer coverage to at least 95% of full-time employees) or the 4980H(b) penalty (failure to offer affordable coverage that meets the minimum value standard).

With ACA penalties rising yet again this year and record numbers of Americans enrolling in affordable health care, employers should practice due diligence around reporting obligations to limit significant financial liability. 

Knowing your company’s ACA compliance risk level prior to engaging in a merger or acquisition can help. In less than a minute, you can assess your ACA compliance score and identify your penalty risk with ACA Vitals. Get your score below:

Get: ACA Vitals Score

Related posts

Brought to you by Trusaic

Featured In

© 2024 Copyright Trusaic – All Rights reserved.