Client Alert – Recent Delay and Additional Guidance under the PPACA

On February 10, 2014, Treasury Department officials announced yet another delay to the employer mandate portion under the Patient Protection and Affordable Care Act (“PPACA”).  The Final Regulations – Shared Responsibility for Employers Regarding Health Coverage – issued by the Internal Revenue Service are intended to provide guidance to employers that are subject to PPACA’s employer mandate and offer some relief to certain large employers by delaying the penalty provisions for one year.  In addition to the delay applicable to mid-size employers (defined below), the regulations grant to large employers (those with 50 or more full-time employees and full-time equivalents (FTEs)) expanded transition rules intended to assist with PPACA planning and compliance.

Originally, the employer mandate, which is expected to affect employers employing 72 percent of all Americans, was scheduled to become effective January 1, 2014, but was postponed to January 1, 2015 for all large employers.  This most recent delay is more limited as it applies to mid-size employers.   A summary of the latest guidance is set forth below.

  • Mid-sized employers – those with 50 to 99 full-time employees (and FTEs) – will have until 2016 before becoming subject to the employer mandate and related penalty provisions under PPACA.  In order to qualify for this extension, mid-sized employers will need to certify eligibility for this relief and must meet other requirements, including not reducing the employer’s workforce to qualify for the delay and maintaining previously-offered coverage.

In addition to the delay applicable to mid-sized employers, the recent guidance relaxes certain requirements under PPACA’s employer mandate, which may prove beneficial to large employers.

  • For employers with 100 or more full-time employees and FTEs, offering coverage to 70 percent of their full-time employees will be counted as fulfilling the employer mandate in 2015. This is a transitional measure and, by 2016, large employers will need to provide coverage to 95 percent of their full-time employees (and their dependents) or risk paying a penalty.
  • Multiemployer Plans.  The transition relief included in the proposed regulations for multiemployer plans has been continued indefinitely. Under this transition relief, a large employer will not be subject to shared responsibility penalties with respect to employees for whom the employer is required by the collective bargaining agreement or appropriate related participation agreement to make contributions to the multiemployer plan.

The final regulations provide clarifications – many of which are based on comments on the proposed regulations – regarding whether employees of certain types or in certain occupations are considered full-time, including:

  • Volunteers: Hours contributed by bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not cause them to be considered full-time employees.
  • Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer.
  • Seasonal employees: Those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.
  • Student work-study programs: Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether they are full-time employees.
  • Adjunct faculty: The final regulations provide as a general rule that, until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer responsibility provisions. However, to accommodate the need for predictability and ease of administration, the final regulations expressly allow crediting an adjunct faculty member with 2 ¼ hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose.

Other Specific 2015 Provisions – In addition to relief noted earlier, a package of limited transition rules that applied to 2014 under the proposed regulations is extended to 2015 under the final regulations, including:

  • Employers first subject to shared responsibility provision: Employers can determine whether they had at least 100 full-time or full-time equivalent employees in the previous year by reference to a period of at least six consecutive months, instead of a full year.
  • Non-calendar year plans: Employers with plan years that do not start on January 1 will be able to begin compliance with employer responsibility at the start of their plan years in 2015 rather than on January 1, 2015, and the conditions for this relief are expanded to include more plan sponsors.
  • Dependent coverage: The policy that employers offer coverage to their full-time employees’ dependents will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
  • On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period – of up to 12 months.

WHAT DOES THIS MEAN FOR LARGE EMPLOYERS?

  1. Employers with 50 through 99 full-time employees have another year – until 2016 – to comply with the employer mandate or risk paying a penalty.
  2. Employers with 100 or more full-time employees (and full-time equivalents) will be subject to the employer mandate as scheduled in 2015.  However, coverage can be offered to at least 70% of full-time employees and dependents and, if that coverage is affordable and provides minimum value, penalties under the employer mandate likely will not apply.  This coverage percentage reduction will be helpful for those employers that do not offer (and have never offered) coverage to certain groups of employees, such as part-time employees working more than 30 hours per week, student teachers, wait staff, etc.  If those typically excluded from coverage do not exceed 30% of an employer’s full-time workforce, it is possible those individuals can still be excluded from coverage in 2015 without penalty.
  3. Employers with non-calendar year plans are subject to the employer mandate on the first day of the plan year beginning in 2015, rather than January 1, 2015, as long as certain conditions are met.

CONCLUSION

At this point, we recommend that clients speak with their attorneys/advisors to discuss the newest regulations and to determine how the guidance impacts their organization and employees.

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