Final Regulations Offer More Delays
Final Employer Shared Responsibility Regulations under the Affordable Care Act (ACA) were announced, providing particularly good news for applicable large employers, especially those with more than 50 but fewer than 100 full-time equivalents (FTEs).
Recall that an applicable large employer has 50 or more FTEs during the prior year. If at least one employee receives subsidized health coverage in the Health Insurance Marketplace, these employers must pay a penalty for either failing to offer to 95 percent or more of its full-timers minimum essential coverage (MEC) or offering them coverage that is either unaffordable or lacks minimum value. These penalties were supposed to start in 2014, but were delayed for one year (along with §6055 and §6056 reporting) until 2015, per Notice 2013-45.
The Final Regs offer guidance to applicable large employers who will be subject to the penalties in the employer mandate under §4980H of the Internal Revenue Code. Significantly, in Section XV.D of the preamble, the IRS provides transition relief in the following areas:
- Additional one-year delay for employers with fewer than 100 FTEs. For applicable large employers with fewer than 100 FTEs, penalties are delayed until the plan year starting in 2016. Employers may not qualify for the delay by reducing workforce or hours of service from February 9, 2014, through December 31, 2014, unless the reductions are for bona fide business reasons. These employers must meet other conditions, including completion of a certification form. The IRS anticipates a similar one-year delay for these employers in §6056 reporting.
- Additional relief for employers with 100 FTEs or more. For the 2015 plan year only, these employers can substitute the 95 percent coverage requirement described above with 70 percent. Also, recall that the ACA calculates the MEC penalty by subtracting 30 from the total number of full-time employees and multiplying it by $167 per month. For the 2015 plan year only, employers can substitute the number 30 with the number 80.
- Non-calendar year plans. These plans must have had the non-calendar plan year in effect on December 27, 2012, and the plan year cannot have been modified since then. The IRS extended the transition relief that was in the Proposed Regulations issued on January 2, 2013. These plans do not have to pay a penalty for the months leading up to the first day of the plan year in 2015 as long as the 2015 non-calendar plan year provides affordable, minimum value coverage to no less than 95 percent of its full-time employees. New transitional guidance is also now available under what are called the Significant Percentage Rules. However, employers eligible for the transition guidance remain subject to the §6056 reporting requirements for the 2015 calendar year.
- Look-back measurement periods. Employers can continue to use the transition relief available in the Proposed Regs for determining full-time employees. Specifically, employers may adopt a transition measurement period that is 6-12 months if it starts no later than July 1, 2014, and ends no earlier than 90 days before the first day of the 2015 plan year.
- Applicable large employer. Employers may determine applicable large employer status based on at least six consecutive calendar months in 2014 rather than all of 2014. Again, this is a carryover from the Proposed Regs.
- New January 2015 exception on partial months. If a full-time employee is not offered coverage for even one day of a month, that counts as no coverage in the entire month for purposes of §4980H penalties. New relief is available for the month of January 2015 only, if the employer offers coverage no later than the first day of the first payroll period that begins in January 2015.
- Coverage for dependents. The Final Regs extend the relief provided in the Proposed Regs related to applicable large employers that do not offer dependent coverage in 2015. An employer that takes steps to add dependents during the 2015 plan year will not be subject to a penalty for those dependents.
- Multiemployer arrangements. The interim guidance provided to these plans in the Proposed Regs was extended in the Final Regs.
The practical effect of these regulations is that the transition relief in the Proposed Regs for all applicable large employers, originally applicable to 2014, has effectively been copied and pasted to 2015 by the Final Regs, with some expanded relief. Some employers will get an additional one-year delay from the penalty and reporting rules. Larger employers who don’t qualify for the delay will find it easier to avoid the MEC penalty or pay less of the MEC penalty.
Infinisource is studying the Final Regs and assessing how the Final Regs affect iSolved and our related systems.