Affordable Care Act Review

Affordable Care Act Review

Expanded Cafeteria Plan Election Changes

Posted in Affordable Care Act, Exchanges

Yesterday, the IRS issued Notice 2014-55 which expanded the permitted change rules for health coverage under cafeteria plans.  The Notice added two specific situations under which an individual can make changes to their health coverage outside of open enrollment.  It is important to note that these two additions do not apply to flexible spending arrangements.  The two situations are as follows:

  1. Employee who normally works at least 30 hours a week whose hours are reduced to less than 30 (regardless of whether this results in loss of eligibility for coverage).  In order to make a change as a result of a reduction in hours, two criteria must be met:
    1. The change in coverage must coincide with intended enrollment of the employee (and any covered dependents) into another plan that provides minimum essential coverage.
    2. The new coverage must be effective no later than the first day of the second month following the month that includes the date original coverage was revoked.
  2. Employee becomes eligible to enroll in the Marketplace either through a special enrollment period or open enrollment.  In order to make the change to elect Marketplace coverage, two criteria must be met:
    1. The change in coverage must coincide with intended enrollment of the employee (and any covered dependents) into the Marketplace.
    2. The new coverage must be effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

The Notice also clarified that it is not the responsibility of the employer to “police” the coverage change. In other words, employers do not have to require employees to prove that alternative coverage was elected once they ceased to participate in the employer’s plan.

The IRS will be modifying Section 125 in light of these recent changes.  While these modifications are pending, the changes in the Notice are effective as of the date of the Notice (September 18, 2014).  Plans will have to be amended to reflect these recent changes.

Automatic Enrollment?

Posted in Affordable Care Act, Government Employers, Insurers and Brokers, Private Employers

ACA § 1511 added new § 18A to the Fair Labor Standards Act, 29 U.S.C. § 218A, requiring employers of more than 200 full-time employees to “automatically enroll new full-time employees in one of the plans offered (subject to any waiting period authorized by law) and to continue the enrollment of current employees in a health benefits plan offered through the employer,” with an accompanying notice of employee opt-out rights, (here’s the catch) “[i]n accordance with regulations promulgated by the Secretary . . .” [of Labor].  Four and a half years later, no regulations have been proposed.  Not that you’re eagerly awaiting more ACA rules.

On December 22, 2010, DOL issued a set of answers to “Frequently Asked Questions” (FAQ), forecasting rule publication “by 2014.”   But, in Technical Release 2012-01, it delayed that forecast indefinitely, citing the need to coordinate any enrollment rules with the employer mandate and waiting period rules then being written.  Both were issued in final form early this year.  Still, no auto enrollment rules.

According to DOL’s web site, T.R. 2012-01 drew 40 public comments, most directed to the details of new hire full-time status testing under the expected look-back measurement method.  These suggestions also were made by important organizations:

  • Adopt a 1,200 hour, cumulative hours of service standard as a compliance safe harbor for auto enrollment, waiting period and employer mandate purposes (Business Roundtable);
  • Allow twelve months between rule publication and compliance (America’s Health Insurance Plans);
  • Ignore summer break months when determining the full-time status of school employees (National Education Association);
  • Don’t use a retirement plan enrollment model; new hires may be enrolled in other coverage already and may lose provider access if auto-enrolled in new plans (Retail Leaders Industry Association).

In early 2013, so-called “skinny med,” minimum essential coverage plans hit the market, causing concern that automatic enrollment in such plans could render employees ineligible for ACA Exchange subsidies.  Murmuring against § 18A became calls for its repeal, embodied in S. 2546, The Auto Enroll Repeal Act, endorsed by a July 22, 2014 letter to Sen. Johnny Isakson (R – Georgia) signed by a long, impressive list of national employers and trade organizations. Assigned to the Senate H.E.L.P. Committee (chaired by Tom Harkin, D-Iowa) , it languishes there today.   As best we can tell, that’s why we lack even  proposed automatic enrollment rules in the fifth year after ACA passage.


Avoid Employer Mandate Myopia

Posted in Affordable Care Act, Coverage Mandates, Government Employers, Grandfathered Status, Insurers and Brokers, Private Employers, Taxes

A dangerous notion is afoot – that an employer too small for “employer mandate” taxation under 26 U.S.C. § 4980H is therefore “exempt from Obamacare,” as we have heard it said too often.   That’s wrong for many reasons.  Every employer sponsoring a group health plan is obligated to comply with applicable coverage, cost sharing and anti-discrimination mandates, whether or not the employer is required to offer coverage at all.  Here’s one example that’s currently getting too little attention.

By adding new § 2716 to the Public Health Service Act, the ACA directed DOL, HHS and IRS to adopt for fully-insured plans non-discrimination rules like those already applicable to self-funded plans.  Violations would subject the plan to ERISA suits and to Code § 4980D taxes or PHS Act civil money penalties of $100 per day per non-highly compensated individual.  About six months later, the IRS renewed the warning in Notice 2010-63, inviting, “comments on what additional guidance relating to the application of section 105(h) (2) would be helpful with respect to insured group health plans.”

In Notice 2011-1 (December 2010), the IRS warned again that, “if a self-insured plan fails to comply with § 105(h), highly compensated individuals lose a tax benefit; if an insured group health plan fails to comply with § 2716, the plan or plan sponsor may be subject to an excise tax, civil money penalty, or a civil action to compel it to provide nondiscriminatory benefits,” adding that grandfathered, fully-insured plans will be exempt from the new rules.  Notice 2011-1 also told us that -

compliance with § 2716 should not be required (and thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued under § 2716. In order to provide insured group health plan sponsors time to implement any changes required as a result of the regulations or other guidance, the Departments anticipate that the guidance will not apply until plan years beginning a specified period after issuance.  Before the beginning of those plan years, an insured group health plan sponsor will not be required to file IRS Form 8928 with respect to excise taxes resulting from the incorporation of PHS Act § 2716 into § 9815 of the Code.

Comments were invited on these thirteen topics (summarized briefly here):

  1. What “benefits” should be tested?  “For example, is the rate of employer contributions toward the cost of coverage (or the required percentage or amount of employee contributions) or the duration of an eligibility waiting period treated as a “benefit” that must be provided on a nondiscriminatory basis?”
  2. Should there be an alternative that tests only coverage availability?
  3. How this relates to employer and individual mandate taxation.
  4. Which employee groups might be tested separately.
  5. Which separate employer locations might be tested separately.
  6. Safe harbor options.
  7. Aggregation of “substantially similar” coverages.
  8. Application to expatriate employees.
  9. Application to multi-employer plans.
  10. Testing, or not, of after-tax coverages provided to the highly compensated.
  11. Treatment of voluntary waivers of employer coverage.
  12. Treatment of corporate mergers, acquisitions and similar transactions.
  13. Penalty application.

The anticipated rules next were referenced next in a set of proposed rules on “wraparound” plans, published on Christmas Eve, 2013.  See 78 Fed. Reg. 77,740, to be codified at 26 CFR § 54.9831-1(c)(3)(vi).  Neither the rule text nor the preamble gave any further hint about the content of the coming rules.  See 79 Fed. Reg. 77,636.

Then, news broke in January 2014 that the IRS would delay issuance of related ACA rules until after the November 2014 elections, perhaps well into 2015.   That caused many employers to tune out.

We suspect that existing rules for self-funded plans are being reconsidered and perhaps rewritten to match the new rules for fully-insured plans.  If so, the new rules could make a big splash with small employers who have adopted self-funded plans to escape the ACA’s impact on their insurance markets.  A lot is happening that deserves the attention of employers large and small. Don’t get caught napping.

Cumulative Hours of Service Eligibility

Posted in Affordable Care Act, Coverage Mandates, Government Employers, Insurers and Brokers, Private Employers, Taxes

IRS maximum waiting period rules are in effect and employer mandate taxes will begin accruing January 1, 2015.    Much has been written, here and elsewhere, about how to administer group health plan eligibility for both purposes.  Briefly, here are the options we have covered in prior posts.

  • Treat all employees as eligible, eliminating the full-time / part-time distinction, with insurer consent, and observe the maximum waiting period rules for new hires;
  • Create a DMZ between employees who are very part-time and those who are very full-time; allow no one near the border and observe the maximum waiting period rules for new hires;
  • Track full-time eligibility manually, using the look-back measurement method for all but full-time new hires;
  • Acquire and use ACA employer compliance software to do the same, either with or without associated benefit administration services.

We saved this deep dive into the cumulative hours of service (“CHOS”) option because of a difficult ambiguity, hoping for clarification that hasn’t arrived.  The question is whether a CHOS requirement (up to 1,200 hours) that complies with the PHS Act § 2708  waiting period rules also avoids employer mandate tax assessments under Code § 4980H.

The math is simple.  An employee averaging 30 weekly hours of service would reach 1,200 hours in 40 weeks – about three times the maximum waiting period for someone hired full-time.  One would have to exceed 90 weekly hours to hit 1,200 within the 90-day waiting period. So, we doubt that the IRS will waive § 4980H assessments because an employer applied a CHOS eligibility test to an employee hired to work full-time.  But does the IRS consider the CHOS test a § 4980H alternative to the look-back measurement period for part-time, variable hour and seasonal employees?  If you need simplicity, stop reading now.

The look-back measurement method is discussed in the employer mandate rules and in the waiting period rules, but only the waiting period rules discuss the CHOS option expressly. 

(ii) Cumulative service requirements. If a group health plan or health insurance issuer conditions eligibility on an employee’s having completed a number of cumulative hours of service, the eligibility condition is not considered to be designed to avoid compliance with the 90-day waiting period limitation if the cumulative hours-of-service requirement does not exceed 1,200 hours.

See 79 Fed. Reg. 10,307, 311-12, 316-17 (Feb. 24, 2014), codified at 26 CFR § 54.9815-2708(c)(3)(ii) (Example 8); 29 CFR § 2590.715-2708(c)(3)(ii) (Example 8) and 45 CFR § 147.116(c)(3)(ii) (Example 8).  The reader is warned that waiting period compliance won’t necessarily avoid employer mandate tax assessments.

(h) No effect on other laws. Compliance with this section is not determinative of compliance with any other provision of State or Federal law (including ERISA, the Code, or other provisions of the Patient Protection and Affordable Care Act). See e.g., § 54.9802-1, which prohibits discrimination in eligibility for coverage based on a health factor and section 4980H, which generally requires applicable large employers to offer coverage to full-time employees and their dependents or make an assessable payment.

79 Fed. Reg. 10,308, 312, 317.  So far, it’s not looking good for the CHOS test as a § 4980H tax avoidance maneuver.

To determine the § 4980H tax exposure, employers must consult the employer mandate final rule, § 54.4980H-3(c)(2) of which, describing full-time employees under the monthly measurement method, states:

(2) Employee first otherwise eligible for an offer of coverage. The rule in this paragraph (c)(2) applies with respect to an employee who, in a calendar month, first becomes otherwise eligible to be offered coverage under a group health plan of an employer using the monthly measurement method with respect to that employee. For purposes of this paragraph (c)(2), an employee is otherwise eligible to be offered coverage under a group health plan for a calendar month if, pursuant to the terms of the plan as in effect for that calendar month, the employee meets all conditions to be offered coverage under the plan for that calendar month, other than the completion of a waiting period, within the meaning of § 54.9801-2, and an employee is first otherwise eligible if the employee has not previously been eligible or otherwise eligible for an offer of coverage under a group health plan of the employer during the employee’s period of employment. An employer is not subject to an assessable payment under section 4980H(a) with respect to an employee for each calendar month during the period of three full calendar months beginning with the first full calendar month in which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage no later than the first day of the first calendar month immediately following the three-month period if the employee is still employed on that day. If the coverage for which the employee is otherwise eligible during the three-month period, and which the employee actually is offered on the day following that three-month period if still employed, provides minimum value, the employer also will not be subject to an assessable payment under section 4980H(b) with respect to that employee for the three-month period. This rule cannot apply more than once per period of employment of an employee. If an employee terminates employment and returns under circumstances that would constitute a rehire as set forth in paragraph (c)(4) of this section, the rule in this paragraph (c)(2) may apply again.

79 Fed. Reg. 8584 (Feb. 12, 2014) (emphasis ours.)  Section 54.9801-2 takes us back to the waiting period rules, where we read that “[w]aiting period means waiting period within the meaning of § 54.9815-2708(b).”  Flipping there, we learn that it “is the period that must pass before coverage for an individual who is otherwise eligible to enroll under the terms of a group health plan can become effective.” 

We’ve now come full circle, back to the place in the waiting period rules where we read that a CHOS test isn’t one.  Indeed, the maximum waiting period may be added to the CHOS.   See 26 CFR § 54.9815-2708(c)(3)(ii) (Example 8).   In short, intertwined sets of rules suggest that a lawful CHOS requirement may delay both the accrual of waiting period penalties and employer mandate tax assessments.  But can that be squared with the “no effect on other laws” language quoted above?

IRS Notice 2012-59 (August 2012), the immediate predecessor to the waiting period proposed rules, approved by example an employee working from January 3 until December 15 before reaching the 1,200 CHOS eligibility threshold, without comment regarding the § 4980H consequences.  The proposed rules, issued seven months later, added this footnote on the same point:

While a cumulative hours-of-service eligibility condition up to 1,200 hours may be permissible under PHS Act section 2708, an applicable large employer’s denial of coverage to a full-time employee may, nonetheless, give rise to an assessable payment under section 4980H of the Code and its implementing regulations.

78 Fed. Reg. 17,316, n. 8 (March 21, 2013).  Eleven months later, that footnote was dropped from the relevant section of the final rules’ preambleSee 79 Fed. Reg. 10,298 (Feb. 24, 2014).  Three months after that, the CHOS portion was omitted entirely from the preamble to the final rule amendment adding a one-month orientation period See 79 Fed. Reg. 35,944 (June 25, 2014).   Is the IRS telling employers that a CHOS test has no relevance to § 4980H assessments or only that a CHOS test, like the look-back measurement method, cannot be imposed on full-time new hires so as to delay their coverage offers longer than 90 days?  The implications are anything but clear.

Two ACA employer compliance issues – automatic enrollment and plan discrimination – are puzzles because the rules have not been published.  Others are difficult because their complex rules require careful study.  This is a regulatory encounter of the third kind.  Close study actually augments the confusion.  The IRS Chief Counsel’s office referred us to the PR staff.  If we get a helpful response, we’ll update this post.

Draft Instructions for ACA Forms Released

Posted in Affordable Care Act, Uncategorized

A few months ago, the Internal Revenue Service released draft versions of Forms 1094-B, 1095-B, 1094-C and 1095-C (Click here for our prior post).  The final versions of these forms are expected later this year.  Pursuant to Code Section 6055, health insurance issuers, plan sponsors of self-insured health plans, government agencies that administer government-sponsored health insurance programs and all entities that provide minimum essential coverage are required to report coverage information to the IRS and covered individuals on Forms 1094-B and 1095-B.  Code Section 6056 mandates that Forms 1094-C and 1095-C be used by ALEs subject to Code Section 4980H.

As with most things ACA related, the forms themselves are quite complicated and initially left a lot of unanswered questions.  Last week, the IRS issued very voluminous and equally complex instructions for these forms, which reflect the true complexity of this new reporting requirement.  Instructions for Forms 1094-B and 1095-B can be found here, and instructions for Forms 1094-C and 1095-C can be found here.  The instructions walk you through the reporting process and information necessary to complete the forms.

While both the forms and the instructions clearly state not to rely upon them as changes may be made, it is highly unlikely that the changes will be significant.  Also, these forms are not required to be filed for 2014 but may be voluntarily filed in 2015.  The forms will be required to be filed in 2016 (for the 2015 year).  Despite the “draft” status and seemingly far-off deadline, it is important to go ahead and start reviewing the forms and instructions and discussing with any third parties who aid in tax reporting.  This is because the information needed to complete these forms must be recorded on a monthly basis starting in January of 2015.

First Look at ACA Employer Compliance Software

Posted in Affordable Care Act, Government Employers, Private Employers, Taxes

As we explained last month, employers who want to use the “look-back measurement method” of full-time employee identification should be shopping for IT solutions.  Here are four that we think deserve consideration.  None requires bundling all HR, payroll and benefits functions.  Instead, each pulls data from widely-used payroll and time management systems.  Some integrate ACA compliance with other HR or benefit features, such as uploading or preparing 834 files for upload to insurers.  All show how employees are trending in relation to ACA full-time eligibility rules; some also will pre-populate Form 1095-B and Form 1095-C.  All block some user choices that would produce compliance errors.  We especially like the fact that these vendors appear to appreciate their need for current, competent, continuing legal advice.  We assume, as should you, that there are others equally worthy of your attention.  If you find them, please tell us.  For the present, here are four that we like, listed in alpha order, by URL.

What You Get . . .

Full disclosure: Arc Technologies, based in Ridgeland, Mississippi, is a Balch client.  We believe that the ACA compliance module of its HRIS platform, “Eight,” would have made this list regardless. We especially like the automated audit trails and the default settings that favor eligibility unless authorized users make contrary designations in light of the data. Demos have gone well and existing “Eight” users have provided real world scenarios and suggestions during beta testing.  Arc got its start solving data management problems for restaurant franchisees and has one of the better Form I-9 compliance modules that we have seen. The phone number is (601) 991-1160.

Five Points, based in Franklin, Tennessee, offers a suite of HR and benefit administration solutions.  Our web-based demo was hosted by presenters who seemed to have studied the underlying ACA rules especially well.  We were most impressed with the graphics-based dashboard; it should be a valuable management tool.  Five Points started by solving problems for schools and hospitals, so they should handle those benefit issues especially well.  The toll-free line is (800) 435-5023.

Houston-based Empyrean brings significant, large group enrollment administration expertise to this project. “SAFEHARBOR” is a variable hour employee eligibility tracker but Empyrean also offers interlocking IT solutions for enrollment and IRS reporting, plus support and enrollment services. However, bundling is not required; SAFEHARBOR is available separately.  Our web-based demo was helpfully handled by people familiar with ACA issues.  The toll-free number is (800) 934-1451.  A video introduction is posted at

Worxtime, from a unit of Visual Benefit Communications, Inc., Huntsville, AL, builds on the vendor’s decades of benefit administration and support services to a wide range of employers.  Like Five Points, the graphics-based dashboard is very helpful.  Unusually, some back office concerns are up front, such as alerts about possibly corrupt data files and utilities designed to facilitate data import from many payroll and attendance programs, in any field order.  Mandated ACA reports are automated, but users may configure a wide range of other reports and e-mail alerts.  Some critical reports are coupled with support center phone calls to designated managers, just in case alert e-mails are trapped in a spam filter.  The toll-free number is (800) 374-8787.

What You Pay . . .

We built and culled our list based on expected functionality, including our assessment of the vendor’s capacity to improvise and optimize as this shakes out, relying mainly on the sort of web demonstration that the vendor would give a potential customer.  We did not consider or even request pricing information.  We suspect that increased competition and improving functionality will narrow any pricing gaps that may exist, but you should compare costs of all suitable systems. Debacle Part Deux?

Posted in Affordable Care Act, Exchanges, Insurers and Brokers

Testifying before a Congressional subcommittee this morning, a GAO executive described a just-published analysis of the disastrous 2013 rollout of  CMS management had unrealistic expectations and failed to implement prudent cost and project management controls, according to the GAO study, resulting in huge cost overruns, delays, re-work and dysfunction.  “As a result, CMS launched without verification that it met performance requirements.”  Management deficiencies continued even after CMS replaced the lead contractor early in 2014.

Ominously, the GAO warns that, “Unless CMS improves contract management and adheres to a structured governance process, significant risks remain that upcoming open enrollment periods could encounter challenges.”  Open enrollment is set to begin November 15, 2014 – just 15 weeks from now.  Yet, GAO reports that, “as of June 2014, the financial management module was still under development,” and was “scheduled to be implemented in increments from June through December 2014.”  This part of, “tracks eligibility and enrollment transactions and subsidy payments to insurance plans, integrates with CMS’ existing financial management system, provides financial accounting and outlook for the entire program, and supports the reconciliation calculation and validation with IRS.”

Insurers evaluating 2015 Exchange participation should watch this closely.

Administering the Look-Back Measurement Method

Posted in Affordable Care Act, Coverage Mandates, Government Employers, Private Employers, Taxes

We have been warning that employers will need months of advance planning and an automated process to use the ACA’s “look-back measurement method” to identify the full-time employees who will be entitled to an offer of coverage.  In a future article, we’ll report our impressions of several software options.  Here, we’ll make it as simple as we can and yet you’ll be dizzy before we’re done.  All references are to the IRS Employer Shared Responsibility Cost Final Rules, 26 CFR 54.4980H-3(d) (79 Federal Register pp. 8586 – 8594, Feb. 12, 2014).  Among other short-cuts, we’ll ignore special rules that apply only to school employees; we’ll ignore the option to insert an “administrative period” between a measurement period and its associated stability period; and, we’ll discuss another day how to determine whether a returning employee is a “new hire,” and how to count hours of “special unpaid leave” if she is not.

There is nothing like this in the ACA.  The statute says almost nothing about how to count “hours of service” to determine full-time status. But unless employers cut part-time hours way back, month-by-month eligibility determinations could be nearly impossible to administer.  Fear that employers would do just that might explain why the IRS created this option.  First, four important ground rules: 

  1. Do not use this to count your “full-time employees” to determine your status as an “Applicable Large Employer.”  Though some of the same terms are used, they mean different things in the different contexts.
  2. Don’t use this for new hires you expect to work full-time.  If you use it to delay their coverage offers, you may incur both fines and taxes.
  3. Eligibility of full-time employees and their dependents is an ACA mandate; excluding others is not.  Given the administrative burden of full-time tracking, open eligibility might make sense for many employers.
  4. You may have different measurement and stability periods for these different employee groups:  union-represented and non-union; different unions; salaried and hourly employees; employees whose primary workplaces are in different states.

There are different measurement and stability rules for “ongoing” and newly-hired employees.  We’ll ease into this by starting with “ongoing” employees – i.e., those who have worked at least one entire “standard measurement period.”  Again, keep in mind that our summaries and examples are simplified for this blog format.

Calculate each employee’s average weekly “hours of service” during a pre-designated “standard measurement period,” then treat that employee as full-time during the entire, associated, “stability” period if the average was 30 or more; otherwise, not.

The “standard measurement period” must be between 3 and 12 months.  Its associated “stability period” must be the longer of six months or the length of the “standard measurement period.”

Example:  ABC Corp. has a 12-month standard measurement period beginning October 15, 2014 and a calendar year stability period.  Jethro began working for ABC September 1, 2013.  His weekly average hours of service for the measurement period ending October 14, 2015 are 31.3.  He is full-time eligible for the entire 2016 stability period, even if his 2016 hours fall below 30 per week.

The rules for new hires are more complex.  Each employee who has not worked at least one entire “standard measurement period” must be assigned his or her own “individual measurement period” and an associated “stability period.”  The length of each must be the same for all employees within the same group (as with the standard periods).  The measurement period must be between 3 and 12 months; the stability period must be the longer of six months or the length of the measurement period and must be the same length as the stability period for ongoing employees.  For those measured as full-time, if the longest periods are selected, coverage cannot be delayed beyond the last day of the first calendar month beginning on or after the first anniversary of the employee’s start date.   Such employees must be treated as eligible for the entire, associated stability period.

For new hires measured under 30 weekly “hours of service” during the initial measurement period, ineligibility for the entire associated stability period is lawful, except that their stability period cannot last more than one month longer than the initial measurement period and must not exceed the remainder of the overlapping standard measurement period.

If the new hire is promoted to a full-time job during the initial measurement period, then coverage may not be delayed past the earlier of the first day of the fourth full calendar month following that promotion or the start of the associated stability period, if the employee was measured full-time during the initial measurement period.

If the stability period associated with the initial measurement period ends before the start of the stability period associated with the overlapping standard measurement period, then the employee’s status during the former stability period continues until the latter stability period starts.

Example:  DEF Corp., which uses a 12-month initial measurement period, hires Butch part-time on May 10, 2015, but then promotes him to a full-time job on September 15, 2015.  Butch is entitled to a coverage offer that can be effective not later than January 1, 2016.

Another example:  GHI Corp. uses a 12-month initial measurement period (running from the hire date) and a 12-month standard measurement period starting each October 15, associated with a calendar year stability period.  Callie is hired April 1, 2015 and measured to be full-time during her 12-month initial measurement period, so that she is deemed full-time for the stability period April 1, 2016 through March 30, 2017.  But, during the standard measurement period October 15, 2015 through October 14, 2016, she is measured less than full-time.  So, from April 1, 2017 through December 31, 2017, GHI Corp. is permitted not to offer her coverage.

Have you had enough, or are you thirsty for more?  We ask because there really is so very much more.  Employer mandate enforcement for most large employers starts in about 21 weeks.   By now, you should know whether and by what method you will track hours of service for purposes of 2015 and 2016 eligibility.  Unless a third party benefit administrator or payroll processor will handle this reliably, you also should be shopping for software.

Employee Misclassification Pitfalls

Posted in Business Organizations, Employee Leasing, Independent Contractors

As we have discussed in prior posts, many employers are looking at ways to restructure their workforces due to the ACA.  In addition to ACA issues, a worker who has been misclassified can have negative consequences on the employer’s employee benefits.  The following are just a few of the consequences in a retirement plan:

  • If misclassified, the worker may be entitled to participate in the company retirement plan going back to the date he or she would have been eligible.
    • If the plan is a 401(k) plan, the employer must contribute matching and non-elective employer contributions, just as paid to other plan participants, 50% of the average deferral percentage amount for the employee’s group, and investment earnings on incorrectly omitted plan assets.  The government essentially wants the employer to put the worker in the position he or she would have been if properly classified.
    • If the plan is a defined benefit pension, the employer must make plan contributions sufficient to fund the participant’s accrued benefit in accordance with the plan’s terms.
  • In addition to the cost involved, the plan may be deemed to have violated the minimum participation standards under ERISA.
  • Employers who mistakenly include those employees who are not eligible because they are independent contractors risk the plan’s disqualification for violation of the “exclusive benefit rule” under the IRC.

As with retirement plans, the failure to include a worker qualified to participate in a welfare benefit plan due to misclassification may expose the employer to liability for damages for benefits wrongfully denied and breach of fiduciary duty under ERISA.  Again, this could lead to the welfare plan being disqualified.  Disqualification of a welfare benefit plan under the IRC typically results in the need for employer contributions and, in some circumstances, plan benefits being includible in all participating employees’ income.

On the other hand, inclusion of a worker who is not eligible may result in a company having to reimburse its insurance or reinsurance carrier for benefits paid by the carrier from its general funds.

In addition to the problems in retirement and welfare plans, employee misclassification in a company’s cafeteria plan can cause substantial problems.  The inclusion of just one employee who is not a bona fide employee may disqualify the entire cafeteria plan.  That would result in any and all benefits received by participants from the cafeteria plan becoming includible in income in the plan year in which they are paid.



Draft IRS ACA Forms Now Online

Posted in Affordable Care Act, Coverage Mandates, Exchanges, Government Employers, Insurers and Brokers, Private Employers, Taxes

On July 24, 2014, the IRS posted preliminary, unofficial drafts of forms that the ACA compels employers, plan administrators and employees to file, inter alia, to certify coverages offered and provided to employees in 2015.  They are Form 1094-B (“Transmittal of Health Coverage Information Returns”), Form 1094-C (“Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns”), Form 1095-A (“Health Insurance Marketplace Statement”), Form 1095-B (“Health Coverage”), Form 1095-C (“Employer-Provided Health Insurance Offer and Coverage”), Form 8962 (“Premium Tax Credit”) and Form 8965 (“Health Coverage Exemptions”).

Insurers and self-insured plans will file Form 1095-B and provide copies to all enrollees, using the 1094-B transmittal Form.  Large employers will file Form 1095-C, using transmittal Form 1095-B, with copies to all employees.  Form 1095-A is a notice from the ACA Exchange to those who enrolled in coverage through the Exchange.  Subsidized Exchange purchasers will file Form 8962. Individual mandate exemptions are claimed on Form 8965.

The IRS release suggests that further mandate enforcement delays are not under consideration.  Though the official forms and instructions for their use will not be available for months, this early look should help employers and their benefit administration partners assess the significant administrative burdens to come.

Update:  Answering several questions, yes, it is true that draft Form 1040 (see line 61) and draft Form 1040-A (see line 38) incorporate the individual mandate.