Final Regulations Issued on PPACA’s Employer Shared Responsibility Provisions
February 12, 2014
On February 10, 2014, the IRS and U.S. Treasury Department issued final regulations on the employer shared responsibility provisions under PPACA. This article is an overview of some of the highlights of these final regulations provided by Kristi R. Gauthier from SBAM approved partner, Clark Hill PLC.
TRANSITION RELIEF FOR IMPLEMENTATION OF EMPLOYER SHARED RESPONSIBILITY PROVISIONS
The final regulations provide transitional relief with respect to the effective date of the employer shared responsibility provisions dependent upon employer size.
- Less than 50 full-time employees: The employer shared responsibility provisions do not apply to employers with less than 50 full-time equivalent employees.
- At least 50 but less than 100 full-time employees: The final regulations provide that employers with fewer than 100 full-time equivalent employees in 2014 will not be subject to the employer shared responsibility provisions until 2016 provided the following conditions are met:
The employer must employ on average at least 50 full-time equivalent employees but fewer than 100 full-time equivalent employees on business days during 2014;
During the period beginning February 9, 2014 and ending on December 31, 2014, the employer may not reduce the size of its workforce or the overall hours of service of its employees in order to qualify for the transition relief (Note: reductions in workforce or hours are permitted for bona fide business reasons); and
During the period beginning February 9, 2014 and ending on December 31, 2015 (or for employers with non-calendar year plans, ending on the last day of the 2015 plan year) the employer does not eliminate or materially reduce health coverage, if any, it offered as of February 9, 2014. An employer will not be treated as eliminating or materially reducing health coverage if (i) it continues to offer each employee who is eligible for coverage an employer contribution towards the cost of employee-only coverage that is either at least 95% of the dollar amount of the contribution towards such coverage that the employer was offering on February 9, 2014 or is at least the same percentage of the cost of coverage that the employer was offering to contribute toward coverage on February 9, 2014; (ii) in the event of a change in benefits under the employee-only coverage offered, that coverage provides “minimum value” after the change; and (iii) it does not alter the terms of its group health plans to narrow or reduce the class(es) of employees and/or dependents to whom coverage under the plan was offered on February 9, 2014.
- 100 or more full-time equivalent employees: Employers that (i) had at least 100 full-time equivalent employees in 2014 or (ii) had at least 50 but less than 100 full-time equivalent employees in 2014 and do not qualify for the transition relief discussed above will be liable for employer shared responsibility penalties if:
The employer does not offer health coverage or the employer offers coverage to fewer than 70% of its full-time employees and their dependents (95% after 2015), and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace/Exchange; or
The employer offers health coverage to at least 70% of its full-time employees and their dependents (95% after 2015), but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace/Exchange because the employer provided coverage was “unaffordable” or not of “minimum value.”
The final regulations provide clarification on various issues as a result of comments received. Some of the clarifications include:
- For purposes of determining employer size, in 2015 employers can determine the number of full-time equivalent employees in the previous year by reference to a period of at least six consecutive months in 2014, instead of the full calendar year.
- Employers with non-calendar year plans will be able to begin compliance with the employer shared responsibility provisions at the start of their plan years in 2015 instead of January 1, 2015.
- The requirement that employers offer coverage to full-time employees’ dependents in order to avoid potential penalties will not apply in 2015 to employers that are taking steps to arrange for such coverage in 2016.
- On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months and still be permitted to take advantage of a longer (e.g. 12 month) measurement period.
- Clarification is also provided with respect to crediting hours to various “a-typical” classifications of employees such as volunteers, seasonal employees, student employees, adjunct faculty, etc.
- The Treasury has indicated that they will issue final regulations shortly to address the streamlining of the employer reporting requirements.