IRS Eases Employers Into Employer Mandate

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1 IRS Eases Employers Into Employer Mandate February 2014 The Treasury and Internal Revenue Service (IRS) released final regulations on the employer mandate under the Patient Protection and Affordable Care Act (Affordable Care Act), giving small employers another year of transition relief and making it slightly easier for large employers to comply in The final regulations were released on February 10, This Aon Hewitt bulletin provides an overview of the final regulations and their potential impact on employer-provided health coverage under the Affordable Care Act. Highlights include: Employers with at least 50 but less than 100 full-time employees (FTEs) are not required to comply with the employer mandate until Employers that employ 100 or more FTEs must comply with the employer mandate beginning in 2015 or risk a penalty. For 2015 only, a large employer that offers minimum essential coverage (MEC) to at least 70% of its FTEs and their eligible non-spouse dependents will not be subject to the Failure to Offer penalty, but could still be liable for the Targeted penalty if the coverage is not affordable or does not provide minimum value. An overview of the rules for determining who is an FTE, including the permissible methods for counting hours and nuances for various categories of employees. Additional transition rules for Overview of the General Rule The general structure of the employer mandate and penalties has not changed significantly under the final regulations. Internal Revenue Code (Code) Section 4980H (a) Failure to Offer Penalty If a large employer does not offer MEC to at least 95% of all FTEs (and their eligible non-spouse dependents) and at least one FTE enrolls in a government Exchange and receives a federal subsidy, the employer will pay a penalty equal to $2,000 per year for each FTE (minus the first 30 FTEs) per large employer will apply. Transition Relief for 2015 For 2015 only, a large employer is only required to offer MEC to 70% of its FTEs and may subtract its share of 80 FTEs. Code Section 4980H (b) Targeted Penalty The Targeted penalty will apply to large employers in 2015 and thereafter. If a large employer offers MEC to its FTEs that is either unaffordable or does not provide minimum value, then a penalty of $3,000 per year will apply for each FTE who enrolls in a government Exchange and receives a federal subsidy. Change in Definition of Dependent Under the proposed regulations, to avoid triggering an employer mandate penalty, an employer had to offer MEC to a FTE s biological son or daughter, stepchild, eligible foster child, legally adopted child, or 1

2 individual placed with the employee for legal adoption under age 26. In contrast, under the final regulations, an employer is no longer required to offer MEC to foster children or stepchildren of an FTE. An employer mandate penalty will not be triggered by the failure to offer coverage to an FTE s spouse. The final regulations also clarify that for purposes of the employer mandate requirements, an FTE s child must remain eligible for MEC for the entire calendar month during which he or she reaches age 26. Determining Who Is an FTE Two methods for determining whether an employee is an FTE are provided under the final regulations: 1) The monthly measurement method; and 2) The look-back measurement method. An FTE with respect to any month is an employee who is employed on average at least 30 hours of service per week. An employee who is employed for at least 130 hours of service per calendar month is generally considered an FTE under both methods. Hours of Service As a general matter, the definition of hours of service as explained in the proposed regulations has not changed. Hours of service are used in determining whether an employee is an FTE for purposes of the employer mandate provisions. The final regulations define an hour of service as each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence. It does not include hours to the extent compensation for such hours constitutes income from sources without the U.S. (including only the states and the District of Columbia, not the U.S. territories), within the meaning of Code Sections 861 through 863 and the regulations thereunder. The final regulations did provide exceptions and nuances for when to count an hour of service for certain categories of employees: Bona Fide Volunteer Hours of service do not include hours worked as a bona fide volunteer. A bona fide volunteer is defined to include volunteer firefighters and emergency medical providers, and other volunteers who are employees of a government entity or a Code Section 501(c) organization provided the employee s situation satisfies specific requirements. Federal Work Study Program The final regulations provide that hours of service do not include hours of service performed by students in positions subsidized through the federal work study program or a substantially similar program of a state or political subdivision thereof. However, the final regulations do not include a general exception for student employees. All hours of service for which a student employee of an educational organization (or of an outside employer) is paid or entitled to payment in a capacity other than through the federal work study program (or a state or local government s equivalent) are required to be counted as hours of service. Interns and Externs As a general matter, services of unpaid interns or externs do not have to be considered; however, services by paid interns and externs would need to be counted. 2

3 Religious Orders Until further guidance is issued, a religious order is permitted, for purposes of determining whether an employee is an FTE, to not count as an hour of service any work performed by an individual who is subject to a vow of poverty as a member of that order when the work is in the performance of tasks usually required (and to the extent usually required) of an active member of the order. Crediting Hours for Adjunct Faculty and Employees on Layovers or On Call For the following categories of employees, the IRS has indicated that employers are required to use a reasonable method for crediting hours of service. Until additional guidance is issued, the following methods are considered reasonable: Adjunct Faculty The final regulations provide one (but not the only) method that will be considered reasonable where an adjunct faculty member of an institution of higher education would be credited with the following: Two and one-quarter (2.25) hours of service (representing a combination of one hour of teaching or classroom time and 1.25 hours for performing related tasks such as class preparation and grading of examinations or papers) per week for each hour of teaching or classroom time; and An hour of service per week for each additional hour outside of the classroom the faculty member spends performing duties he or she is required to perform (such as required office hours or required attendance at faculty meetings). This method of calculating hours of service may be relied upon at least through the end of Layover Hours for Airline Industry Employees and Others For layover hours, the final regulations focus on whether or not the layover results in additional compensation for the employee. An example from the preamble illustrates this rule: If an employer requires that an employee perform services for 40 hours per week to earn full salary, and credits layover hours towards the 40 hours, then it would not be reasonable for the employer to fail to credit the layover hours as hours of service. For layover hours for which an employee does not receive additional compensation and that are not counted by the employer towards required hours of service, it would be reasonable for an employer to credit an employee in the airline industry with 8 hours of service for each day on which an employee is required, as a practical matter, to stay away from home overnight for business purposes (that is, eight hours each day (or 16 hours total) for the two days encompassing the overnight stay). The employee must be credited with the employee s actual hours of service for a day if crediting 8 hours of service substantially understates the employee s actual hours of service for the day (including layover hours for which an employee receives compensation or that are counted by the employer towards required hours of service). On-Call Hours Similarly, it is not reasonable for an employer to fail to credit an employee with an hour of service for any on-call hour for which payment is made or due by the employer, for which the employee is required to remain on call on the employer s premises, or for which the employee s activities while remaining on call are subject to substantial restrictions that prevent the employee from using the time effectively for the employee s own purposes. 3

4 Measurement Methods The final regulations clarify that an employer may apply either the monthly measurement method or lookback measurement method, but not both, to determine the full-time status of employees within each of the following categories: salaried employees, hourly employees, employees whose primary places of employment are in different states, collectively bargained employees, non-collectively bargained employees, and each group of collectively bargained employees covered by a separate collective bargaining agreement. No other categories are permitted and these categories cannot be further subdivided, for example, between variable hour employees and non-variable hour employees. Thus, with respect to employees in a single category, an employer could not adopt the look-back measurement method for variable hour and seasonal employees while using the monthly measurement method for employees with more predictable hours of service. Employers considering using different measurement methods for different categories of employees should carefully review the rules addressing an employee who experiences a change in employment status from a position for which the look-back measurement method is used to a position for which the monthly measurement method is used (and vice versa). Monthly Measurement Method Under the final regulations, the default method for determining who is an FTE when the look-back measurement method is not utilized is now referred to as the monthly measurement method. Here, a large employer determines if an individual is an FTE by merely counting the employee s hours of service at the end of each calendar month. Details of this method include (but are not limited to): Waiting Period for New Hires The IRS will not assess a penalty if an FTE is not offered coverage until the first day of the month following a waiting period of three full calendar months. If the coverage also provides minimum value, the employer also will not be subject to a targeted penalty for the initial three month waiting period. Of course, the targeted penalty may apply for any month after the three month waiting period to the extent that the coverage is not affordable. This rule applies only once per period of employment of an employee and applies with respect to each of the three full calendar months for which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer. Thus, the relief may be available even if the employee terminates before that date (and before coverage is offered). Rehire or Continuing Employee For employees who return to work after a short period of absence, the final regulations clarify that an employee must be treated as a continuing employee, rather than a new hire, unless the employee has had a period of at least 13 weeks during which no hours of service were credited (26 weeks for an employee of an educational organization). The employer also has the option to treat the employee as a new hire if the employee is not credited with any hours of service during a period that is both at least four consecutive weeks in duration and longer than the employee s immediately preceding period of employment. A continuing employee must be offered coverage as of the first day of the calendar month following resumption of services, if not earlier, or the employer may be subject to an employer mandate penalty. Weekly Rule To take into account payroll periods, an employer may determine an employee s FTE status for a calendar month based on the hours of service over successive one-week (i.e., seven day) periods during the calendar month, containing either the week that includes the first day of the month or the week that includes the last day of the month, but not both. When using the weekly rule to 4

5 calculate hours or service, for calendar months with four week periods an employee with at least 120 hours of service is an FTE, and for calendar months with five-week periods, an employee with at least 150 hours of service is an FTE. Look-Back Measurement Method The look-back measurement method is used only to determine whether an individual is an FTE for purposes of determining liability under the employer mandate, not for determining the employer s status as a large employer. Under the look-back measurement method, each employee s hours of service are measured (not just variable hour employees and seasonal employees) during the measurement period. The requirements are similar to the proposed regulations. The general concept is that an employer determines each employee s FTE status by looking back at a measurement period. If the employee is determined to be employed on average at least 30 hours of service per week during a measurement period, then the employee must be offered coverage during a corresponding stability period in order for an employer to avoid an assessable payment under the employer mandate rules. The concept of a measurement period, stability period, and (optional) administrative period apply to both ongoing employees and new employees. An employer has some flexibility to define the: Initial and Standard Measurement Period A period of time during which an employee s hours of service are measured that is at least three consecutive months but no more than 12 consecutive months. Consistent with the proposed regulations, the final regulations provide that the initial measurement period for a new variable hour employee or new seasonal employee may begin on the employee s start date or any date after that up to and including the first day of the first calendar month following the employee s start date (or, if later, as of the first day of the first payroll period beginning on or after the employee s start date). Under the payroll period rule, an employer may begin and end a measurement period with the beginning and ending of regular payroll periods if each of the payroll periods is one week, two weeks, or semimonthly in duration. Stability Period(s) The period selected by the employer that immediately follows and is associated with the initial and standard measurement periods (or if elected, follows the administrative period). The stability period must be at least six consecutive calendar months but no shorter in duration than the standard measurement period. It is during this period of time that the employee must either be offered coverage or not offered coverage, depending on his or her status as an FTE during the initial/standard measurement periods. Administrative Period An optional period that follows the measurement period that may last up to 90 days. The final regulations revise the definition of administrative period to include the period between a new employee s start date and the beginning of the initial measurement period, if the initial measurement period does not begin on the employee s start date. Thus, the combined length of the period before the start of the initial measurement period and the period beginning immediately after the end of the initial measurement period and ending immediately before the beginning of the associated stability period is subject to an overall limit of 90 days. Full-Time at Start Date If an employer utilizing the look-back measurement method to identify FTEs reasonably expects a new employee at the start date to be an FTE (and is not a seasonal employee) and is otherwise eligible for an offer of coverage, the Failure to Offer penalty will not apply if the employer offers coverage to the employee no later than the first day of the calendar month immediately following the end of the 5

6 employee s initial three full calendar months of employment. If the coverage offered meets the minimum value requirement, the Targeted penalty will also not apply. FTE status for a new employee who is reasonably expected at the employee s start date to be an FTE (and who is not a seasonal employee) is based on that employee s hours of service each calendar month (the monthly measurement method), even though no penalty applies for the initial three full months of employment. Once this new employee becomes an ongoing employee (i.e., has been employed for at least one complete standard measurement period), the employer would then apply the look-back measurement method for ongoing employees to determine the employee s full-time status. Variable Hour Employees The term variable hour employee is a category of employees under the look-back measurement method and is not relevant with respect to the monthly measurement method. With respect to employers utilizing the look-back measurement method, an employee is a variable hour employee if, based on the facts and circumstances at the employee s start date, the employer cannot determine whether the employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period because the employee s hours are variable or otherwise uncertain. The final regulations offer several factors to consider in determining whether an employer s expectations regarding an employee s status are reasonable including, but not limited to, whether the employee is replacing an employee who was an FTE or a variable hour employee, the extent to which the hours of service of employees in the same or comparable positions have actually varied above and below an average of 30 hours of service per week during recent measurement periods, and whether the job was advertised, or otherwise communicated to the new employee or otherwise documented (for example, through a contract or job description) the required number of hours (or whether the hours will vary). No single factor is determinative. For purposes of determining whether an employee is a variable hour employee, the employer may not take into account the likelihood that the employee may terminate employment before the end of the initial measurement period. Temporary Staffing Firms The final regulations set forth additional factors relevant to the determination of whether a new employee of a temporary staffing firm intended to be placed on temporary assignments at client organizations is a variable hour employee. Seasonal Employees The final regulations continue to provide for seasonal employees to be treated under the same rules applicable to variable hour employees. For this purpose, a seasonal employee means an employee in a position for which the customary annual employment is six months or less. The reference to customary means that by the nature of the position an employee in this position typically works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter. In certain unusual instances, the employee can still be considered a seasonal employee even if the seasonal employment is extended in a particular year beyond its customary duration (regardless of whether the customary duration is six months or is less than six months). The preamble gives the example of a ski instructor during an unusually long ski season during the weather. The regulations also explain how to apply a change in status from seasonal to non-seasonal employment. 6

7 Change in Employment Status Under the look-back measurement method, an employee s full-time status in a stability period is based on hours of service in the prior applicable measurement period a change in employment status generally does not affect the employee s status as an FTE. However, a few exceptions apply, including: Variable Hour/Seasonal/Part-Time to Full-Time Employee Under the proposed and final regulations, if a variable hour or seasonal employee experiences a change in employment status to an FTE during the initial measurement period, in general, an employer will not be subject to the Failure to Offer penalty (and the Targeted penalty if the coverage meets minimum value) for such an employee until the first day of the fourth full calendar month following the change in employment status if the employer provides coverage at the end of that period. Or, if earlier, if the employee is considered an FTE based on the initial measurement period, the first day of the first month following the end of the initial measurement period (including any optional administrative period associated with the initial measurement period). The final regulations also apply this requirement to an employee who has a change in employment status from part-time employee to FTE during the initial measurement period. Special Rule for Certain Employees to Whom Minimum Value Coverage Has Been Continuously Offered An employer using the look-back measurement method to determine the full-time status of an employee may apply the monthly measurement method to that employee beginning on the first day of the fourth full calendar month following the calendar month in which the employee experiences a change in employment status from FTE status to part-time employee status. This rule only applies with respect to an employee to whom the employer offered minimum value coverage by the first day of the fourth calendar month following the employee's initial three full calendar months of employment through the calendar month in which the change in employment status occurs, and only if the employee actually averages less than 30 hours of service per week for each of the three full calendar months following the change in employment status. An employer may apply the monthly measurement method to such employee even if the employer does not apply the monthly measurement method to other employees in the same category of employees. The monthly measurement method can be applied to the employee through the end of the first full measurement period (and any associated administrative period) that would have applied had the employee remained under the look-back measurement method. Aon Hewitt Comments: The requirements that must be satisfied to take advantage of this special rule, which would generally permit dropping from coverage an employee who switches to a part-time role earlier than under the look-back measurement method, make this rule less attractive than it initially appears. Employers considering applying this special rule to a particular employee should carefully review its requirements and the examples in the final regulations illustrating this rule. Rehire Rules Under the proposed regulations, if an employee goes at least 26 consecutive weeks without an hour of service and then performs an hour of service, he or she may be treated as a new employee for purposes of determining whether or not the employee is an FTE. The employer may also choose to apply a rule of parity for periods of less than 26 weeks where an employee may be treated as having terminated employment and having been rehired as a new employee if the period with no credited hours of service 7

8 (of less than 26 weeks) is at least four weeks long and is longer than the employee s period of employment immediately preceding that period with no credited hours of service. The final regulations retain the rehire rules contained in the proposed regulations but reduce the length of the break-in-service required before a returning employee may be treated as a new employee from 26 weeks to 13 weeks (except for educational organization employers for which the rule remains 26 weeks). This break-in-service period applies for both the look-back measurement method and the monthly measurement method. The final regulations also retain the optional rule of parity. Break-In-Service Rules for Continuing Employees (Special Unpaid Leave Rule and Employment Break Period Rule) For purposes of applying the look-back measurement method to an employee returning from special unpaid leave or an educational organization s employment break period (who cannot be treated as a new employee under the rehire rules above), the final regulations retain the rules allowing an employer to determine such employee s average hours of service for a measurement period by computing the average after excluding any special unpaid leave and employment break periods and using that average as the average for the entire measurement period. In no case, however, would the employer be required to exclude (or credit) more than 501 hours of service during employment break periods in a calendar year. No such limit applies for special unpaid leave. Special unpaid leave is defined as unpaid leave subject to the Family and Medical Leave Act (FMLA), to the Uniformed Services Employment and reemployment Rights Act (USERRA), or on account of jury duty. For this purpose, an employment break period is a period of at least four consecutive weeks (disregarding special unpaid leave), measured in weeks, during which an employee of an educational organization is not credited with hours of service. The employment break period rule continues to apply only to educational organizations. Neither the special unpaid leave rule nor the employment break period rule apply under the monthly measurement method. Employee Categories to Which Different Measurement and Stability Periods May Be Applied The final regulations continue to allow an employer to use measurement periods and stability periods that differ either in length or in their starting and ending dates for different categories of employees specified in the regulations, provided that the employees within each category are treated consistently. The categories are: salaried employees and hourly employees, employees whose primary places of employment are in different states, collectively bargained employees and non-collectively bargained employees, and each group of collectively bargained employees covered by a separate collective bargaining arrangement. If an employer is considering applying different measurement and stability periods for these categories of employees, they should carefully consider the complexity of the administration of these rules, as well as how this will be communicated and explained to plan participants in annual enrollment materials and summary plan descriptions. Many nuances apply such as the impact of an employee changing positions that results in a change in measurement methods that must be applied. 8

9 Affordability Safe Harbors The final regulations adopt the three optional safe harbors set forth in the proposed regulations with minor modifications. The three safe harbors are: 1) The Form W-2 wages safe harbor; 2) The rate of pay safe harbor; and 3) The federal poverty line safe harbor. An employer may choose to use one or more of these safe harbors for all of its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category. Reasonable categories generally include specified job categories, nature of compensation (for example, salaried or hourly), geographic location, and similar bona fide business criteria. Unfortunately, the IRS continues to require that the Form W-2 wages safe harbor utilize current year Form W-2 pay for purposes of determining affordability. Aon Hewitt and other commenters requested that employers be permitted to use prior year Form W-2 pay, but this is not permitted under the final regulations. Offer of Coverage Electronic Offer An offer of coverage generally can be made electronically following the electronic media safe harbor regulations applicable to retirement plans under Code Section 401(a). Employed by More Than One Applicable Large Employer Member of a Controlled Group The final regulations provide that an offer of coverage by one applicable large employer member of a controlled group to an employee for a calendar month is treated as an offer of coverage by all applicable large employer members for that calendar month. Thus, if one applicable large employer member offers coverage to the employee for a calendar month, every other member of the same applicable large employer is considered to have made the same offer of coverage to that employee for purposes of determining the liability under the employer mandate, if any, of each applicable large employer member. For example, in the case of a group of applicable large employer members operating a single plan intended to offer coverage to employees of all the applicable large employer members, any employee offered coverage under the plan would be treated as receiving an offer of that coverage from each applicable large employer member. Evergreening The final regulations clarify that an employee s election of coverage from a prior year that continues for every succeeding plan year, unless the employee affirmatively elects to opt out of the plan, constitutes an offer of coverage for purposes of the employer mandate. Multiemployer Plans, Taft-Hartley Plans, and MEWAs The final regulations clarify that for purposes of the employer mandate, an offer of coverage includes an offer of coverage made on behalf of an employer, including an offer made by a multiemployer or single employer Taft-Hartley plan or a multiple employer welfare arrangement (MEWA) to an employee on behalf of a contributing employer of that employee. Professional Employer Organization Following the same reasoning as above, if certain conditions are met, an offer of coverage to an employee performing services for an employer that is a client of a professional employer organization or other staffing firm (in the typical case in which the professional employer organization or staffing firm is not the common law employer of the individual) made by the staffing firm on behalf of the client employer under a plan established or maintained by the staffing firm, is treated as an offer of coverage made by the client employer. For this purpose, an offer of coverage is 9

10 treated as made on behalf of a client employer only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay to the staffing firm for the same employee if the employee did not enroll in health coverage under the plan. Home Care Workers The final regulations do not provide any exceptions for employers in a particular industry, such as the home care industry, where the additional expense of providing coverage or paying the assessable payment could cause an employer financial difficulties. The preamble to the final regulations note, however, that in some circumstances the service recipient, rather than a home care agency, may be the common law employer of the health care provider. Real Estate Agents and Direct Sellers (Code Section 3508 Employees) Because Code Section 3508 provides that real estate agents and direct sellers are not treated as employees for any purpose of the Code, the final regulations clarify that workers identified in Code Section 3508 do not constitute employees and, therefore, do not constitute FTEs for any purpose, and their hours of service are not taken into account in determining the number of an employer s FTEs. Assessment and Payment Under the proposed and final regulations, each applicable large employer member of the controlled group is liable for its own assessable payment, and is not liable for the assessable payment of any other entity in the controlled group. Any assessable payment is payable upon notice and demand and is assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68 of the Code. Any assessable payment imposed is not tax deductible. With respect to an FTE who performs services for two or more applicable large employer members of a controlled group during the same calendar month, the final regulations provide that the member for whom the employee has the greatest number of hours of service for that calendar month is the member that treats that employee as an FTE for purposes of assessable payment determinations. For any calendar month in which the employee has the same number of hours of service for two or more applicable large employer members, the final regulations provide that the applicable large employer members can treat one of the applicable large employer members for which the employee performs services as the employer of that employee for that calendar month for purposes of the assessable payment determination. The IRS anticipates that the applicable large employer member who is treated as the employer of that employee would report that employee as its FTE on the applicable large employer member s Code Section 6056 information return, and if the employee is not included in any applicable large employer member s Code Section 6056 information return, the IRS will select a member to be treated as the employer of that employee for purposes of the assessable payment determination. Applicable large employer members are responsible for ensuring that they comply with the recordkeeping requirements in Code Section Transition Relief and Interim Guidance Plans With Non-Calendar Plan Years Three pieces of transition guidance apply for the period before the first day of the first non-calendar year plan year beginning in 2015 (the 2015 plan year) for employers that maintained non-calendar year plans 10

11 as of December 27, 2012, if the plan year was not modified after December 27, 2012, to begin at a later calendar date. If an employer sponsors a non-calendar year plan, these requirements should be reviewed. Shorter Measurement Periods Permitted for Stability Period Beginning in 2015 The final regulations extend the transitional guidance provided in the proposed regulations that allows employers utilizing the look-back measurement method to use a shorter measurement period in For purposes of stability periods beginning in 2015, employers may adopt a transition measurement period that is shorter than 12 consecutive months but that is no less than six consecutive months and that begins no later than July 1, 2014, and ends no earlier than 90 days before the first day of the plan year beginning on or after January 1, For example, an employer with a calendar year plan may use a measurement period from April 15, 2014, through October 14, 2014 (six months), followed by an administrative period ending on December 31, However, an employer with a plan year beginning on July 1, for example, must use a measurement period that is longer than six months to comply with the requirement that the measurement period begin no later than July 1, 2014, and end no earlier than 90 days before the stability period. For employees hired during or after the transition measurement period, the general rules for new employees under the look-back measurement method apply. Offer of Coverage for January 2015 In general, if an employer fails to offer coverage to an FTE for any day of a calendar month, that employee is treated as not offered coverage during that entire month. Solely for purposes of January 2015, if an employer offers coverage to an FTE no later than the first day of the first payroll period that begins in January 2015, the employee will be treated as having been offered coverage for January This transition guidance applies only for January Coverage for Dependents The final regulations extend the transition relief provided in the proposed regulations regarding new offers of coverage to dependents of FTEs. However, the transition relief applies only to employers that did not offer dependent coverage or only offered some dependent coverage (whether or not such coverage was MEC) during the 2013 or 2014 plan year. To qualify for the relief, the employer must take steps during the 2014 or 2015 plan year (or both) to extend MEC to the dependents of FTEs not offered coverage during the 2013 or 2014 plan year (or both). Limited 2015 Transition Relief Under the Failure to Offer Penalty Application to Non-Calendar Year Plans The transition relief for the Failure to Offer penalty applies to all calendar months of 2015 plus any calendar months of 2016 that fall within the employer s 2015 plan year, and is available for an employer 11

12 only if it did not modify the plan year of its plan after February 9, 2014, to begin on a later calendar date (for example, changing the start date of the plan year from January 1 to December 1). Coordination With Other Transition Relief The Failure to Offer transition relief applies in addition to the other transition relief regarding non-calendar plan years, shorter measurement periods allowed for stability period starting during 2015, offer of coverage for January 2015, and coverage for dependents. Multiemployer Plans Under interim guidance in the preamble to the final regulations, an employer will not be liable for a Failure to Offer or Targeted penalty with respect to employees for whom the employer is required by a collective bargaining agreement (or appropriate related participation agreement) to make contributions to a multiemployer plan that offers affordable, minimum value coverage to individuals (and their dependents) meeting the plan s eligibility conditions. The interim guidance in the preamble provides additional details for determining whether the multiemployer plan offers affordable coverage that provides minimum value. Effective Date and Applicability These final regulations are effective February 12, 2014, but apply for periods after December 31, Employers may rely on these final regulations for periods before January 1, Resources The final regulations are available at: The news release is available at: The fact sheet is available at: The IRS also published 46 questions and answers on its website to provide additional information about the regulations. The IRS "Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act" are available at: Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act The Aon Hewitt bulletin on the proposed regulations, "IRS Proposes Rules on Employer Shared Responsibility Payment" (January 2013) is available at: Aon Hewitt s Regulatory Guidance Under the Affordable Care Act page, which provides links to Aon Hewitt bulletins on Affordable Care Act guidance and regulations, is available at: 12

13 About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit Aon plc This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt's preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document. 13

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