THE AFFORDABLE CARE ACT: DECISIONS THAT NEED TO BE MADE NOW. April 2014

Transcription

1 THE AFFORDABLE CARE ACT: DECISIONS THAT NEED TO BE MADE NOW April 2014

2 Introduction Speakers Anne Pachciarek Partner Employee Benefits and Executive Compensation DLA Piper Mark Boxer Partner Employee Benefits and Executive Compensation DLA Piper What we will cover today: Employer mandate and penalties latest guidance Transition rules for 2015 Delayed effective date for certain employers Temporary reduction in coverage requirement Determining full-time employees Eligibility and waiting periods Categories of employees Next steps A look ahead 2

3 Employer mandate Employer mandate tax penalty for large employers that don t offer minimum essential coverage to full-time employees (and their dependents) applies to employers with more than 99 employees in 2015 Employers with employees have until 2016 to comply conditions for relief A large employer is subject to penalty if at least one full-time employee receives a subsidy for exchange coverage and: The employer fails to offer coverage to substantially all fulltime employees (and their dependents) (the no coverage penalty ); or Coverage is unaffordable (employee contribution must be less than 9.5% of income) or does not provide minimum value (the inadequate coverage penalty ) 3

4 No coverage penalty A large employer is subject to a penalty if at least one full-time employee receives a subsidy for exchange coverage and the employer fails to offer coverage to substantially all full-time employees (and their dependents) Effective dates Substantial compliance Dependent coverage 4

5 Inadequate coverage penalty A large employer is subject to a penalty if at least one fulltime employee receives a subsidy for exchange coverage and coverage is unaffordable or does not provide minimum value 5

6 Employer penalties Penalty amounts No coverage penalty: $2,000 per year, per full-time employee in excess of 30 full-time employees (80 in 2015) Inadequate coverage penalty: $3,000 per year, per full-time employee for whom coverage is unaffordable or does not provide minimum value and who receives a subsidy to purchase coverage through an exchange Penalty amounts are indexed: $2,000 penalty is estimated to be $2,120 in 2015 and $3,000 penalty is estimated to be $3,180 in

7 Fiscal year plans Calendar year plans employer mandate is effective 1/1/15 If employer has 100 or more full-time employees Non-calendar year plans (relief from 1/1/15 to beginning of the plan year) Standard transition relief: beginning of the plan year within 2015 if: Non-calendar year plan was maintained prior to 12/27/2012 Plan year not modified after 12/27/12 to begin at a calendar date Applies to all employees who would be eligible for coverage under the terms of the plan in effect on 2/9/2014 Plan offers affordable care that provides minimum value as of first day of the 2015 plan year 7

8 Fiscal year plans Example Employer Z has 600 employees, all of whom are full-time employees (average 30 or more hours a week) Employer Z maintained a plan with an April 1 plan year as of December 27, 2012 (Plan P). Plan P s year was not modified after December 27, 2012, and all of Employer Z s employees are eligible for coverage under Plan P under the eligibility terms as in effect on February 9, Coverage offered prior to the 2015 plan year is not affordable. As of April 1, 2015, Plan P s coverage is both affordable and provides minimum value. Conclusion No section 4980H assessable payment will be due with respect to any employee of Employer Z for the period before April 1, The same transition relief would apply to those 600 employees even if Employer Z also had a calendar year plan (Plan Q) and had a total of 1,000 full-time employees, 600 of whom were described above (and were not eligible for coverage under Plan Q) and 400 of whom were eligible for coverage under Plan Q as of January 1,

9 Fiscal year plans Additional transition guidance Significant percentage transition guidance (all employees) relief: beginning of the plan year within 2015 if: Plan maintained prior to 12/27/12 Plan year was not modified after 12/27/12 to begin at a later calendar date and that either had: (1) as of any date in the 12 months ending on 2/9/14, at least ¼ of its employees covered under the non-calendar year plan(s), or (2) offered coverage under the plan(s) to 1/3 or more of its employees during the open enrollment period that ended most recently before 2/1/14 9

10 Fiscal year plans Additional transition guidance Significant percentage transition guidance (full-time employees) relief: beginning of the plan year within 2015 if: Plan maintained prior to 12/27/12 Plan year was not modified after 12/27/12 to begin at a later calendar date and that either had: (1) as of any date in the 12 months ending on 2/9/14, at least 1/3 of its fulltime employees covered under the non-calendar year plan(s), or (2) offered coverage under the plan(s) to 1/2 or more of its full-time employees during the open enrollment period that ended most recently before 2/1/14 10

11 Employers subject to the mandate Businesses subject to the mandate How to calculate whether you have 50 (or 100, for 2015) full-time equivalent employees Controlled group rules Total number of Full-Time Employees + Total Hours Worked By Part-time Employees = Total Number of Full-time Equivalent Employees

12 Determining full-time employees Who must be offered coverage determining full-time employees Penalty amount turns on who is considered a full-time employee How to make the calculation of full-time employee Hours of service rules 12

13 Hours of service Hours of service Generally based on the term hours of service used for qualified retirement plans Each hour for which an employee is paid, or entitled to payment, for: Performance of duties for the employer Period of time during which no duties are performed due to vacation, holiday, illness, incapacity (other than disability), layoff, jury duty, military duty or leave of absence. Rules of counting special unpaid leave of absence (FMLA, USERRA, jury duty) either ignore periods of unpaid leave; or crediting hours of service for the periods of special unpaid leave (periods of less than a week use any reasonable method of counting). 13

14 Methods of counting hours Methods of counting hours Employees paid on an hourly basis actual hours Employees paid on a non-hourly basis actual hours or equivalency method One day = 8 hours One week = 40 hours One month = 130 hours Method can be changed once per year Can use different methods for different categories of employees No use of equivalencies if use would result in substantial understatement of hours 14

15 Special rules for counting hours Exclusions from definition of hour of service Volunteer employees hours worked by volunteers who do not receive compensation in exchange for the performance of services. Student employees hours of service performed by students in positions subsidized thru federal work study programs or substantially similar state or political subdivision program Special situations Members of religious orders no special rule Adjunct faculty, commissioned salespeople and airline employees and categories of hours (layovers and on-call) use of reasonable methods of crediting hours Example: Adjunct teachers 2 ¼ hours of credit for each hour of classroom time Impact of summer vacation etc. (educational organizations) ignore breaks or credit hours of service during the break 15

16 More special rules Special situations (continued) Layover hours for airline employees and others Use of reasonable methods of crediting hours Layovers count hours if employee is getting paid for layover or if layover hours are counted toward required hours to be paid regular compensation 8 hours for each day an employee is required to stay away from home is deemed reasonable by the IRS unless that amount would understate the employee s actual hours On-call hours Not reasonable not to count on-call hours that (i) are paid; (ii) where employee must remain on employer s premises; or (iii) where the employees are restricted from using their time for their own purposes 16

17 Full-time employees Determining full-time status two different methods monthly measurement period or optional safe harbors Look-back measurement period Administrative period Stability period 17

18 Tracking eligibility alternative measurement methods New employee non-variable Employee who is reasonably expected to work full time (average annually 30 or more hours per week) as of date of hire. No more than a 90 day waiting period Recommend 1 st of the month after 60 days Full-time status reassessed at the end of the first standard measurement period Variable hourly employee Employee in which ER has not been able to determine in good faith whether employee will average 30 or more hours a week per year 18

19 Eligibility alternative measurement period methods Monthly measurement method Alternative to the look-back measurement period Identifies full-time employees based on hours of service for each calendar month For any given month an employee is or is not full-time and entitled to coverage Employee can be offered coverage the first day of the fourth calendar month after becomes eligible for coverage (must still comply with 90 day waiting period rule). Can only be used once per period of employment Default method if employer does not choose the look-back method Difficulties Workforce with fluctuating hours Fully insured plans Can result in gaps of coverage employer may be subject to penalties Special rule if go from full-time to part-time Look-back measurement method A fixed period of 3 months to 12 consecutive months new variable/seasonal employees Employer can elect different look-back measurement period for different categories of employees Employer may use payroll periods as a measurement tool Employees hours of service are calculated within the measurement period 19

20 Eligibility alternative measurement period methods Standard measurement period A fixed period of 3 months to 12 consecutive months ongoing employees Employer can choose the beginning and duration of the period Standard measurement period must be the same for same category of employees (e.g., hourly, salaried) Employer may use payroll periods as a measurement tool Employees hours of service are calculated within the measurement period Administrative period no more than 90 days. Period between the look-back/standard measurement period and coverage date. Administrative period can not extend the look-back/standard measurement period beyond 12 months or shorten stability period Administrative period may not cause lapse in coverage overlap previous stability periods Look-back period and administrative period can be in the aggregate 13 months (e.g., measurement period April 1, 2015 March 31, 2016; administrative period April 1 April 30) 20

21 Eligibility alternative measurement period methods Stability period period during which employee is eligible for coverage (credited with service of 30 hours or more) & follows the look-back/standard measurement period and any administrative period Length of stability period is equal to or greater than the look-back /standard measurement period but no shorter than 6 months If employee does not satisfy the full-time 30 hour requirement the stability period may not exceed the standard measurement period Administrative period overlaps with the stability period after first year in which employee is deemed full-time. Reduction of work schedule during the stability period does not effect full-time status 21

22 Eligibility alternative measurement period methods Administrative period no more than 90 days. Period between standard measurement period and coverage date. Administrative period can not extend standard measurement period beyond 12 months or shorten stability period Administrative period may not cause lapse in coverage overlap previous stability periods Look-back period and administrative period can be in the aggregate 13 months (e.g., SMP April 1, 2015 March 31, 2016; administrative period April 1 April 30) 22

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26 Special considerations Seasonal employees Employees whose customary annual employment is 6 months or less and the period of employment should begin each year in the same part of the year (e.g., summer, winter) The normal period of employment can be extended and still be considered a seasonal employee (e.g., ski instructor who is asked to stay longer due to extended ski season) If a seasonal employee is transferred into a permanent position and if such employee would have been a full-time employee if originally hired into the new position then employer has until the earlier of the 4 th month following the change in employment status or if earlier the first month following the end of the initial measurement period to treat the employee as full-time. 26

27 Special considerations New variable/seasonal employees start date of initial measurement period Employer may elect start date to be hire date or any other date up to and including the first day of the month following the employee s start date Change in employment status see third bullet under seasonal employees Rehires and break in service rules Employer may designate an employee who has a break in service of 13 weeks (not credited with any hours of service) as a new employees (educational organizations- 13 weeks is extended to 26 weeks) An employer is allowed to institute a rule of parity employee is rehired after at least 4 weeks during which no hours of service were credited and the period exceeded the period of employment prior to the break 27

28 Special considerations Break-in-service rules for continuing employees FMLA, USERRA & jury duty Absence due to any of the above during standard measurement period average weekly hours are calculated by either Subtracting the period of the special leave (not to exceed 13 weeks) Crediting hours of service for the unpaid leave period Employment break rules educational organizations Summer vacations and similar breaks same rule as above (not to exceed 26 weeks) 28

29 Steps for employers Figure out whether business is subject to mandate and penalties remember controlled group rules Determine full-time employees two methods Review health insurance offerings and whether employer will incur a penalty consider substantial compliance rule, dependents and spouses, affordability, minimum value Determine the amount of the penalty versus cost of coverage, and decide whether to pay or play think about offering bronze coverage Make sure to comply with market reforms, reporting requirements and other obligations Keep good employment and enrollment records Coordinate compliance with others in organization 29

30 PRESENTERS Anne Pachciarek Partner, Employee Benefits and Executive Compensation Chicago T: EDUCATION J.D., Northwestern University School of Law 1982 B.A., University of Illinois at Urbana-Champaign 1979 Anne M. Pachciarek helps companies establish and operate their employee benefit plans, such as medical plans, 401(k) plans, pension plans and executive compensation programs. She has more than 20 years of experience on all aspects of employee benefit matters, having worked as an employee benefits attorney for her entire career. She works with public companies and closely held businesses to find solutions to a wide range of ERISA compliance, fiduciary responsibility and plan administration problems. She also advises on welfare plans, pension and profit-sharing plans, cafeteria plans and deferred compensation programs, as well as on the handling of benefit plans in mergers and acquisitions. Mark Boxer Partner, Employee Benefits and Executive Compensation San Francisco T: EDUCATION LL.M., New York University School of Law 1989 J.D., University of San Francisco School of Law 1988 M.B.A., University of Wisconsin 1976 B.S., Drake University 1975 Mark Boxer has been an employee benefits lawyer for his entire career from 1989 to the present. He advises employers on all aspects of employee benefit matters including health and welfare and retirement plans and has 12 years of experience in health care administration. Mr. Boxer designs and drafts qualified retirement plans and welfare plans and advises clients on their fiduciary duties under Title I of ERISA and on the design and funding of executive deferred compensation arrangements. This communication may be considered attorney advertising under the rules of some states. The information and materials contained herein have been provided as a service by the law firm of DLA Piper LLP; however, the information and materials do not, and are not intended to, constitute legal advice. Neither transmission nor receipt of such information and materials will create an attorney-client relationship between the sender and receiver. The hiring of an attorney is an important decision that should not be based solely upon advertisements or solicitations. Users are advised not to take, or refrain from taking, any action based upon the information and materials contained herein without consulting legal counsel engaged for a particular matter. Furthermore, prior results do not guarantee a similar outcome. 30