2. Transition Relief for Employer Compliance under ACA Rules Pertaining to “Applicable Large Employers”.
In the preamble to the Proposed Regulations under IRC Section 4980H (the so-called “pay-or-play” rules), the IRS has announced that employers may use a special one-time transition rule for determining whether the employer “pay-or-play” rules will apply to them for 2014. Employers failing to meet certain tests in IRC Section 4980H are subject to fairly substantial excise taxes. The IRC Section 4980H “pay-or-play” rules are potentially applicable to only those employers with 50 or more full-time and/or full-time equivalent employees. Such an employer is defined in IRC Section 4980H as an “Applicable Large Employer”. For this purpose, employees who work an average of 30 hours a week per month are deemed to be “full-time” employees.
Initially, for purposes of IRC Section 4980H, it is necessary to determine if an employer is an “Applicable Large Employer”. Although the general rule is that an employer makes this determination by looking back at its workforce over the entire preceding calendar year, a special transition rule applies just for determinations that are effective for 2014. Under this rule, the employer can make a determination of whether it is an Applicable Large Employer for 2014 by examining its workforce over any six consecutive month period in 2013 that it chooses, rather than over the entire 2013 calendar year.
And, secondly, another special transition rule comes into play for purposes of specifically identifying who will be treated as its "full-time" employees for all of 2014. This transition rule allows the employer to use a six month period as its initial "measurement period". This permits the employer to have a 2014 "stability period" of all 12 months of 2014. A plan's "stability period" is the time period not to exceed 12 months during which an employee is automatically considered a full-time employee if he is determined to have been a full-time employee during the immediately preceding "measurement period."
In a presentation at the February 7, 2013 annual joint meeting of the area Tax-Exempt and Government Entities Division Councils and Pension Liaison groups, Mireille Khoury, special counsel in the IRS Office of Chief Counsel remarked:
“Ordinarily, the rules in the proposed regulations would require employers to have equal 'look-back' and 'stability' periods. We unlinked that just for the first year” of compliance. [i.e., for 2014]. “So, for example, you can measure your employees' hours from July 1, 2013 to December 31, 2013, and apply it to the following 12-month period.” If individual employees average 30 or more hours of service a week for six months, " you just treat them as full-time for all of 2014" under the look-back and stability rules [which otherwise provide that a stability period cannot exceed the look-back period.] If their work hours make them part-time employees, "you are allowed to treat them as part time for all of 2014."
3. Delayed ACA Effective Date Fiscal Year Health Plans.
The Proposed Regulations also provide special transition rules for fiscal year health plans in effect as of December 27, 2012. In general, the employers sponsoring those plans would have until the first day of the plan year beginning after January 1, 2014, before they become subject to the "pay-or-play" rules of IRC Section 4980H. For example, a fiscal year plan ending on November 30 would not become subject to the "pay or play" rules until December 1, 2014. For calendar year health plans, the effective date of IRC Section 4980H is January 1, 2014.
4. Special Transition Rule for Identification of “Dependents” for IRC Section 4980H Purposes.
The somewhat harsh excise tax imposed under the “pay or play” rules of IRC Section 4980H generally becomes effective if an employer's group health plan does not provide affordable coverage to at least 95% of the employer's full-time employees (and their “dependents”). For this purpose, the Proposed Regulations define “dependents” as “an employee's child who is under 26 years of age”. Thus, an offer of coverage to an employee's spouse is not required for purposes of Section 4980H. But, for purposes of applying IRC Section 4980H for 2014 only, the Proposed Regulations provide that "any employer that takes steps during the plan year that begins in 2014 toward satisfying the IRC Section 4980H provisions relating to the offer of coverage to "full-time" employees' dependents will not be liable for any assessable payment under Section 4980H solely on account of a failure to offer coverage to the dependents for that plan year".
LATE BREAKING UPDATE:
A new Gallup poll released on February 22, 2013 reveals that the number of Americans getting employer-sponsored health insurance is at the lowest point since 2008. The percentage of people getting health care through their employer in 2012 was 44.5%, which is just slightly lower than was the case in 2011, but approximately 5% lower than in 2008. These statistics are more dramatic given the fact that the U.S. economy added almost 1.8 million jobs in 2012. This trend may continue since many employee benefit professionals have argued that employers' decisions to terminate or scale back their group health plans is an unintended consequence of ACA that could adversely affect those employees who want to continue receiving their health care coverage under these plans. It should be noted that estimates on just what ACA will do to employer-based health coverage vary widely. But the consulting firm of McKinsey & Company stated 30% of the respondents surveyed by them will "definitely" or "probably" stop offering employer-sponsored health insurance to their employees after 2014. UHY will continue to monitor further developments in the implementation of ACA.
For additional information regarding this topic, please contact your local UHY LLP professional.
Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club