Transcript Current Hot Topics: ACA - Tax Executives Institute

Current Hot Topics: ACA
October 10, 2014
www.morganlewis.com
Presenters:
Allison Goodman
Daniel Hogans
Agenda
• ACA Employer Shared Responsibility Update and
Recent Developments
• Executive Post-Termination Benefits Under the ACA
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Employer Shared Responsibility Rules
Penalty Overview; Effective Date: Step-by-Step Guide;
Next Steps
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Penalty Overview
No Coverage Penalty
If a large employer does not offer
minimum essential coverage (MEC) to
at least 95% (70% for 2015) of its full
time (FT) employees and their
dependents
Inadequate Coverage Penalty
If a large employer offers MEC to at
least 95% (70% for 2015) of its FT
employees and their dependents, but
the coverage is not affordable and/or
does not provide minimum value
AND
One FT employee enrolls in an Exchange and receives a subsidy
Employer must pay penalty of:
Employer must pay penalty of:
$2,000 ($166.67/month) for all FT
employees, minus 30 (minus 80 in
2015) (including those receiving MEC)
$3,000 ($250/month) for each FT
employee receiving a subsidy (capped
at the maximum No Coverage Penalty)
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Effective Date
• January 1, 2015 for large employers with 100 or more
full time/full time equivalent employees
• January 1, 2016 for mid-sized employers with 50 to 99
full time/full time equivalent employees, as long as
certain conditions are met
• Non Calendar Year Plans may be delayed until first day
of the plan year, as long as certain conditions are met
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Step-By-Step Guide
Offer of Minimum Essential Coverage
Full Time Employee Status
Affordable
Minimum Value
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Minimum Essential Coverage (MEC)
• Coverage constitutes MEC if it is under an “eligible
employer-sponsored plan” (insured or self-insured)
• No particular level or type of benefits required, but:
– Must meet ACA coverage mandates
• e.g., no annual or lifetime dollar limits (no more mini-meds)
• dependent coverage to age 26
• no cost-preventive services (for non grandfathered plans),
etc.
– Cannot be limited to excepted benefits
• e.g., limited-scope dental/vision, fixed indemnity
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To Whom MEC Must Be Offered
• MEC must be offered to 95% of FT employees and
dependents to avoid the No Coverage Penalty
– For 2015, MEC must be offered to 70% of FT employees
and their dependents
– Meeting percentage requirements is determined for each
employer, not on a control group basis
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Dependents
• Includes children (biological and adopted) up to
age 26
– but not spouses, grandchildren, qualifying relatives, foster
children or stepchildren
• One-year transition relief (until 2016) for plans to offer
dependent coverage, if
– did not offer dependent coverage (or coverage to all
dependents) in 2013 and 2014
– are working toward offering dependent coverage in 2014
and/or 2015 plan years
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An Offer of MEC
• Annually (at least once a year), employee has an
effective opportunity to accept or decline coverage
• Opportunity to decline not required if offered coverage is
of minimum value and offered to employee at no or
limited cost
• Coverage election that continues year to year is
considered offer of coverage, as long as employee does
not opt out
• Offer by one control group member is sufficient
• Third party may offer coverage on behalf of employer
– Multiemployer plan coverage
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FT Employee Status
• “Employee” is under the common law standard
• “Full Time” means employed an average of 30 hours of
service/week (or 130 hours/month)
– For hourly employees, each hour for which employee is paid, or
entitled to payment, for performance of duties (including
vacation, PTO, sick leave, disability, leave of absence)
– For non hourly employees, option of using actual hours or
equivalency of 8 hours/day or 40 hours/week
– Unpaid leave under FMLA, USERRA or for jury duty is included
• Hours of service are counted across all control group
members
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FT Employee Status
• For hours of service that are particularly challenging to
count, use reasonable method to credit hours of service
– e.g., commissioned salespeople, airline employees,
layover or on-call hours, adjunct faculty
• Examples:
– not reasonable to not credit travel time for commissioned
traveling salesperson
– For adjunct faculty, regulations posit a multiplier for
crediting additional time for each hour of classroom or
other required time worked (this is not the only reasonable
method for adjuncts)
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FT Employee Status
• No special rules for short-term or high-turnover
employees
• No general exception for student interns, except
– Work study program (federal, state or local) hours are not
counted
– Unpaid internship/externship hours are not counted
• Hours of service as a bona fide volunteer are not
counted
• Special rules govern how to treat employees transferring
to/from domestic to foreign employer
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Measuring FT Employees
Monthly
Measurement Method
• FT status is determined based
on employee’s hours of service
for each calendar month (no
look back)
• Based on 130 hours of
service/month standard
• Coverage must be offered by
the first day of the month
immediately following the end of
initial 3 full months of
employment
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Look Back
Measurement Method
• FT status of an employee is
determined for a subsequent
period (stability period) based
on the hours of service of the
employee in a prior period
(measurement period)
• Coverage must be offered by
first day of the month
immediately following the end
of initial 3 full months of
employment, unless new
variable hour, part time or
seasonal employee
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Categories of Employees to Measure
• Ongoing Employees
• New Employees (reasonably expected to work FT)
• Variable Hour Employees
• Part Time Employees
• Seasonal Employees
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Look Back Measurement Period
For Ongoing Employees
(employed for at least one complete MP)
Measurement
Period (MP)
3 to 12 month period
for ongoing
employees
Employer sets the
time frame for the
MP, and the
calendar date on
which the MP begins
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Administrative
Period (AP)
Up to 90 days
immediately following
MP
Optional
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Stability Period
(SP)
Must be the longer
of 6 months or the
length of the MP, but
cannot exceed MP
FT status during SP
is defined by hours
worked in MP
Example of Ongoing Employee
MP is Oct. 15,
2015-Oct. 14,
2016
• Employee averaged at least 30
hours/week during this period, but did
not always work FT
AP is 2.5 months,
period overlaps with prior SP, so
Oct. 15-Dec. 31, • This
there is no break in coverage
2016
SP is Jan. 1Dec. 31, 2017
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• Employee is covered as FT employee
for this period, regardless of whether
employee works FT during this period
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Possibly Non-FT Employees
• Variable Hour Employees, Part Time Employees and
Seasonal Employees are new employees who may not
average 30 hours of service/week
• Employers may measure these new employees
for up to 12 months to determine if they are in FT status
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Possibly Non-FT Employees
Variable Hour (VH)
Employees
Part Time (PT)
Employees
• An employee for whom,
based on the facts and
circumstances at his/her
start date, his/her FT status
cannot reasonably be
determined because
his/her hours are expected
to be variable or otherwise
uncertain
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• Employee whom the
employer reasonably
expects to perform
services on average less
than 30 hours/week, based
on the facts and
circumstances on
employee’s start date
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Determinative Facts and Circumstances
• Factors to consider when determining whether VH or PT
employee is an FT employee are (but are not limited to):
– Whether employee is replacing an FT or non-FT employee
– Extent to which employees in the same or comparable
positions are (or are not) FT employees
– Whether job was advertised, communicated or
documented as, on average, above or below 30 hours of
service/week
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Seasonal Employees
• An employee who is in a position for which the
customary annual employment is a period of six months
or less
– The employment period should begin each calendar year
in approximately the same part of the year, such as
summer or winter
– Example: ski instructor
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Look Back Measurement Period
For VH, PT and Seasonal Employees
Initial
Measurement
Period (IMP)
3 to 12 month period
that begins on date b/t
start date and later of 1st
day of next calendar
month or the 1st day of
1st payroll period that
starts after start date
Employer sets time
frame
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Administrative
Period (AP)
(optional)
Up to 90 days
immediately following
IMP
IMP and AP must end
by the last day of the 1st
month beginning on or
after the employee’s
one-year anniversary
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Stability Period
(SP)
Must be the longer of 6
months or the length of
the IMP, but cannot
exceed IMP, and further
limited if non-FT
Must be measured using
calendar months
FT status during SP is
defined by hours worked
in IMP
Example of VH Employee (shift worker)
IMP is
May 10, 2015May 9, 2016
• IMP is 12 months, beginning on first day of
employment
• Employee works on average 35 hours/week
(but not consistently FT)
AP is
May 10, 2016June 30, 2016
• AP runs from end of IMP through end of first month
after IMP
• IMP and AP together cannot total more than
13 months plus a fraction of the 13th month
Coverage is
offered starting
July 1, 2016
• This coverage will last for 12 months (June 30, 2017)
• Start to measure again during first MP that begins
after the start date
• Employer is not penalized for no coverage during IMP
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Example of New Seasonal Employee
(ski instructor)
IMP is
Nov. 15, 2015Nov. 14, 2016
AP is
Nov. 15, 2016Dec. 31, 2016
Coverage is not
offered at end of
IMP
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• IMP is 12 months, beginning on first day of
employment
• Expected to work 40 hours/week from
Nov. 15-Mar. 15, but to work no hours from Mar.
16-Nov. 14
• AP runs from end of IMP through end of first
month after IMP
• IMP and AP together cannot total more than
13 months plus a fraction of the 13th month
• This employee does not average 30 hours of
service/week over the 12 month IMP
• As employee is not FT, employer does not have to
offer coverage for the SP and will not be penalized
during IMP
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Transitioning from IMP to MP
IMP is
Oct. 20, 2015Sept. 19, 2016; AP
ends Nov. 30, 2016
MP is
Oct. 15-Oct 14;
AP is
Oct. 15- Dec. 31
Transition
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• IMP starts on employee’s start date and lasts
11 months; employee works FT during IMP
• AP lasts until first day of calendar month after
one-year anniversary (13 months)
• MP is 12 months
• When this employee passes the Oct. 15 date in
his/her first year of employment, he/she starts to
get measured under both IMP and SP
• Based on IMP, employee is offered coverage from
Dec. 1, 2016-Nov. 30, 2017
• Employee starts to get measured in MP on Oct.
15, 2016; SP would start Jan. 1, 2018
• From Nov. 30, 2017-Dec. 31, 2017, covered as per IMP
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Categories of Employees
• Employer may use different measurement methods, and/or apply
MP and SP with different lengths or start/end dates based on these
categories (list is exclusive):
– Salaried employees and hourly employees
– Employees whose primary places of employment are in different states
– Collectively bargained employees and non collectively bargained
employees
– Each group of collectively bargained employees covered by a separate
collective bargaining agreement
Determination must be made on a uniform and consistent basis
for all employees in the same category
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Special Rules:
Rehired or Continuing Employee?
Terminated and Rehired
As New Employee
•
If the period for which there are
no credited hours of service is at
least 13 consecutive weeks
•
For educational organizations,
time period is 26 consecutive
weeks
•
Employers may apply a rule of
parity for relatively short-term
employees
•
Treated as a new employee for
measuring and coverage
purposes
© Morgan, Lewis & Bockius LLP
Returning As
Continuing Employee
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•
If employee returns to
employment from a period of no
credited hours that is less than
13 (or 26) consecutive weeks,
upon return, coverage continues
as though there were no period
without credited hours
•
Resumption of coverage should
begin no later than the first day of
the calendar month following
resumption of services
Special Rules: Leaves and Breaks
• Averaging rules apply to (only available if employer uses look back
measurement method):
– Employees returning from special unpaid leave
(FMLA, USERRA, jury duty)
– Educational organization employees who are returning from
employment break periods of at least four consecutive weeks
• Employer may either:
– Disregard the leave/break, and use the average for the other
weeks/months as the average for the entire MP
– Credit the employee with hours of service for the periods of
unpaid leave/break
– Equivalency result is the same using either method
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Special Rules: From Non-FT to FT Status
• If VH, PT or Seasonal employee changes employment
status to a FT position before the IMP ends:
– Employer will not be subject to a penalty if it offers
coverage as of the first day of the fourth full calendar
month following the change in employment status
– Or, if earlier, the first day of the first month following the
end of the IMP (plus any applicable AP)
– To avoid all penalties, coverage must be MEC that is
affordable and of minimum value
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Special Rules: From FT to Non-FT Status
Monthly Measurement
Method
Look Back
Measurement Method
• Employer may apply this
method within 3 months of
the change if employee
averages less than 30 hours
of service/week for each of
the 3 months after the change
from FT status, as long as
employer has provided ACAcompliant coverage while in
FT status
© Morgan, Lewis & Bockius LLP
• Employee is covered during
the SP, regardless of whether
working FT during that SP
• PT status will be accounted
for in subsequent SP
• But, in certain circumstances,
an employee who has
transitioned to PT may be
moved to the monthly
measurement method before
his/her SP ends
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Affordability
• General Standard:
Coverage is affordable if the employee’s share of the
premium for the lowest-cost self-only coverage of
minimum value offered by the employer is not more than
9.5% of the employee’s annual household income
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Affordability Safe Harbors
• Three optional safe harbors available to employers who meet certain
conditions:
1.
W-2: Premium cannot exceed 9.5% of the employee’s W-2 wages
from the employer for that year
2.
Rate of Pay: Premium cannot exceed 9.5% of the lower of the
employee’s hourly rate of pay (or monthly salary) on the first day of
the coverage period or his/her lowest hourly rate of pay during the
month multiplied by 130 hours
3.
Federal Poverty Line: Premium cannot exceed 9.5% of an amount
equal to the federal poverty line for a single individual for the year
divided by 12
• May apply different safe harbors to different categories of
employees on a uniform and consistent basis
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Minimum Value (MV)
• Generally, plan must cover at least 60% of total allowed
costs in four core categories of benefits:
– physician and mid-level practitioner care,
– hospital and emergency room services,
– pharmacy benefits, and
– laboratory and imaging services
• Likely to be determined by using HHS calculator, designbased safe harbor, or actuarial certification (if non
standard features)
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Penalty Assessment
Penalty Amount; Control Group Rules; Procedure
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Penalty Amount
No Coverage
(4980(a)) Penalty
Inadequate Coverage
(4980(b)) Penalty
• Imposed if employer fails to
offer MEC to 95% (in 2015,
70%) of FT employees and
their dependents
• Imposed if employer fails to
offer coverage that is
affordable and of minimum
value to at least some
employees
• $2,000 ($166.67/month) for all
FT employees (minus 30, but
80 in 2015)
• $3,000 ($250/month) for each
FT employee who receives
federally subsidized
Exchange coverage
• If imposed, amounts include
FT employees who are
offered MEC
© Morgan, Lewis & Bockius LLP
• Capped at the maximum No
Coverage Penalty
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Control Group Rules
• Each employer-member of a control group is responsible
for the penalty related to its employees
– Employer-members are not co-liable for penalty
• If a FT employee performs service for two or more
employer-members, the employer for whom the
employee works the most number of hours will be that
employee’s employer for penalty purposes
– Measured on a per-month basis
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Procedure
Trigger
1411
Certification
• FT employee enrolls in Exchange that is federally
subsidized (premium tax credit or cost sharing
subsidies)
• Employer will receive Section 1411 Certification
• IRS will contact employer and give it the opportunity
to respond
• Liability is assessed through notice and demand
process
Notice and
Demand • Penalty is not tax deductible
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• IRS Reporting Requirements – IRC
6055 and 6056 Reporting to the IRS
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IRS Reporting Requirements
IRC Section 6056
•
Filed by applicable large employers
to show compliance with shared
responsibility requirements
•
Each member of control group files
separately
•
Self-insured plan sponsors will file
combined 6056 and 6055 returns
•
IRS filing due Feb./Mar.
•
Provide annual statement to each
FT employee by Jan. 31
•
First filings due 2016 for 2015 year
•
Use forms 1095/1094-C
© Morgan, Lewis & Bockius LLP
IRC Section 6055
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•
Filed by entities that provide MEC
(including insurers, self-insured
group health plans) to assist IRS to
determine if individuals are meeting
ACA individual mandate
•
IRS filing due Feb./Mar.
•
Provide annual statement to each
individual by Jan. 31
•
First filings due 2016 for 2015 year
•
Use Forms 1095/1094-B
IRS Forms
The IRS recently released draft reporting forms
Instructions hopefully released in soon!
IRC Section 6056 Reporting
Forms 1095-C/1094-C
IRC Section 6055 Reporting
Forms 1095-B/1094-B
• 1095-C  Employer sends
this statement to employee
and to IRS with transmittal
• 1095-B  Insurer/Plan sends
this statement to employee
and to IRS with transmittal
– report info so employee can
determine whether eligible for tax
credit
– report general info about policy
holders, employer coverage, the
coverage provider, and other
covered individuals, etc.
• 1094-C  Employer sends
this transmittal to IRS
• 1094-B: Insurer/Plan sends
this transmittal to IRS
– report health coverage offered to
FT employees to IRS
© Morgan, Lewis & Bockius LLP
– report general info on filer
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IRC Section 6056 Information (1095/1094-C)
•
Name, address, EIN of employer; contact person’s info
•
Certification re: offer of MEC to FT employees and their dependents by
calendar month
•
Number of FT employees for each month in calendar year
•
For each FT employee, months during calendar year for which MEC under
the plan was available
•
For each FT employee, the employee’s share of the lowest-cost monthly
premium (self only) for MV coverage under employer-sponsored plan, by
calendar month
•
Name, address, TIN of each FT employee during calendar year, and
months (if any) that employee was covered under employer-sponsored plan
•
Additional information through indicator codes, or specified in forms or
further guidance
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IRC Section 6055 Information (1095/1094-B)
• Name, address, and EIN for entity required to file return
• Name, address, and TIN for primary insured
• Name, dates of coverage, and TIN for each individual covered under
policy or program
• For each covered individual, months for which individual was
enrolled in coverage and entitled to receive benefits (for at least one
day)
• If employer-sponsored coverage (insured):
– Name, address, and EIN of employer, plan sponsor
– Whether coverage is a qualified health plan under SHOP
• Additional information specified in forms, instructions, or further
guidance
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• Review, Prepare, Document and
Take Action—What’s Next?
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Next Steps
• Confirm that, for January 1, 2015, at least 70% of FT
employees and their dependents are offered MEC, and
prepare to offer MEC to 95% by 2016
• Review your workforce to identify the FT employees
– How do count the hours of service for your part time
employees, seasonal workers, interns?
– Do you share employees with other control group
members?
– Will you implement a look back measurement system?
• Determine the look back and stability periods you plan to
use for each category of employees
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Next Steps
• Document! Document! Document!
– In order to be able to successfully answer IRS inquiries
(Section 1411 Certification) and to handle IRC reporting
requirements, document the methodology for determining
whether each type of employee is a FT employee
– Update documentation as methodologies change in the
future
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Next Steps
• Penalty Assessment: Measure the risks associated with the
employer’s healthcare coverage offerings:
– Is MEC offered to a sufficient percentage of FT employees and
dependents? Is the coverage affordable? Of minimum value?
– If the employer is vulnerable for the No Coverage Penalty or the
Inadequate Coverage Penalty, is it prepared to accept those
potential liabilities?
• Prepare to file your Section 6056 filings for 2015
– Work with payroll and plan administrator to ensure that you can
collect the required information
– Review the recently released draft IRS reporting forms (included
in the materials)
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• Executive Post-Termination Benefits
Under the ACA
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ACA
• Includes restrictions on discriminatory insured medical
benefit arrangements
• Discrimination to be determined under rules similar to
those applicable to discriminatory self-insured
arrangements under Code section 105(h)
• Application suspended pending issuance of guidance
(See IRS Notice 2011-1)
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Key Code Provisions
• Section 61 – income from whatever source derived
• Section 104(a)(3) – income exclusion for amounts
received under accident or health insurance for personal
injuries and sickness
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Key Code Provisions
• Section 105(a) – general rule is that amounts received
under an accident or health plan are includible in income
where attributable to employer contributions excluded
from income
• Section 105(b) – provides major exception for amounts
paid to reimburse qualifying medical expenses within the
meaning of Code section 213(d)
• Section 106(a) – provides exclusion for value of medical
coverage provided by employer (such as employer paid
insurance premiums
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Code Section 105(h)
• Eliminates gross income exclusion for benefits received
under a discriminatory employer-funded medical plan
• Discrimination defined as benefits in favor of highly
compensated individuals (HCIs) as to eligibility or
benefits
• HCI is (1) one the employer’s five highest paid officers,
(2) a shareholder who owns more than 10% in value of
the employer’s stock, or (3) among the highest paid 25%
of all employees, including the five highest paid officers
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Code Section 105(h)
• To pass the Eligibility Test, a self-insured medical plan must benefit:
– 70% or more of all employees (controlled-group concept applies); or
– 80% or more of all employees who are eligible to benefit under the plan,
if 70% or more of all employees are eligible to benefit under the plan; or
– A “nondiscriminatory classification” of employees
• Employees who may be excluded from the percentage tests
described above include employees who (1) have not completed
three years of service, (2) are under age 25, (3) are part-time or
seasonal employees, (4) are nonresident aliens receiving no earned
income from within the United States, or (5) are covered by a
collective bargaining agreement between an employee
representative and the employer if health and accident benefits were
the subject of good faith bargaining.
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Code Section 105(h)
• Nondiscriminatory classification means a classification that:
– benefits a “reasonable” classification of employees as established by
the employer. For these purposes, reasonable classifications may
include specified job categories, hourly vs. salaried, geographic
location, and other bona fide business criteria; and
– benefits an objective mathematical percentage of employees or satisfies
a subjective facts and circumstances test. The objective mathematical
percentage test provides that the ratio of non-HCIs benefiting under the
plan over the ratio of HCIs benefiting under the plan exceeds a set
mathematical percentage. This mathematical percentage is no more
than 50%, but potentially much lower if the plan covers a high
concentration of non-HCIs. The subjective facts and circumstances test
establishes a potentially lower threshold mathematical percentage, but
the overall facts and circumstances must support the classification and
not be discriminatory.
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Rev. Rul. 61-146
• Supports exclusion for reimbursement of employee-paid
insurance premiums which historically could be done on
a discriminatory basis
• Seems likely to be restricted under the ACA like an
employer insured arrangement under the reasoning of
the ruling
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Section 409A Compliance
• Taxable arrangements generally would be subject to
Code section 409A restrictions unless an exclusion
applies
• Possible exclusions include separation health benefits,
involuntary separation pay and short-term deferral
(limited application)
• Accordingly, arrangements subject to Code section 409A
restrictions generally are subject to fixed schedule
payment requirements
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Section 409A Compliance
• Requirements for a fixed schedule reimbursement arrangement
include: (1) objectively determinable nondiscretionary definition of
the expenses eligible for reimbursement or of in-kind benefits, (2)
the arrangement provides for the reimbursement of expenses
incurred or for the provision of the in-kind benefits during an
objectively and specifically prescribed period (including the lifetime
of the service provider), (3) the arrangement provides that the
amount of expenses eligible for reimbursement, or in-kind benefits
provided, during a service provider’s taxable year may not affect the
expenses eligible for reimbursement, or in-kind benefits to be
provided, in any other taxable year, (4) the reimbursement of an
eligible expense is made on or before the last day of the service
provider’s taxable year following the taxable year in which the
expense was incurred, and (5) the right to reimbursement or in-kind
benefits is not subject to liquidation or exchange for another benefit
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ACA Provisions
• Section 2716 of the Public Health Service Act, provides
that a group health plan (other than a self-insured plan)
must satisfy the nondiscrimination requirements of Code
section 105(h) (2), applying “rules similar to” the section
105(h) rules for nondiscriminatory eligibility,
nondiscriminatory benefits, and controlled group entities
treated as a single employer
• Section 2716 also provides that the term “highly
compensated individual” has the same meaning as
under section 105(h)
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Penalties for Noncompliance
• An insured group health plan that fails to comply with
these nondiscrimination rules may be subject to: (1) an
excise tax under Code section 4980D of $100 for each
day in the noncompliance period with respect to each
individual to whom such failure relates, (2) in the case of
a non-Federal governmental group health plan, civil
monetary penalties up to $100 per day per individual for
each day the plan does not comply with the requirement,
or (3) a civil action to enjoin a noncompliant act or
practice or for other appropriate equitable relief under
ERISA
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Section 2716 Enforcement Suspended
• 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 IRS has indicated
that guidance regarding the nondiscrimination
requirements of section 2716 will not apply until plan
years beginning a specified period after the issuance of
that guidance
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59
Exceptions to Section 2716 Requirements
• Grandfathered Plans
– Difficult to maintain grandfathered status
• Retiree-only plans
– Maintained as separate plan for retired or former
employees only
– Separate plan documents, Form 5500 etc.
• Self-Insured Arrangements
– Basis for avoiding restriction?
– Section 2716 applies to insured arrangements only
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60
Contact Information
Allison Goodman
Associate
+1.202.739.5667
[email protected]
Daniel Hogans
Partner
+1.202.739.5510
[email protected]
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61
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