Final Shared Responsibility Regulations

February 17, 2014

Employee Benefits

On Tuesday, February 10, 2014, the Internal Revenue Service (IRS) published final regulations on the Affordable Care Act’s (ACA) large employer Pay or Play mandate, which requires large employers to provide health care benefits to full-time/FTE employees or risk paying substantial penalties. The mandate was originally set to apply this year but was delayed until 2015 by the IRS through transitional relief published in July 2013 (IRS Notice 2013-45). Now, with the release of the 227-page final regulations, we have been given more transitional relief for 2015 plan years, especially for employers with 50 to 99 full-time/FTE employees.

Transitional Relief

1. Mandate Delayed Another Year for Smaller Employers. To assist smaller employers in transitioning into compliance with the Pay or Play mandate, the IRS is giving certain employers another year before penalties for noncompliance will be assessed. An employer will be eligible for this transitional relief for 2015 plan years provided they meet the following requirements:

  • A Limited Workforce Size. The employer employs on average at least 50 full-time employees (including FTEs) but fewer than 100 on business days during 2014.
  • Maintenance of Workforce and Aggregate Hours of Service. During the period from February 9, 2014 to December 31, 2014, the employer does not reduce the size of its workforce or overall hours of service in order to avoid complying with the Pay or Play mandate in 2015.
  • Maintenance of Previously Offered Health Coverage. Any health care benefits offered by the employer on February 9, 2014 must not be eliminating or materially reduced. The employer must continue to offer coverage during this coverage maintenance period at nearly the same cost-sharing levels through the last day of the plan year beginning on or after January 1, 2015.
  • Certification of Eligibility for Relief. Employers who are eligible for the one-year delay will need to complete a form certifying that they meet the transitional relief requirements. The form will be included with IRC Section 6056 health insurance reporting once those final regulations are published.

2. Offers of Coverage to at Least 70% of Full-Time Employees. The final regulations also offer relief for employers subject to the Pay or Play rules by reducing the threshold for coverage offered to employees during 2015 plan years. Under the mandate, an applicable large employer is treated as offering health care coverage to its employees for the month if, for that month, it offers coverage to at least 95% of its full-time employees (and their dependents). For 2015 plan years, large employers will avoid penalties under the mandate if they offer health care coverage to at least 70% of their full-time employees. The 95% threshold returns for plan years on or after January 1, 2016.

3. Penalty Calculation for Failing to Offer Coverage. The final regulations include transitional relief for the calculation of penalties for applicable employers with 100 or more full-time/FTE employees who do not comply with the Pay or Play mandate. In general, the penalty for failing to offer coverage is calculating by counting the number of all full-time employees (excluding 30) multiplied by 1/12 of $2,000 for each calendar month. For 2015 plan years, the IRS has modified the formula by allowing employers to exclude 80 full-time employees (instead of 30), thereby reducing the penalty assessed for one year.

4. The Non-calendar Plan Year Relief Returns. Employers with non-calendar year plans are subject to the mandate effective on the first day of the plan year in 2015, not on January 1, 2015. This relief extends the relief provided in the Pay or Play proposed regulations by one year.

The final regulations include additional relief for multi-employer plans with collective bargaining agreements, extensions for relief offered in the proposed regulations, as well as discussions on various employee categories and employer industries. We will provide a more in depth Alert shortly.

Content provided by Mike Fowler, Kutak Rock LLP

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