H&W: Shared Responsibility Relief

On February 10, 2014, the IRS published final regulations on section 4980H of the Internal Revenue Code.  This is the section of the Affordable Care Act that contains the shared responsibility (i.e. “play-or-pay”) requirements for large employers.  The final regulation also extends and adds certain transition relief applicable to 2015.

We will be updating Compliancedashboard as soon as possible to reflect these final regulations.  However, this blog features some of the highlights of the regulation as they relate to transitional relief.

• Employers with 50 to 99 full-time employees (including full-time equivalents) in 2014 will not be subject to shared responsibility penalties until 2016.  Employers must meet certain criteria to qualify for this delay.
• In general, large employers must offer coverage to substantially all full-time employees as one of the requirements for avoiding shared responsibility penalties.  The IRS has set the threshold for “substantially all” as 95% of full-time employees.  However, for plan years beginning in 2015, that percentage is reduced to 70%.  Note that this relief is not available for employers that modify their plan years after February 9, 2014.
• Employers that do not offer coverage to employees are subject to a monthly penalty equal to the applicable monthly dollar amount times the number of full-time employees reduced by 30.  However, for 2015 (plus any calendar months of 2016 that fall within the employer’s 2015 plan year) if a large employer is subject to an assessable payment for failure to offer coverage, the assessable payment will be calculated by reducing an applicable large employer number of full-time employees by 80 rather than 30.  This relief is not available for employers that modify their plan years after February 9, 2014.
• Transition relief is available for non-calendar year plans of employers that maintained non-calendar year plans as of December 27, 2012 and that have not modified the plan after that date.
• The final rule extends transitional relief previously provided for calculation of a plan’s stability period. For purposes of stability periods beginning in 2015, employers may adopt a transition measurement period that is shorter than 12 consecutive months if: 
  • it is no less than 6 consecutive months;
  • it begins no later than July 1, 2014; and
  • it ends no earlier than 90 days before the first day of the plan year beginning on or after January 1, 2015.
• The final rule also extends transitional relief to the determination of large employer status. For the 2015 calendar year, an employer may determine its status as an applicable large employer by reference to a period of at least six consecutive calendar months, as chosen by the employer, during the 2014 calendar year (rather than the entire 2014 calendar year).

Broadly speaking, employers will not be able to take advantage of these transition rules solely by modifying their plan years to fall into an applicable category.