The requirement for large employers to offer coverage to its full-time employees (and their dependents) has new effective dates:

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1 SUMMARY The employer shared responsibility provisions of the Affordable Care Act (often referred to as the employer mandate or play-or-pay mandate) require that large employers offer their full-time employees and their dependent children up to age 26 affordable, minimum-value healthcare coverage. The employer mandate does not apply to all employers; it applies only large employers, which for these purposes are employers that employ 50 or more full-time employees or full-time equivalents. If a large employer does not meet the shared responsibility requirements, it will be liable for a tax penalty, but only if one or more full-time employees purchase insurance from a state or federal health exchange (the Health Insurance Marketplace) and receive a subsidy to help pay for the coverage. Note: Most churches and other employing organizations will not qualify as large employers and so will not be subject to the employer mandate penalties. If there is any doubt about your organization s size under the provisions, however, read this document and complete the Worksheet To Determine Total Employee Count. Employer Mandate Phase-In Provisions The requirement for large employers to offer coverage to its full-time employees (and their dependents) has new effective dates: In 2015, only large employers with 100 or more full-time employees are subject to the mandate, and in the first year will not be subject to a penalty if they offer coverage to at least 70 percent of their full-time employees. Beginning in 2016, all large employers will be subject to the mandate and must offer coverage to at least 95 percent of their full-time employees and their dependents to avoid the penalty. This document summarizes the current employer mandate provisions, outlines considerations for calculating the number of employees you have (essential to determining if your organization is subject to the provisions), and links to a worksheet for performing the calculation to assist you in determining whether the employer mandate applies. For more detailed information, refer to IRS Notice

2 What Is the Employer Mandate? The employer mandate is the Affordable Care Act (ACA) requirement that applicable large employers offer affordable, minimum-value healthcare coverage to all full-time employees and their dependent children up to age 26 or pay a penalty if one or more of their full-time employees seek coverage from the Health Insurance Marketplace and qualify for a subsidy to help pay for that coverage. Employers are not required to offer healthcare coverage to part-time employees or their dependents. WHAT DO I NEED TO KNOW OR DO? As an employer, you need to know whether these requirements apply to your organization (i.e., are you a large employer subject to the employer mandate?); what to do if your organization is subject to these provisions; what penalties apply if you fail to comply; and what are your reporting obligations. Follow the steps below to see whether your organization is an applicable large employer and therefore subject to the employer mandate and to learn the implications of being a large employer under the ACA. STEP 1: DETERMINE WHETHER THE EMPLOYER MANDATE APPLIES TO YOUR ORGANIZATION. Background Information and Basic Definitions The employer mandate applies only to applicable large employers (or "ALE"), defined as employers (or controlled groups of employers, explained below) that had, during the preceding calendar year, 50 or more full-time equivalent (FTE) employees. To determine if your organization is an ALE, you must count the number of full-time employees and fulltime equivalent employees. Unlike the Fair Labor Standards Act, the employer mandate requires that you calculate the actual hours of service for all employees (both full-time and part-time) during the previous year, plus any hours paid for vacation, illness, and leave. The employer mandate regulations define a full-time employee as one who works, on average, at least 30 hours per week (or 130 hours per month). To accurately count full-time equivalent employees, you will also need to measure hours worked by all part-time employees and determine those who work, on average, at least 30 hours per week (or 130 hours per month) and complete the steps specified in the Worksheet To Determine Total Employee Count. Minister members must be included in the count. Only employees working in the United States are counted. Church employees working abroad, such as missionaries, do not need to be counted for purposes of determining whether the employer is subject to the pay-or-play penalties. Hours contributed by bona fide volunteers to a tax-exempt organization are excluded from the measured hours. 2

3 How many employees does your organization have? First, determine if your organization and another employer are part of a controlled group and must count your employees as a single employer. Under the Affordable Care Act proposed regulations, employers with a common owner must count all employees as if they were a single employer and not as individual employers. (The IRS variously refers to these employers as a controlled group or an Aggregated ALE Group.) These regulations allow churches to rely on a reasonable good faith interpretation of the controlled group rules in determining whether a person or group of persons is an applicable large employer. In making its determination under the controlled group rules, employers should consider the following information. The IRS considers separate nonprofit employers to be a part of a "controlled group" if there is common control or ownership of the organizations. All organizations with the same employer identification number (EIN) or federal taxpayer identification number (TIN) are generally considered to be part of a controlled group. Although a shared EIN or TIN is a good indicator of common ownership, having a different EIN or TIN does not guarantee an employer is not in a controlled group. The IRS's generally applicable controlled group regulations for tax-exempt organizations do not apply to churches or qualified church-controlled organizations ("QCCOs") but do apply to non-qccos. A QCCO is a church agency or entity such as the PCUSA Foundation, the Board of Pensions, mid council, synod, seminary or secondary school. A non-qcco would be an affiliated organization such as religious hospital, nursing home, or university. The IRS has two basic standards for determining whether tax exempt organizations share common control and should be treated as the same employer for purposes of the controlled group rules: 1. Are 80 percent or more of the directors or trustees of one organization directly or indirectly controlled by the other organization? A trustee or director is treated as a representative of the other organization if he or she is also a trustee or director or employee of the other organization. A trustee or director is controlled by the other organization if the other organization has the power to remove a trustee or director and designate a new trustee or director. a. For example, if the church board of trustees appoints the directors to serve on the day care board, the two organizations would be part of a controlled group. If the day care board of directors is self-perpetuating (the board nominates and elects its own directors) or less than 80 percent of its directors are appointed by the church, there would not be a controlled group. b. In the case of a church plan such as the Medical Plan, a non-qcco may consider itself a controlled group with a church and/or QCCO separately from the church and QCCOs. For example, if the related organizations consist of a church, a secondary school and several nursing homes, the nursing homes (non-qccos) may treat themselves as under common control with each other, but not as being under common control with the church and the school (QCCO), even though they actually would be considered under the control of the church and school under the IRS tests. 2. Employers are permitted (but not required) to aggregate with entities having a common exempt purpose if the organizations regularly coordinate their day-to-day exempt activities. If an employer determined that it is part of a controlled group under these rules, for reporting purposes (described in Step 4 below), the employer will be an ALE Member of an Aggregated ALE Group. 3

4 Determine your organization s total full-time employee and full-time equivalent employee count. The regulations provide for a measurement period to give you time to count employees to determine if you are an applicable large employer. The Worksheet To Determine Total Employee Count can help you in determining your employee count. Use this worksheet to calculate your employee count using the previous period's data. Note: You should rely on payroll records for the information you enter on the worksheet. If the results of your calculations using the worksheet show that your organization is an applicable large employer under the ACA, the employer mandate applies to your organization. If you are a large employer with fewer than 100 full-time employees or equivalents, you are not subject to the mandate until 2016 and you do not need to go to Step 2 until you are ready to prepare for January 1, Go to Step 2 (in this Guide) to learn what your organization should do to comply with the employer mandate. Small employers (with less than 50 full-time employees or full-time equivalent employees) are not subject to the mandate. If the results indicate that your organization is not a large employer under the ACA, you will not be subject to the employer mandate or its penalties. Under the ACA, your organization will not be required to offer healthcare coverage to its full-time employees and you do not need to advance to Step 2. (Requirements by the Presbyterian Church (U.S.A.) and the Benefits Plan to provide health coverage to full-time employees still apply, however.) STEP 2: OFFER AFFORDABLE, QUALIFIED HEALTHCARE COVERAGE TO ALL FULL- TIME EMPLOYEES AND THEIR ELIGIBLE DEPENDENTS OR PAY A PENALTY. How can your organization prepare for compliance? Determine to whom your organization is required to offer coverage. As an applicable large employer, your organization must offer coverage to full-time employees and their dependent children up to age 26. (The ACA does not require an employer to offer coverage to a covered partner of an employee.) Any employee who works at least 30 hours per week (or 130 hours per month) counts as a full-time employee. This typically is a straightforward calculation for the employer whose workforce works consistent hours. Determining whether variable-hour and seasonal employees average 30 hours or more per week (or 130 hours per month) is more complicated. An employee is a variable-hour employee if, on the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work, on average, at least 30 hours per week. A seasonal employee may be employed on a full-time basis but only on a seasonal basis (generally six months or less each year). (In the church context, summer church camp counselors might be considered seasonal workers.) To enable employers to ease into the employer mandate provisions, the ACA provides safe harbors time periods in which you can determine an employee s full-time status without penalty and also enroll those employees in coverage (and limit movement in and out of employer coverage and the exchanges as a function of variable work schedules). The safe harbor provision defines three separate periods the measurement, administrative, and stability periods for accomplishing these tasks. 4

5 Seasonal workers hours are generally included in the FTE count to determine employer size. A key exception: If an organization s workforce exceeds 50 full-time employees for 120 days (whether consecutive or nonconsecutive) or fewer during a calendar year, and the number of employees above 50 during those 120 days were seasonal, then the employer is not a large employer under the ACA. At guidestoneinsurance.org, the website for GuideStone Financial Resources, you can view a Full- Time/Part-Time Status infographic, which may help you understand the different periods and your organization s responsibility in each period. What is the measurement period? The method of measurement depends on whether you are measuring ongoing employees or new employees. (An ongoing employee is defined by the IRS as one who has been employed by the employer for at least one complete standard measurement period, described below.) The measurement periods vary for ongoing employees (standard measurement periods) and newly hired employees (initial measurement periods), as follows: Determine if ongoing employees are full-time employees. During the standard measurement period, a look-back period of three to 12 consecutive calendar months (you choose the months), you will measure ongoing variable-hour and seasonal employees time to determine if the employees work full time. Determine if a new employee is a full-time employee. During the initial measurement period, three to 12 consecutive calendar months (you choose the months), you will measure any new variable-hour or seasonal employee s time to determine if the employee is fulltime. The initial measurement period begins with the employee s start date or the first day of the month after the start date. Each new employee will have his or her own initial measurement period. At the end of the period, if the employee worked an average of 30 hours per week (or 130 hours per month) during the initial measurement period, the employee is considered a full-time equivalent employee and should be offered coverage. What is the administrative period? The administrative period is an optional period between the standard measurement period and the stability period. During the administrative period, employers may determine eligibility for, and notify and enroll eligible employees and their eligible children in, minimum essential coverage. You may take up to 90 days for these steps. Offer minimum essential coverage to full-time employees. The minimum essential coverage offered must be affordable and of minimum value, as defined below. For coverage to be affordable, an employee s contribution for his or her coverage (employee-only coverage) cannot exceed 9.5 percent of his or her W-2 wages or monthly income. If your organization offers more than one medical plan option, the affordability test applies to the lowest-cost option available to the employee. Dependent healthcare coverage costs do not apply to the affordability test. 5

6 Traditional Program Members: These members have affordable coverage because the plan is not contributory for the employee s coverage. Affiliated Benefits Program Members: If a member is enrolled in the ABP and required to contribute up to 50 percent of the dues for his or her coverage, the contribution might exceed 9.5 percent of the member s W-2 wages. Remember, W-2 wages do not include housing allowances, only cash salary. To meet the minimum value (adequate) threshold, a plan must cover at least 60 percent of the total allowed cost of medical and prescription services; enrollees are responsible for the remaining costs in the form of deductibles, coinsurance, and copays. The Medical Plan administered by The Board of Pensions of the Presbyterian Church (U.S.A.) exceeds the minimum value threshold. If your employing organization offers any medical plans in addition to the Board s, be aware that the U.S. Department of Health and Human Services provides a minimum value calculator, which you can use to determine if those plans provide minimum value. The calculator, instructions for its use, and details on underlying assumptions can be found at the CMS Center for Consumer Information & Insurance Oversight (CCIIO) regulations page at cciio.cms.gov/resources/regulations-and-guidance/index.html (scroll down to Plan Management). What is the stability period? Employees have coverage during the stability period. Immediately following the administrative period is the stability period. For ongoing employees, it is the same as the standard measurement period, but at least six months in duration. For new employees, it is the longer of six months or the length of the standard stability period. Throughout the stability period, employees who were determined to be full-time employees during the initial or standard measurement period must be offered coverage even if their hours change to less than 30 hours per week during the stability period. STEP 3: UNDERSTAND PENALTIES. Beginning in 2016, if your organization has 50 or more full-time and/or full-time equivalent employees and offers coverage that provides minimum value and is affordable under the ACA to at least 95 percent of your full-time employees and their dependents, you will not be assessed a penalty. For 2015, if you have fewer than 50 full-time and/or full-time equivalent employees, you will not be assessed a penalty. If you have 100 or more full-time and/or full-time equivalent employees but you offer coverage to at least 70 percent of your full-time employees and their dependents, you will not be assessed a penalty. Will penalties be assessed? Penalties may occur for several reasons: As a large employer, your organization does not offer minimum essential coverage to all full-time employees. It offers coverage, but the coverage does not provide minimum value. It offers coverage, but the coverage is not affordable for the employee. 6

7 How much are the penalties? The amount assessed depends, in part, on the reason for the penalty. As you read the following, refer to the infographic that follows the text, reprinted here with the permission of the Henry J. Kaiser Family Foundation. If your organization does not offer coverage to at least 95 percent of its full-time employees (and their dependents), the annual penalty is the number of full-time or full-time equivalent employees (FTEs), minus 30, multiplied by $2,000. (In 2015 only, the offer-of-coverage threshold is 70 percent.) This example shows you how to determine your penalty. Example: Assumes 63 full-time and/or full-time equivalent employees. Step Calculation Example 1 Subtract 30 from the number of FTEs in your organization 63 FTEs 30 = 33 FTEs 2 Multiply the result by $2, FTEs x $2,000 = $66,000 per year 3 Divide the annual amount by 12 to get the monthly penalty $66,000 / 12 = $5,500 / month penalty payment If your organization offers coverage but an employee enrolls for coverage in a public exchange plan and receives a subsidy (i.e., coverage offered by your organization does not provide minimum value or is unaffordable, as defined by the ACA), the penalty is the lesser of $3,000 annually per full-time employee receiving a subsidy or $2,000 per full-time employee minus the first 30 employees. Follow steps 1 through 6 to determine your penalty payment: Example: Assumes 63 full-time and/or full-time equivalent employees, 20 of whom get subsidized coverage on an exchange plan because their premium contributions exceed 9.5 percent of their taxable income. Step Calculation Example 1 Multiply the number of FTEs in your organization who received a subsidy in a month by $3, FTEs x $3,000 = $60,000 2 Divide the amount by 12 to get the monthly penalty $60,000 / 12 = $5,000 / month penalty payment The payment is capped so the payment does not exceed the penalty an employer would owe it if did not offer coverage. Determine the payment cap: 3 Subtract 30 from the number of FTEs in your organization in a month 63 FTEs 30 = 33 FTEs 4 Multiply the difference by $2, FTEs x $2,000 = $66,000 5 Divide the total by 12 because the penalty is assessed monthly 6 Compare the calculated penalty ($60,000 in step 2) to the penalty payment cap ($66,000 in step 5). The calculated penalty is below the cap, so you pay $60,000 ($5,000/month). $66,000 / 12 = $5,500 / month payment cap Actual penalty payment: $60,000 / 12 = $5,000 per month 7

8 How will your organization know if it owes a penalty? The IRS will request information about the coverage your organization offered to an employee who has applied for a premium tax credit (a subsidy) on a health exchange. Based on the information your organization provides, the employee will receive a subsidy or be denied. If the employee receives a subsidy (and if your organization is a large employer and therefore subject to a shared responsibility payment), the IRS will notify your organization. Your organization will have an opportunity to respond to the information the IRS provides, through an appeals process, before a penalty is formally assessed. STEP 4: UNDERSTAND REPORTING OBLIGATIONS. Under the ACA, applicable large employers will be required to report to the IRS the names and social security numbers of all employees to whom medical coverage was offered in 2015 and thereafter. These records will allow the IRS to monitor employee eligibility for subsidies for exchange plan coverage and employer compliance with the employer coverage mandate. ALEs will be required to submit one Form 1095-C for each full-time employee or enrolled employee and one summary Form 1094-C transmittal. Small employers exempt from the mandate are also generally exempt from this reporting obligation. Form 1095-C for the 2015 calendar year are required to be furnished to individual employees by February 1, 2016, and filed with the IRS by February 29, 2016 (or March 31, 2016 if filing the forms electronically). This is an annual reporting obligation, similar to Form W-2 or Form 1099 reporting. Like other tax information returns, failure to file timely and correct Forms 1095-C may result in penalties being assessed against your organization for each missing or incorrect form. Note: Refer to the Board of Pensions Webinar recording, ACA Reporting Requirements, on pensions.org for sample reports, links to helpful resources, and general information about the reporting requirements. Form 1095-C: Employer-Provided Health Insurance Offer and Coverage The information to be reported in Form 1095-C includes employee and employer identifying information, monthly coverage information, and the covered individuals. The Instructions to Form 1095-C provide details on the necessary reporting codes relating to employee health coverage. If you are an ALE, you must prepare a Form 1095-C for each full-time employee and complete Part I and II of the Form each year. On line 15, you must enter the amount of the employee share of the lowest-cost monthly premium for self-only minimum essential coverage providing minimum value that your organizations offered to the employee. For members enrolled in the Traditional Program, where there is no contribution for memberonly coverage, this line should state $0. For members enrolled in the Affiliated Benefits Plan, the dollar amount of any dues shared imposed for member coverage will need to be reported. You should also note the safe harbor code, if any, using the codes listed in the Instructions. Some safe harbor codes include the employee not being employed that month, the employee not being full-time that month, or the employee being enrolled in coverage for that month. Part III of Form 1095-C asks about covered individuals if the employer offers self-insured coverage. You should not complete Part III for individuals who are covered by the Medical Plan sponsored by the Board of Pensions. As the plan sponsor of the Medical Plan, the Board of Pensions intends to file Forms 1095-B and 1094-B reporting the information for Medical Plan covered individuals. Form 1095-B asks for the social security numbers of all covered individuals, including non-employee dependents. If the Board does not have the social security numbers of the enrolled dependents, it will contact you and the employee for that information. If the Board is unable to obtain it, the Instructions allow 8

9 it to enter only the dates of birth for covered individuals. The social security number for the enrolled member will be reported in Part I of the form. Reporting Procedures If your organization must file any Forms 1095-C, then you must also file the summary Form 1094-C with the IRS. Each employee should get no more than one Form 1095-C per year, excluding corrections of prior forms. Do not spread the information for a single employee across multiple Forms 1095-C in the same year. If you offer coverage under different plans (e.g. the Benefits Plan to clergy and a local HMO for lay staff), you will need to provide 1095-C reports for each employee based on his or her coverage offering. If your organization files additional Forms 1095-C, then it must include an additional Form 1094-C as a summary. There should be only one authoritative Form 1094-C per year that includes the aggregate employer-level coverage data. Individual employees annually receive only their own Form 1095-C by the last day of January (or the next business day), whereas the IRS must annually receive copies of all Forms 1095-C and the Form 1094-C summary by the end of February (or the next business day). Electronic filing with the IRS must be completed annually by the last day of March (or the next business day). Organizations with 50 to 99 full-time employees may claim relief from the employer penalty for 2015 only. An organization may claim Section 4980H Transition Relief on Form 1094-C by checking the appropriate box and indicating code A relief in Part III, column (e) of the form. See the Form 1094-C Instructions for further details. Your organization may enter into an arrangement with a third party to complete these reporting obligations on your behalf. This does not relieve you of the obligation to make the filings or pay any assessed penalty. This information is intended to be informational and does not constitute legal advice by the Board of Pensions regarding any specific situation. 9

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