Play or Pay Under Health Care Reform: Size Matters. Important Things to Remember

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1 Play or Pay Under Health Care Reform: Size Matters April 3, 2014 Presented By Darcy L. Hitesman, Esq IRS Circular 230 Disclosure: To insure compliance with Treasury Regulations, we are required to inform you that any tax advice contained in this communication (including any attachments) was not intended or 1 written by us to be used, and may not be used by you or anyone else, for the purpose of: (i) avoiding penalties imposed by the Internal Revenue Code; or (ii) promoting, marketing, or recommending to another party any tax related matter addressed in this communication. Important Things to Remember Health Care Reform does not require an employer to offer medical coverage to its employees. May be exposed to penalties if particular type and level of coverage is not offered to at least a particular portion of workforce. How you go about accomplishing this is your responsibility. 2 1

2 Morning Agenda Big Picture Play or Pay Penalties Role of Employer Size Special Rules Special Relief for Big Picture of Play or Pay Penalties 4 2

3 Play or Pay Construct Penalty Category 1: Failure to Offer Do you offer minimum essential coverage (MEC) to all (or all but 5%) full time employees? No credits or offsets for what do provide $2,000 per year ($ per month) Based on full time employees (minus 30) Penalty Category 2: Offer MEC but coverage not good enough Minimum value of 60% Not affordable Failure Cost exceeds 9.5% HHI $3,000 per year ($250 per month) Only for full time that get subsidized Capped at Penalty 1 amount *Remember: Subsidy at exchange triggers. 5 The Role of Employer Size Accurately determining employer size impacts: Whether Play or Pay impacts; When Play or Pay impacts; and How Play or Pay impacts Ongoing monitoring obligation 6 3

4 Play or Pay Play or Pay penalties only apply to applicable large employers Applicable large employer Large employer employs at least 50 full time (FT) plus full time equivalents (FTEs) on business days during preceding calendar year Normally determine based upon calendar year preceding Up until now, running sample numbers and projecting size for 2015 Note: Who counts for determining large employer status is different than who counts for calculating penalty. 7 Special Rule for 2015 For 2015, option to determine status based on shorter period of time Normally determine based upon calendar year preceding Special rule permitting period of at least 6 consecutive months in 2014 Employer s choice Time to make determination and then figure out what that means Need to rerun numbers based on Final Regulations Final Rule: Shared Responsibility for Employers Regarding Health Coverage /pdf/ pdf 8 4

5 Employee Common law employees Includes W 2 and those who should be W 2 Does not include leased employees 9 Full time Status Full time defined as 30 hours or more per week Determined on monthly basis (130 hours per month) Real time 10 5

6 Full Time Equivalent ( FTE ) Status Calculation FTE defined as aggregate part time hours per month divided by 120 No more than 120 hours per month included for any one part timer May have employees working more than 120 but less than 130 Disregard hours over 120 Note: FTEs only used to determine large employer status. 11 Applicable Large Employer Calculation Sum of total number of true full time employees (including seasonal workers) for each calendar month in the preceding calendar year and the total number of FTEs (including seasonal workers) for each calendar month in the preceding calendar year, divided by 12. If = > 50, large employer unless seasonal worker exception applies. 12 6

7 Seasonal Worker Exception If the sum of an employer s true full time employees plus FTEs exceeds 50 for 120 days or less during the preceding calendar year, then subtract out any of the employees included during that period that are seasonal workers See Part 4.D of IRS Notice ( drop/n pdf) 13 Seasonal Worker Exception Seasonal worker performs labor and services on a seasonal basis based on good faith, reasonable interpretation Can use four calendar months instead of 120 days Four calendar months or 120 days are not required to be consecutive 14 7

8 2015: What Size Employer Are You? Not applicable large employer Play or Pay does not impact Caution: Just for Play or Pay Applicable large employer Carefully review Play or Pay construct Identify potential problems Remember: Annual determination. 15 Applicable Large Employer General Rule. An applicable large employer is subject to the Play or Pay penalties beginning January 1, Non Calendar Year Special Rule. An applicable large employer with a non calendar plan year may be able to delay penalty assessments until the first day of the 2015 plan year. Special Rule. An applicable large employer that is a small applicable large employer may be able to delay compliance to January 1,

9 Non Calendar Year Plans Many employers do not operate medical plans on calendar year basis. Special transition rule may be available allowing compliance to begin with the first day of the 2015 plan year. Not automatic Must qualify for it If you do not qualify, then Play or Pay applies beginning January 1, Non Calendar Year Requirements Three possibilities Different ways to look at: What you were as of December 27, 2012 What you have done since Plan terms as of February 9, 2014 What you commit to do as of first day of 2015 plan year 18 9

10 Small Applicable Large Employer Delay Play or Pay to 2016 if: Small at least 50 FTEs but less than 100 FTEs on business days in 2014 Not automatic Must qualify for it February 9, 2014 December 31, 2014 Maintains size of workforce and overall hours unless bona fide business reason Does not eliminate or materially reduce health coverage from that offered on February 9, 2014 Certification of eligibility form 19 How to Manage/Minimize Play or Pay Penalties Talked about the whether and the when, next comes the how..... After lunch

11 Thank you Darcy L. Hitesman Hitesman & Wold, P.A rd Avenue North Maple Grove, MN Visit our website to register to receive our informational Client Alerts!

12 Health Care Reform: 2015 Play or Pay Compliance April 3, 2014 Presented By Darcy L. Hitesman, Esq IRS Circular 230 Disclosure: To insure compliance with Treasury Regulations, we are required to inform you that any tax advice contained in this communication (including any attachments) was not intended or 1 written by us to be used, and may not be used by you or anyone else, for the purpose of: (i) avoiding penalties imposed by the Internal Revenue Code; or (ii) promoting, marketing, or recommending to another party any tax related matter addressed in this communication. Important Things to Remember Health Care Reform does not require an employer to offer medical coverage to its employees. May be exposed to penalties if particular type and level of coverage is not offered to at least a particular portion of workforce. How you go about accomplishing this is your responsibility. 2 1

13 Afternoon Agenda Play or Pay Calculations Key Definitions Relaxed Rules for 2015 Ripple Effects 3 Morning Re Cap Talked about whether and when Now moving onto how 4 2

14 Play or Pay Construct Penalty Category 1: Failure to Offer Do you offer minimum essential coverage (MEC) to all (or all but 5%) full time employees? No credits or offsets for what do provide $2,000 per year ($ per month) Based on full time employees (minus 30) Penalty Category 2: Offer MEC but coverage not good enough Minimum value of 60% Not affordable Failure Cost exceeds 9.5% HHI $3,000 per year ($250 per month) Only for full time that get subsidized Capped at Penalty 1 amount *Remember: Subsidy at exchange triggers. 5 Numerous Definitions Full time employee Offer MEC MV Affordable Others Focus Today: Full time employee and offer. 6 3

15 Identifying, Tracking and Counting Full Time Employees New and ongoing responsibility Set aside calculations for employer size Requires up front decisions regarding how you are going to count Want to create and maintain a list of fulltime employees 7 Full Time Employee Same basic definition as used for determining size of employer BUT no equivalents Full time defined as averaging 30 or more hours of service per week [over measurement period] Determined on monthly basis (130 hours per month equivalency) Average determined over period of time (i.e., tracking) Measurement period 8 4

16 Counting Methodologies Real time counting Measurement periods Counting equivalencies 9 Real Time Look at actual hours of service for the month just ended Little opportunity to manage/minimize impact of Play or Pay Is the default method 10 5

17 Measurement Periods Periods of time over which averages determined Initial and ongoing; look back and stability If satisfy full time during look back period, generally entitled to coverage during stability period as long as not terminated General Rule: Stability period matches plan year (i.e., 12 months) and look back is 12 months. 11 Measurement Periods 2015 Special transition rule available for 2015 to determine full time employees No less than 6 consecutive months Begins no later than July 1, 2014 Ends no earlier than 90 days before first day 2015 plan year Example: April 15, 2014 through October 14, 2014 for plan year starting January 1, Employer s choice Allows time to determine and prepare 12 6

18 Counting Equivalencies Hourly Employees. Count actual hours worked based upon records kept. Not Hourly Employees. Three options: Day equivalency Week equivalency Actual hours worked based upon records kept Unique Employees. Special rules may be available for certain types of employees. 13 Unique Employee Arrangements Numerous employee arrangements that do not fit into hourly, non hourly categories Absent special treatment, non hourly methods apply Final Regulations provide some guidance Final Rule: Shared Responsibility for Employers Regarding Health Coverage /pdf/ pdf 14 7

19 Specific Employee Categories Volunteers Student Employees Religious Order Adjunct Faculty (and situations analogous to it) Layover hours On Call Seasonal Today s Focus: Adjunct, on call, and seasonal. 15 Specific Employee Categories New phrase certain categories of employees whose hours of service are particularly challenging to identify or track or for whom the final regulations general rules for determining hours of service may present special difficulties New standard reasonable method of crediting hours of service that is consistent with section 4980H reasonableness based upon facts and circumstances 16 8

20 Adjunct Faculty and those positions raising analogous issues Until further guidance is issued, reasonable to credit with 2.25 hours of service per week for each hour of teaching/classroom time (i.e., providing an additional 1.25 hours for each 1 hour worked) Question: Does the same multiplier apply for analogous situations (e.g., coach)? 17 On Call Hours Hours where employee is directed by employer to be available for work Until further guidance, reasonable method Not reasonable to not credit any hours of service for any on call hour for which payment is made or due where (1) the employee is required to remain on call on the employer s premises, or (2) the employee s activities while on call are subject to substantial restrictions 18 9

21 Seasonal Employees Means an employee in a position where customary annual employment is six months or less Customary by nature of the position an employee in the position (not necessarily a particular employee) where typically works for period of six months or less, and period begins each calendar year at approx. same time (e.g., winter, summer). Question: Could a coach be a seasonal employee? 19 Numerous Special Rules Educational organizations Terminated Averaging methods: FMLA, USERRA, jury duty Changes in employment status 20 10

22 Educational Organizations Educational organizations Schools, colleges, universities, other (within 1.170A 9(c)(1)) Concern using 12 month look back could result in many not being considered full time Averaging method for certain employees Teachers and other employees working academic year only 21 Educational Organizations Academic year includes extended unpaid periods ( employment breaks ) where no or limited services provided Employment break is period of at least 4 consecutive weeks where employee performs no services (e.g., summer break) Not necessarily 9 months Only where continuing employee (not treated as terminated and rehired) Measurement period minus employment break(s) 22 11

23 Terminated Also called resume, rehire rules or break in service rules Employer can treat as terminated Important: Purpose specific Need to continue to track for at least 13 consecutive weeks 23 Terminated Period since last hour of service 13 consecutive weeks or more Yes No treated as terminated; new hire if/when performs next hour of service 4 consecutive weeks or more Yes No Parity Rule Not treated as terminated; resumes service if/when performs next hour of service Break in service longer than period of service Yes No treated as terminated; new hire if/when performs next hour of service Not treated as terminated; resumes service if/when performs next hour of service Prop. Treas. Reg H 3(e)(1) 24 12

24 FMLA, USERRA, and Jury Duty Normally total hours of service divided by number of months Special unpaid leave FMLA, USERRA, jury duty Averaging methods not for or against Only where continuing employee (not treated as terminated and rehired) Purpose specific definition of terminated 25 Changes in Employment Status During the initial measurement period Special Rule Full time to Part time Special Rule Seasonal to Non seasonal 26 13

25 Offer To whom Full time employee and dependents Not expanded to include spouse Dependents narrowed Not foster children or step children No child who is not US citizen or national unless child is resident of contiguous country To whom Mandatory coverage okay if... MEC that provides at least 60% MV Employer pays 100% of cost or pays all but 9.5% FPL 27 Relaxed Rules for 2015 Limited. Just applicable large employers not within definition of small applicable large employer 95% replaced with 70% for 2015 only 30 replaced with 80 for 2015 only Caution: This is for Penalty Calculation 1; Penalty Calculation 2 still applies

26 Not done in isolation Ripple Effect 29 Preliminary Comments Like a weed Touches many aspects of employeremployee relationship Careful what you do about the weed Impacts other compliance requirements Careful what you do about the rest of the garden Impacts application of Play or Pay 30 15

27 Things to Consider Important for plan language Important for nondiscrimination if self insured Important for stop loss coverage if self insured Important for bargaining agreement language Important for other employee contract language 31 Things to Consider Important for continuation obligations Normally, entitled through stability period as long as remain an employee Final regulations introduce exception Important for OPEB liability calculations FMLA administration Commitment for non calendar special rules Consider in context of 2018 Cadillac Tax 32 16

28 Reminder: Cadillac Tax 33 Questions 34 17

29 Thank you Darcy L. Hitesman Hitesman & Wold, P.A rd Avenue North Maple Grove, MN Visit our website to register to receive our informational Client Alerts! HHI 400% Chart PERSONS IN FAMILY FEDERAL POVERTY GUIDELINES (2014) HCR 400% 1 $11,670 $46,680 2 $15,730 $62,920 3 $19,790 $79,160 4 $23,820 $95,280 5 $27,910 $111,640 6 $31,970 $127,880 7 $36,060 $144,240 8 $40,090 $160,360 For each add l person, add: $4,