Employer Shared Responsibility—Transition Relief for Certain Employers

February 11, 2014

The IRS and Treasury have just issued final regulations for the Employer Shared Responsibility (§4980H) mandate. Additionally, the IRS posted a Question and Answers page and the Treasury has a Fact Sheet with more detail.

Under §4980H, applicable large employers are required to offer minimum value, affordable medical coverage to employees working at least 30 hours per week. A penalty will be assessed if a full-time employee is not offered coverage and enrolls in the Health Insurance Marketplace with a federal subsidy. If an employer does not offer coverage to at least 95% of its full-time employees, the §4980H(a) penalty is $167 per month multiplied by the number of full-time employees (minus 30) each month that any full-time employee is receiving a federal subsidy. If coverage is not minimum value and/or affordable, the §4980H(b) penalty is $250 per month for each full-time employee receiving a federal subsidy.

Within the final regulations, important transition relief is provided to certain employers, as follows:

  • A large employer becomes subject to §4980H as of January 1, 2015 for calendar plan years. For non-calendar plan years, the employer becomes subject to §4980H as of the first day of the employer’s medical plan year in 2015 if the employer maintained the non-calendar plan year as of December 27, 2012, has not changed the plan year to a later month and, in general, offered coverage to at least 50% of full-time employees.
  • Employers with 50-99 full-time equivalent employees in 2014 will not be assessed any §4980H penalties during the 2015 plan year. There are several criteria that the employer must meet in order to qualify for this delay, including no reduction in workforce below 100 employees between February 9, 2014 and December 31, 2014 unless there is a bona fide business reason, and coverage that had been offered as of February 9, 2014 is not eliminated or materially reduced.
  • Employers with 100 or more full-time equivalent employees in 2014 will not be subject to the larger §4980H(a) penalty during the 2015 plan year as long as coverage is offered to 70% of its full-time employees. These employers can still be liable for the smaller §4980H(b) penalty, which is assessed per each full-time employee who is not offered coverage and purchases individual coverage with a federal subsidy. This relief will assist many of our clients with interns, short-term hires and variable hour employees, as long as they constitute 30% or less of the employer’s full-time population.
  • Starting with the employer’s 2016 plan year, all employers subject to §4980H must offer coverage to 95% of their full-time employees, or the larger §4980H(a) penalty may be assessed.

The final regulations also include the following:

  • An employer can use any 6 month consecutive period in 2014 to determine its status as an applicable large employer subject to §4980H in 2015.
  • The §4980H penalties will not apply through a full-time employee’s first 3 full calendar months of employment, but only if the employee is offered coverage as of the first day of the 4thcalendar month that they remain employed. This revision will assist our clients with interns and other short-term hires who are not offered coverage and work less than 4 full calendar months.
  • Although stepchildren and foster children are defined as children in IRC §152(f)(1), they do not have to be offered coverage under §4980H. Other children as defined by §152(f)(1) up to age 26 must be eligible for coverage, and are considered eligible for the entire month in which they turn 26.

Within these final regulations, there are other changes and clarifications to the Employer Shared Responsibility mandate. Keller’s legislative compliance team is reviewing the final regulations and will issue a more detailed Client Bulletin in the coming weeks. In the meantime, please contact your Keller account team with any questions.