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Benefits Law Advisor

Dueling Decisions in the 4th and D.C. Circuit Courts of Appeals Spell More ACA Uncertainty for Employers

written by Joy M. Napier-Joyce


Just as employers are gearing up to prepare for compliance with the Shared Responsibility rules under the ACA, a pair of decisions from two federal appeals courts has thrown a curve ball into what was already a complicated assessment of risk for employers and raised new questions.

The U.S. Court of Appeals for the District of Columbia Circuit ruled yesterday in a 2-1 decision (Halbig vs. Burwell) that the plain language of the ACA does not authorize the federal government to provide subsidies to help individuals pay for health coverage through a federally run health exchange or marketplace (“Marketplace”).  Hours later, the U.S. Court of Appeals for the 4th Circuit (King vs. Burwell) reached the opposite conclusion with a unanimous ruling, finding that the text of the law is ambiguous as to whether subsidies are available for coverage through a federally run Marketplace, and requiring the court to give deference to the Administration’s position (established through IRS regulations) that subsidies are available for coverage obtained through both state and federal Marketplaces.  14 states and the District of Columbia run their own Marketplace where subsidies are clearly authorized.  Marketplaces in the other 36 states are run by the federal government.  Under the D.C. Circuit’s interpretation, subsidies would be unavailable for Marketplace coverage in these 36 states.  To date, 4.7 million individuals have enrolled in federally run Marketplaces and qualified for subsidies.

The most immediate impact of an outcome that recognizes that only state run Marketplaces can offer subsidized coverage is that far fewer individuals will have access to “affordable” health coverage and the Marketplaces may be less effective in expanding coverage.  While yesterday’s decisions, and most of the press surrounding the decisions, focus on an individual’s entitlement to subsidized Marketplace coverage, there are very important implications for the calculation of employer penalties under the “Shared Responsibility” or “Pay or Play” provisions of the Act.

By way of background, the ACA provides that applicable large employers, defined to be those with at least 50 full-time and/or full-time equivalent employees, may be subject to a penalty for either (1) the failure to offer minimum essential coverage to substantially all of its full-time employees and their dependents; or (2) the failure to offer affordable, minimum value coverage.  A penalty is only triggered, however, if a full-time employee obtains subsidized coverage through a Marketplace.  Generally speaking, an individual must have a limited household income and not be offered affordable, minimum essential coverage through their employer in order to be eligible for a subsidy.

If the D.C. Circuit’s interpretation survives an en banc appeal and/or likely review by the United States Supreme Court, the result would be that subsidies would only be available in the states that run their own Marketplace.  Applicable large employers operating in states with federally run Marketplaces could offer noncompliant health coverage, or no coverage, to employees in those states and not be subject to penalties under the employer Shared Responsibility requirements.  This would change the potential penalty exposure for employers dramatically.

Until the conflict is resolved, current IRS regulations provide that subsidies will be available in all Marketplaces, regardless of whether they are run by a state or the federal government.  For employers with 100 or more full-time or full-time equivalent employees, January 1, 2015 is the first day from which employer penalties could possibly be assessed (transition relief under the final regulations is discussed in our prior post).  Employers should therefore proceed with their compliance strategies on the basis that subsidies will be available for coverage in all Marketplaces.

As with many of the requirements under the ACA, employers will have to stay alert for further guidance and developments.

Getting Ready for 2015: How Government Contractors, Health Care Reform, and the Family Medical Leave Act Intersect

Written by Jewell Lim Esposito


It’s summer now, mid-year 2014. Open enrollment for the 2015 health plan year is just around the corner. . .

We want to make sure that all employers are ready. We want to ensure, as well, that government contractors specifically understand the intersection of the Service Contract Act (SCA) with other federal laws.

To be spared penalties for 2015 under the Affordable Care Act (ACA), employers who have 100 or more full-time employees and equivalents (FTEs) should ensure they have identified all their over 30-hour employees and be prepared to offer essential health benefits.

Employers with 50-99 FTEs must confirm they are under 100 and claim the 2015 exemption by certification to the IRS.

In our experience, our client government contractors who perform work covered by the SCA might be confusing how they satisfy their health and welfare fringe benefit obligations (the $3.81 per hour, for ease of reference), in coordination with health care requirements under the ACA, no matter how many FTEs that government contractor might have. Here are just two examples; we find that we are confronting more and more problematic situations, as government contractors are examining their existing practices now and tweaking their health plans, in anticipation of open enrollment this coming Fall 2014, for the 2015 plan year.

Example 1.

For example, the government contractor GovK has 800 FTEs, 400 of whom are covered by SCA. As has been the practice in years past, in 2015 GovK wants to carve out SCA employees from its company health plan and thinks that simply paying the $3.81 cash to them to allow them to buy their own health insurance (but not offering the same health plan that GovK offers to its non-SCA employees, many of whom are highly compensated), is enough to satisfy ACA. While guidance is still forthcoming related to the ACA, GovK – under these facts — cannot provide health care only to those who are highly compensated (this is a test that the health plan must pass). Moreover, under ACA and tax rules, GovK must benefit generally 70 percent or more of all employees (another test).

Example 2.

In another example, GovK agrees to pay the employee share of the health care premium for both its SCA (so the $3.81 is accounted for through the provision of a benefit) and non-SCA workers. At its most basic, this practice is non-discriminatory under tax and health care rules, because everyone gets the same benefit of the company paying the employee share. However, when an SCA (non-exempt or exempt) employee goes out on unpaid leave, GovK stops providing the $3.81 benefit (the SCA employee isn’t working, so GovK isn’t offering the bona fide benefit). . . and GovK stops forwarding the employee share of the health care premium to the insurance carrier. In fact, GovK tries to collect the health premium from the SCA employee.

Yet, when a non-SCA (non-exempt or exempt) employee person goes on leave, GovK continues to pay the employee share of the health care premium; GovK won’t collect from the non-SCA employee. While we would have to examine the facts, it is likely that this practice will favor the more highly compensated employees (and therefore is discriminatory from a tax/health plan sense), who tend to be the non-SCA employees.

Further, without going into more, GovK’s unwillingness to pay the SCA employee’s health premium while that employee is out under Federal Medical Leave Act (FMLA) creates compliance issues under that federal law.

Department of Labor Has Started Investigations of Health Plans.

As we see with the brief examples above, compliance with one federal law does not guarantee compliance with (or insulation from) other federal laws.

To underscore the importance of compliance, we note that just last month a DOL investigator has started to evaluate the interplay of these federal laws. We urge government contractor clients to understand that, when dealing with the $3.81 fringe and designing a health plan, they should be mindful of what impacts their operations.

EEOC Pregnancy Discrimination Enforcement Guidance Implicates Contraception Coverage Concerns

Written by Stephanie Zorn

On July 14, 2014, the EEOC issued new Enforcement Guidance on Pregnancy Discrimination and Related Issues.  The immediately-effective Guidance sets forth the EEOC’s policies with regard to its enforcement of pregnancy-based employment discrimination prohibitions under Title VII — as clarified by the Pregnancy Discrimination Act of 1978 — and other federal laws.

With regard to contraception, the Guidance provides that employers violate Title VII by providing health insurance that excludes coverage for prescription contraceptives, whether the contraceptives are provided for birth control or medical purposes.   

The Guidance further explains that, in order to comply with Title VII, employer provided health plans must cover prescription contraceptives on the same basis as other prescription drugs, devices and services that are used to prevent the occurrence of medical conditions other than pregnancy:  if an employer provided health plan covers preventive care for vaccinations, physical examinations and prescription drugs to prevent high blood pressure or to lower cholesterol levels, then prescription contraceptives must also be covered.

The Guidance noted that Title VII makes it clear that employer provided health plans are not required to provide coverage for abortions except where the life of the mother would be endangered if the fetus were carried to term or where medical complications have arisen from an abortion. 

Hobby Lobby

In Burwell v. Hobby Lobby Stores, Inc., owners of a closely-held for-profit corporation objected to including certain Affordable Care Act (ACA)-mandated contraception — including IUDs, Plan B and Ella — based on their view that those contraceptive methods caused very early term abortions, by precluding the fertilize egg from implanting in the uterus.  Abortion, in turn, violated the Hobby Lobby owners’ religious beliefs.  The Supreme Court ruled that the ACA contraception mandate violated the Religious Freedom Restoration Act (RFRA) as applied to closely-held for-profit corporations whose owners had religious objections to providing certain types of contraception. 

The EEOC’s Q & A concerning the Guidance contained the caveat that the Guidance did not address whether certain employers might be exempt from Title VII’s requirements under the RFRA or First Amendment of the Constitution.  Certainly, one can expect this question to be addressed by the courts.  Although there is no way of knowing, it is difficult to imagine how a court could distinguish Hobby Lobby in a challenge to the Guidance’s rules around contraception — especially contraceptive methods that an employer equates to abortion –, particularly in light of Title VII’s existing exception for abortion coverage.

In addition, the Guidance did not address the impact on other employers who are currently exempt from existing contraception requirements — such as those employers who maintain plans that are grandfathered under the ACA.

Key Take Away:  The Guidance would seem to open the door for employees to submit to the EEOC’s administrative review process complaints of Title VII discrimination based on an employer provided plan’s failure to include requisite contraceptive coverage.  How the Guidance will be applied to employers who are currently exempt from existing contraception requirements — and what the challenges to any such enforcement might be — remains to be seen.

Also, please see our Disability, Leave & Health Management blog for an employment law analysis of the Guidance.

New Regulations Permit the Purchase of Longevity Annuities by Qualified Retirement Plans

Written by Tyler Philippi

Under the directive of providing individuals with additional lifetime income options, the IRS issued final regulations on July 2, 2014, permitting the purchase of longevity annuity contracts.  The regulations apply to participants in certain types of retirement plans and IRA owners and allows them to purchase a “qualifying longevity annuity contract” (QLAC) with a portion of their account balance.  According to the regulations’ accompanying press release:

This change will make it easier for retirees to consider using lifetime income options:  instead of having to devote all of their account balance to annuities, retirees who wish to follow a combination strategy that uses a portion of their savings to purchase guaranteed income for life while retaining other savings in more liquid or flexible investments will be able to do so.

Prior to these regulations, the value of an annuity contract held under a defined contribution plan that had not been annuitized was treated as an individual account for purposes of the required minimum distribution (RMD) rules.  Generally, the minimum distribution rules state that distributions from a retirement plan must begin by the required beginning date (RBD) which is (i) age 70 ½, or (ii) retirement. 

Including non-annuitized amounts in the RMD calculation caused the RMD payments to be higher and individuals to draw from their account quicker than they might otherwise need.  Under the QLAC regulations, the value of a QLAC that has not been annuitized is not included in the account balance used to determine RMDs.

What types of retirement arrangements may maintain QLACs?

Defined contribution plans under Code § 401(a), Code § 403(b) plans, eligible deferred compensation plans under Code § 457(b), and Code § 408 IRAs are all permitted to use QLACs to defer distributions under their respective minimum distribution requirements.  QLACs are not available to participants in a defined benefit retirement plan.

What is a qualifying longevity annuity contract?

Although QLACs permit the deferral of distributions until later in life, the IRS has put in place limitations to prevent an indefinite deferral by requiring distributions to begin by age 85.  The deferral of distributions is also limited by allowing only a portion of the individual account balance to be used towards the payment of premiums – which is capped at the lesser of (i) $125,000, or (ii) 25% of the account balance.

As for the contract itself, it must expressly state that it is intended to be a QLAC.  These annuity contracts may not be a variable, indexed, or a similar type of annuity contract.  A QLAC also cannot provide any commutation benefit, cash surrender right, or other similar feature.  However, a return of premium feature is permitted so long as it is paid no later than the end of the calendar year following the year in which the employee, or surviving spouse, dies.

The QLAC regulations also place limitations on the benefits payable after the employee’s death.  Generally, however, life annuities are payable to the beneficiaries subject to limitations based upon whether the annuity start date occurred before or after the employees death and whether the surviving spouse is the sole beneficiary. 

What does this mean for retirement plan sponsors and administrators?

These regulations will make it easier for plan sponsors to offer annuity options in their retirement plans and will offer plan participants an additional type of investment option. If QLACs are added to a plan, plan language will need to be reviewed to ensure that there is no conflict between the plan’s distribution provisions and the QLAC distribution provisions.


 Written by Lisa M. deFilippis

Last week the Supreme Court ruled, 5-4, in Burwell v. Hobby Lobby Stores, Inc., et al., that closely held corporations cannot be required to provide contraceptive coverage as mandated by the Affordable Care Act (ACA) because the requirement violates the Religious Freedom Restoration Act of 1993 (RFRA).  At issue in the case were regulations promulgated by the Department of Health and Human Services under the ACA requiring group health plans to provide preventive care for women without cost-sharing.  The regulations specified 20 FDA approved contraceptive methods, including four methods  that may have the effect of preventing implantation of a fertilized egg.  The Hobby Lobby appellants, a Christian- owned arts and crafts chain store, and a wood specialty store owned by a Mennonite family, challenged the contraceptive mandate on the grounds that that the mandate violated their religious freedom under the RFRA by requiring them to pay for methods of contraception that they believe are morally objectionable.  The Court held, first, that closely held corporations are “persons” for purposes of the RFRA. The Court further held that the ACA’s significant penalties for failure to comply with the contraceptive mandate constituted a substantial burden on the employers, and that the government had failed to demonstrate that the contraceptive mandate was the least restrictive method of advancing its interest in guaranteeing access to contraceptive coverage without cost-sharing, as required by the RFRA.  The Court noted that HHS provided a regulatory accommodation for religious non-profits, but had provided no meaningful rationale for failing to extend the same accommodation to for-profit, closely held corporations that have religious objections to providing some or all methods of contraception. The regulatory accommodation provided in the HHS regulations provide that a religious non-profit (such as schools, hospitals, colleges) that self-certifies its objection to providing the coverage does not have to contract for or pay for contraceptive coverage – the coverage is then required to be provided by that employer’s insurer or third-party administrator.  See our article “Supreme Court Rules Closely Held Companies Not Subject to Contraceptive Coverage Mandate of Health Care Reform Law” for additional information.   

On July 3, in Wheaton College v. Burwell, Et al., the Supreme Court issued an emergency injunction to Wheaton College, a Christian college in Illinois, holding that the college could not be required to fill out the self-certification forms required by the HHS regulations to qualify for the religious non-profit accommodation pending full resolution of their lawsuit against the government. The Court noted that the insurer or third party administrator of an objecting religious non-profit was obligated to provide the contraceptive coverage regardless of whether the certification form was filed as provided in the regulations.  The ruling was sharply criticized by the three female Supreme Court justices in a dissent authored by Justice Sotomayor stating that the Wheaton College ruling “did not square” with the Hobby Lobby decision which endorsed the regulatory accommodation provided to religious non-profits and suggested that it could easily be extended to closely held for-profit corporations with religious objections.   

The Obama Administration is reported to be weighing options that would provide contraceptive coverage to all American women.  Jackson Lewis is closely tracking further developments around Hobby Lobby and Wheaton College and related ACA requirements. 



Wellness Program Update: EEOC is Planning to Issue Proposed Regulations to Address ADA, GINA Issues

In May, the Equal Employment Opportunity Commission (EEOC) announced that it intends to issue proposed regulations addressing health plan-based wellness programs. According to the EEOC’s announcement, the guidance is expected to address the following items:

  1. Does title I of the Americans with Disabilities Act (ADA) allow employers to offer financial inducements and/or impose financial penalties as part of wellness programs offered through their health plans? And, if so, to what extent may those inducements or penalties be offered or imposed, respectively?
  2. Are there other aspects of wellness programs that may be subject to the ADA’s nondiscrimination provisions?
  3. Does the Genetic Information Nondiscrimination Act allow employers to offer inducements to employees’ spouses or other family members who answer questions about their current medical conditions on a health risk assessment (HRA)?

Formal and informal guidance from the EEOC has rasied some questions concerning fairly common wellness program designs. As many employers are currently reviewing their health plan offerings for upcoming renewals, this guidance (even if in proposed form) may be helpful to provide some insight and clarity as to where this agency may be headed concerning wellness programs.

Remember ERISA Basics: SPD and Eligibility

During the past 14+ years practicing employee benefits law, I’ve seen many changes, not the least of which has been the Affordable Care Act (ACA). However, with all of the recent changes flowing from the ACA, it is important not to forget some very basic and long-standing aspects of plan compliance, design, drafting and administration, particularly those rooted in significant part in a law enacted 40 years ago, the Employee Retirement Income Security Act, affectionately known as “ERISA.”

This post will discuss a basic ERISA requirement that if left unaddressed can have significant consequences under the ACA – defining who is eligible to participate in an employee benefit plan. Of course, defining who is eligible is not specific to group health plans, and is critically important for all employee benefit plans, including retirement plans, although, here, we are focusing on group health plans.

In short, plan documents that employers receive from their insurance carriers and third party administrators often do not drill down on which employees are eligible to participate. Adding to the long-standing requirement under ERISA to describe the rules for eligibility in plan documents furnished to employees, the employer shared responsibility penalties under Internal Revenue Code § 4980H, added by the ACA, and related regulations, make it critically important to ensure that eligibility provisions are carefully drafted. For many employers, a “wrap-document” may be a useful tool for addressing this and other provisions concerning the plan.

Section 101 of ERISA requires plan administrators to furnish summary plan descriptions (“SPDs”) to plan participants and beneficiaries. DOL regulations provide a laundry list of content requirements for SPDs, which include that the SPD must describe “the plan’s requirements respecting eligibility for participation.” DOL Reg. § 2520.102-3(j). To this day, many continue to believe that the insurance certificate they receive from their insurance carriers (or plan description in the case of a self-funded plan) are compliant “SPDs.” In most cases, they are not.

Does this look familiar:

You are eligible to participate in the plan if you are actively employed by the employer at least 20 or more hours per week and meet the requirements established by your employer.

This is language one might typically find in an insurance certificate for group health insurance. It is not uncommon to find that no additional requirements were specifically established by the employer, or if established, they might be found in an employee handbook, which is not the SPD or a plan document. However, many employers attempt to clarify this basic language, such as by including the following in the SPD – an employee is eligible to participate in the plan if the employee is regularly working 30 or more hours per week.

But what does this really mean? Under the ACA, a large employer (generally one with 50 or more full time equivalent employees) could incur significant penalties if it fails to offer minimum essential coverage to its full-time employees. IRS regulations provide extensive guidance concerning how to determine which employees are “full-time” employees for purposes of the employee shared responsibility penalties (in general, a full-time employee is one that on average works 30 or more hours per week). For those employers seeking to avoid the shared responsibility penalties under IRC 4980H, they must be offering the right kind of coverage to the right kind of “full-time” employees.

Offering coverage to all employees “regularly working 30 or more hours per week,” may result in the employer avoiding 4980H penalties, but it also could result in the company offering coverage to more employees than necessary to avoid the penalties, or not enough, depending on how the language is applied. For employers that have a significant part of their workforce on variable hour schedules, it can be a challenge to determine when employees are “regularly working” the minimum number of hours required for eligibility. This challenge is heightened when employees take leaves of absence, change positions or make other changes in their employment.

In addition to concerns about ACA penalties, employers should also consider that employees may be more likely to closely scrutinize plan documents for eligibility as they seek to avoid penalties of their own under the ACA individual mandate. A variable hour employee may feel she has been “regularly working” 30 hours per week after working 30 hours per week for two or three months, even though her employer is using a twelve-month initial measurement period permitted under IRS regulations to determine her full-time status. Under the terms of a plan stating the eligibility requirement as “regularly working 30 or more hours per week,” she might have a claim under ERISA, regardless of the ACA penalty issues.

The IRS regulations referenced above provide safe harbors to determine when employees are “full-time” employees for purposes of the 4980H penalty. Under one method, employers can “look back” over a period of months (as few as three, but not more than 12) to determine if an employee worked on average more than 30 hours per week, and for an employee that does, treat that employee as a full-time employee during a future period, the “stability period,” even if the employee’s hours worked in some weeks during that future period go below 30. Many employers are following those rules to determine who is eligible under their plans, believing that if they then offer the appropriate level of affordable coverage to those employees, they will avoid the penalties. However, their plan documents and SPDs may not describe these rules; that is, the rules to comply with the IRS safe harbors.

Simply incorporating the IRS regulations into the SPD by reference may not be a practical approach, and may not comply with ERISA and the DOL regulations above. However, employers will want to consider what additional language they need in their plan documents, particularly their SPDs, to appropriately reflect how eligibility is determined for purposes of ACA and to meet the DOL’s content requirements for SPDs.

So, as employers scramble to comply with the ACA employer shared responsibility mandate for 2015, they need to remember their ERISA basics and ask themselves, “What does the plan say?”

IRS Commences IRC Section 409A Audits

Written by Oleg Kotov, Brian P. Goldstein and Keith Ranta

The IRS has commenced a compliance initiative project (“CIP”) aimed at nonqualified deferred compensation arrangements subject to Section 409A of the Internal Revenue Code (“409A”). Although the project scope is limited, employers with arrangements that may be subject to 409A should take this regulatory action as a prompting to review their arrangements and make any corrections needed to ensure compliance with the law.

409A Audit Project. The IRS project was announced unofficially on May 9, 2014 and will involve limited-scope audits of nonqualified deferred compensation arrangements of no more than fifty employers. These employers have already been selected for the CIP from an existing population of employers that are undergoing employment tax audits based, in part, on the likelihood that they maintain 409A arrangements. An IRS official has indicated that these employers were not selected solely for this CIP. These employers will receive Information Document Requests (“IDRs”) from the IRS focusing on three major aspects of 409A compliance:

  1. Initial deferral elections. Initial elections to defer compensation and fix the time and manner of payment must generally be made before the taxable year in which the compensation is earned, unless an exception applies.
  2. Subsequent deferral elections. Subsequent elections to change the time or form of payment generally may not accelerate a distribution, and elections to delay a distribution generally may not take effect for 12 months and must delay the distribution for at least 5 years.
  3. Distributions. Distributions from 409A arrangements generally may only be made upon a specified date, separation from service, death, disability, change in control, or unforeseeable emergency. There may also be a six-month delay on distributions to “specified employees” of public companies.

The IDRs will ask employers to identify their top ten highly compensated individuals and report whether any of these individuals made deferral elections under, or received distributions from, a 409A arrangement during the years under examination in the employment tax audit. The IRS will then review any such elections and distributions for compliance with the above rules. The IRS will use the project to test compliance with 409A, determine whether the IDRs are effective in gathering information and refine its audit techniques, presumably in preparation for larger-scale 409A audits in the future. An IRS official has indicated that the CIP is expected to be completed within 12 months.

Takeaway for Employers. The limited scope of the project means that the vast majority of employers will not be audited just yet. However, signs are clear that IRS agents are “sharpening their pencils” and ramping up enforcement of 409A compliance. Employers should take this opportunity to review their nonqualified deferred compensation arrangements for documentary and operational compliance with 409A and promptly self-correct any violations under IRS correction programs (which are generally no longer available once an IRS audit has commenced).

DOL Proposes Changes to Model Notices and Procedures

The Department of Labor (DOL) has published proposed regulations containing amendments to the COBRA notice provisions.  The amendments are intended to align the model general and election notices with the Affordable Care Act provisions already in effect and to ensure that the DOL will have flexibility to modify the model notices going forward.

The proposed amendments will eliminate the current (outdated) versions of the model general and election notices contained in the appendix to current regulations and permit the DOL to amend the notices as necessary going forward without additional rulemaking.  The preamble to the proposed regulations indicates that these changes will eliminate the confusion that may result from multiple versions of the model notices being available in different locations.

Contemporaneous with issuance of these proposed regulations, the DOL has issued updated versions of the model general notice and model election notice (which election notice is an update of the version of the election notice made available as part of Technical Release No. 2013-02 (Guidance on the Notice to Employees of Coverage Options under Fair Labor Standards Act §18B and Updated Model Election Notice under the Consolidated Omnibus Budget Reconciliation Act of 1985)).  The updated notices reflect that coverage is now available in the Marketplace and the updated model election notice provides information on special enrollment rights in the Marketplace. The use of the model notices is not required and the model notices are provided solely for the purpose of facilitating compliance with the applicable notice requirements.

Until final regulations are issued and effective, the use of the model notices available on the DOL website, properly completed, will be considered good faith compliance with the notice content requirements of COBRA.

“Final” Obamacare Employer Penalty Rules Released

The US Treasury released the final regulations implementing the employer shared responsibility penalty provisions of the 2010 health care reform law on February 10, 2014.  In many ways, the final regulations resemble the proposed regulations issued over a year ago but there are several – mostly welcome – changes and transition provisions for employers.  (See our earlier post regarding the proposed regulations.)

Phased-in enforcement.  The penalty provisions were to apply, beginning this year, to employers with 50 or more fulltime equivalent employees.  Such “large” employers are subject to a tax penalty under Internal Revenue Code section 4980H for each month in which they fail to offer affordable minimum value coverage to 95% of fulltime employees (and their children up to age 26).  The Obama administration announced last summer that it would delay enforcement of the penalty provision until 2015 for all large employers.  These final regulations further delay the penalty provision until 2016 for large employers with fewer than 100 fulltime equivalent employees.  And, for a large employer with 100 or more fulltime equivalent employees, penalties can be avoided in 2015 as long as the employer offers affordable minimum value coverage to at least 70% (not 95%) of its fulltime employees.   

Fulltime employees for purposes of the penalty determination.  The final regulations retain the safe harbor look-back measurement/stability period method for determining fulltime status but provide some of general exceptions to who must be counted as a fulltime employee including most volunteers of government or tax-exempt entities and seasonal employees customarily working less than six months of the year.  In addition to the exceptions, the final regulations include some clarifying provisions for counting hours of other categories of employees (e.g., teachers, work-study students, and adjunct professors).    

Transition relief of proposed rules extended.  Certain transition relief that would have been available for 2014 is extended under the final regulations.  For example, an employer can use a six-month period in 2014 (instead of the whole year) to determine whether it has the threshold 100 fulltime equivalent employees for purposes of the 2015 penalty enforcement.  Also, an employer with a fiscal year plan generally will not be subject to the penalty provisions until the first day of its 2015 plan year.

As with the proposed regulations, the devil is in the details regarding the special exceptions and transition rules and a full treatment of all those details is well beyond the scope of this post. 

We will update our free webinar on the employer shared responsibility penalties and post a link to that webinar on the blog shortly.  Also, stay tuned for the final regulations implementing the employer information reporting provisions of the law which the IRS indicates will be “simplified” relative to the earlier proposed reporting regulations.

For compliance assistance or other guidance related to the health care reform law, contact a member of the firm’s Health Care Reform Task Force or the Jackson Lewis attorney with whom you normally work.