UBA_04-22-14_presentation.posted

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This UBA Employer Webinar Series
is brought to you by United Benefit Advisors
in conjunction with Jackson Lewis
For a copy of this presentation, please go to www.UBAbenefits.com. Go to
the Wisdom tab and scroll down to HR Webinar Series and click. Under
Employer Series click the Registration and Presentation link. Click the red
Presentation button to see the slides.
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Represents management exclusively in every aspect of
employment, benefits, labor, and immigration law and related
litigation
Over 750 attorneys in 53 locations nationwide
Current caseload of over 5,000 litigations and approximately 300
class actions
Founding member of L&E Global
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This presentation provides general information regarding its subject and explicitly may not be construed as
providing any individualized advice concerning particular circumstances. Persons needing advice concerning
particular circumstances must consult counsel concerning those circumstances. Indeed, health care reform
law is highly complicated and it supplements and amends an existing expansive and interconnected body of
statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.). The solutions to any
given business’s health care reform compliance and design issues depend on too many varied factors to list,
including but not limited to, the size of the employer (which depends on complex business ownership and
employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether
its employees work full time or part time, the importance of group health coverage to the employer’s
recruitment and retention goals, whether the employer has a collectively-bargained workforce, whether the
employer has leased employees, the cost of the current group health coverage and extent to which
employees must pay that cost, where the employer/employees are located, whether the employer is a
religious organization, what the current plan covers and whether that coverage meets minimum requirements,
and many other factors.
IRS Circular 230 disclosure: Any tax advice contained in this communication (including any attachments or
enclosures) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties
under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any
transaction or matter addressed in this communication. (The foregoing disclaimer has been affixed pursuant
to U.S. Treasury regulations governing tax practitioners.)
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Second of two programs to cover final regulations issued by the IRS
on February 10, 2014, February 24, 2014, and March 5, 2014
Emphasize changes made by final regulations to the proposed
regulations
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Transition relief from 2013 and 2014
Foundation of basic concepts
Determine applicable large employer status
Who is an employee
Controlled group rules
Waiting periods
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This webinar will provide a deep dive into:
o Calculating penalties
o Full-time/part-time – what does it mean for penalty purposes
o Measurement and stability periods
o Minimum value and affordability
o Final reporting rules issued by the IRS on March 5, 2014 (Code
§§ 6055 and 6056)
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If you are an applicable large employer
o Required to offer substantially all full-time employees and
their dependents minimum essential coverage that is
affordable, and provides minimum value in order to avoid any
potential penalties
o Penalty is applicable for plan years beginning in 2015 (2016 for
mid-sized employers)
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Coverage must be offered to “substantially all” full-time employees
and their dependents;
o Foster children and stepchildren are not “dependents” per final
regulations
Coverage must be “Affordable” for the employee; and
Must provide “Minimum Value” (Plan pays at least 60% or actuarial
cost)
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2014 is the year to determine:
o Is the employer an applicable large employer
o Whether employer will play or pay
o What actions employers will take, e.g., reduce employees’
hours
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The regulations provide some flexibility by allowing an employer to
meet this requirement if it offers minimum essential coverage to at
least 95% of its full-time employees and their dependents
Recognizes a margin of error – coverage will be considered to have
been offered to substantially all full-time employees if it is offered to
all but 5% or, if greater, 5 of its full-time employees
The 95% is 70% for 2015 only
Special transition rule for dependents in 2015 (See March 11, 2014
webinar materials)
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Play or Pay – No Health Coverage Offered: If minimum
essential coverage is not offered to substantially “all” full-time
employees and dependents and one or more fulltimer obtains
subsidized Exchange coverage, employer must pay (annualized)
penalty of $2,000 x (# fulltimers – 30 (including employees of
related entity companies))
The 30 is 80 for 2015 only
Monthly penalty ($166.66/month)
COLA adjustment beginning in 2015
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Play and Pay – Health Coverage Offered: If minimum essential
coverage is offered but one or more fulltimer obtains subsidized
Exchange coverage because plan is not affordable or does not
provide minimum value, employer must pay (annualized) penalty
equal to lesser of:
o $3,000 x # fulltimers who decline employer coverage and
receive subsidized Exchange coverage or
o $2,000 x (# fulltimers - 30)
o The 30 is 80 for 2015
o Monthly penalty ($250/month)
o COLA adjustment beginning in 2015
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Once you have determined you are a large employer subject to
the Play or Pay requirements, you must determine who is a fulltime employee who must be offered coverage to avoid penalty
Forget about counting employees for the “applicable large
employer” analysis – a different set of rules apply
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The methodology applicable to the determination whether an
employee must be offered coverage (i.e., use of the standard
measurement period or stability period) varies depending on type of
employee circumstance:
o On-going employees
o Employees with change in employment status or position
o New employees (non-variable hour and non-seasonal
employees)
o New employees who are variable hour or seasonal employees
o Employees in transition
o Employees determined to be “full-time”
o Employees not determined to be “full-time”
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Full-time = employed on average for 30 hours of service per week
(130 hours per month)
Which hours are counted
o Hour of service is each hour for which an employee is paid or
entitled to payment
o Includes hours for which no services are performed, but payment
is owed by employer (i.e., on-call or paid leave time)
o Employer may use different calculations for different categories
of employees
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How do you count hours?
o Hourly – count actual hours
o Non-hourly – count actual hours or use equivalency rules
• Daily – any time during a day equals 8 hours
• Weekly – any time during a week equals 40 hours
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The IRS has issued safe harbor rules to assist with determining who
is considered a full-time employee – “measurement periods” and
“stability periods”
Variable hour employees are employees for whom it cannot be
determined whether they will average 30 hours a week
If a variable hour employee averages 30 hours a week over a
“measurement period,” he is treated as a full-time employee for the
following “stability period”
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Final regulations set forth two basic methods to determine
employees’ “full-time” status
o Monthly measurement method – in essence, the default rule
o Look-back measurement method – used to determine status of
new variable hour, seasonal and part-time employees, and
ongoing employees
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Generally must use the same measurement approach for all
employees, except for:
o Collectively bargained and non-collectively bargained employees
o Each group of collectively bargained employees covered by a
separate collective bargaining agreement
o Salaried and hourly employees
o Employees whose primary hours of employment are in different
states
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Final regulations permit full-time status to be determined based on
hours worked during a calendar month or hours worked using
successive one-week periods (the “weekly rule”)
Monthly measurement using the weekly rule results in certain
calendar months counted over 4 weeks and others over 5 weeks
o Period measured for the month must contain either the week that
includes the first day of the month or the week that includes the
last day of the month
o Four-week calendar months – 120 hours or more is full-time
o Five-week calendar months – 150 hours or more is full-time
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New employee – treat as full-time by the end of the third full
calendar month after the employee’s date of hire (i.e., the first day of
the fourth calendar month after date of hire)
o Penalty purposes only, the 90 day waiting period still applies
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Bulk of the employees are non-variable hour employees
Existing health care plan eligibility systems are configured to count
scheduled or actual hours on a monthly basis
Coordination of the look-back measurement method rules to
determine fixed schedule employees and variable hour employees
is complicated and may require costly systems changes
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The employer can select the length of the measurement period,
between 3-12 consecutive calendar months
o For 2015, 6 month measurement period can be used even with
12 month stability period
Measurement and stability periods must be applied in a uniform and
consistent basis, but may use different periods for:
o Collectively bargained and non-collectively bargained employees
o Each group of collectively bargained employees covered by a
separate collective bargaining agreement
o Salaried and hourly employees
o Employees whose primary hours of employment are in different
states
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Look-back 12 months (“real” 12 months) or other chosen period for
“standard measurement period”
Make determination whether employee is full-time or not full-time
If the employee is full-time, the employee must be treated as such
for the “stability period” and administration period
“Stability period” may not be less than 6 months and may not be less
than the “standard measurement period”
o Except for 2015 transitional relief allows 6 month measurement
period with longer stability period
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Administrative period – the employer can set a period of up to 90
days between the end of the measurement period and the beginning
of the stability period to determine who is eligible and notify eligible
employees; the administrative period must overlap with the prior
stability period
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Advantage of the look-back method: employer is not subject to
4980H excise taxes during initial measurement period (e.g., first 12
months)
Disadvantages of the look-back method: complicated/systems
changes
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Ongoing Employees
o The employer selects the months for the “standard measurement
period”
o If an employee averages 30 hours/week during the standard
measurement period, he must be offered coverage for the entire
stability period that follows
o If the employee averages less than 30 hours/week in
measurement period, he or she is treated as non full-time for a
stability period no longer than the measurement period
o Example: Calendar year plan – November 1 – October 31
measurement period
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New Employees
o The “initial measurement period” can begin on any date between
the employee’s start date and the first day of the month following
the start date
o If an employee averages 30 hours/week during the initial
measurement period, he must be offered coverage for the entire
stability period that follows
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For new employees (i.e., employed for less than one measurement
period), determine if:
Full-time: reasonably expected to be employed on average at least
30 hours per week, non-seasonal; or
Variable-hour/Seasonal: unable to determine at start date whether
he or she will be full-time
o For 2014 only, employer may take into account an anticipated
termination date (after 2014, employers must assume that an
employee will be employed for the entire measurement period)
o Apply look-back measurement/stability safe harbor method and
there’s no penalty with respect to a new employee during
measurement
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Employer who utilizes the look-back measurement for new variable
hour or seasonal employees must test the fixed-schedule
employees of same category based on the look-back period
applicable to ongoing employees (limited to permitted employee
categories e.g., hourly vs salaried; different state; union vs nonunion; different states; different employers)
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If status changes during measurement period (reasonably expected
to be full-time), treat as full-time starting on first day of 4th month
after status change or, if earlier, first day of month after
measurement period
Change to part-time status for full-time employees who were
continuously offered minimum value coverage
o Employer may change to the monthly measurement method for
an employee who averages less than 30 hours per week during
the 3 months following the change in status
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A new variable employee that did not work 30 hours per week during
the initial measurement period, but did work 30 hours per week, on
average, during the subsequent or overlapping standard
measurement period of the employer must be treated as “full-time”
for purposes of the stability period that follows
Thereafter the new employee joins all other variable, on-going
employees, in the standard measurement period/stability period
schedule
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Any administrative period applicable to the employee may not
extend past the last day of the first calendar month after the initial
measurement period (i.e., if the IMP is 12 months – the last day of
the month commencing after the employee’s first anniversary)
This means that a variable hour, new employee that works an
average of 30 hours per week during an initial measurement period
of 6 months must be offered coverage by the last day of the 7th
month following employment
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Employee who has a break-in-service during which no hours of
service are credited for 13 weeks is considered to be a new
employee if hired after that break
For special unpaid leave, the employer must treat the employee as a
continuing employee and deem average hours during a look-back
measurement period in which special unpaid leave occurs
Final regulations do not permit employers to treat short-term
employees as variable hour employees. Thus, short-term
employees (other than seasonal employees) hired to work an
average of 30 hours or more are treated as full-time
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Remember, a full-time employee must obtain subsidized Exchange
coverage to potentially trigger a penalty
No subsidy for employee (and no penalty to employer) unless:
o Employee is not offered minimum essential coverage; or
o Employer plan fails to provide affordable coverage or coverage
with minimum value; and
o Employee purchases Exchange coverage; and
o Employee household income between 100% and 400% federal
poverty line; and
o Employee is not eligible for or enrolled in Medicaid
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Employee must have effective opportunity to accept coverage at
least once per year (offer of coverage by employer must be
reasonable)
If coverage is not affordable or does not meet minimum value,
employee must also have had effective opportunity to decline
coverage (i.e., mandatory or automatic coverage that’s not
affordable or of minimum value will not prevent employee from
obtaining subsidized Exchange coverage and triggering penalty)
Offer is effective for a given month only if coverage is effective for
full month if employee accepts offer
Offer not negated by employee waiver of coverage or employer
dropping employee’s coverage for nonpayment of premium
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Special rule: for employer-sponsored coverage to be minimum
essential coverage, it must meet:
o Affordability test: self-only coverage costs no more than 9.5% of
household income
o Minimum value test: plan’s share of total allowed cost of benefits
must be at least 60% of covered costs (HHS-IRS calculator )
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Therefore – three general conclusions:
1. If do not offer coverage and one full-time employee obtains
subsidized coverage – penalty of $2,000 x (# of fulltimers minus
30; 80 for 2015)
2. If offer coverage but (a) not affordable or not minimum value
and (b) one full-time employee obtains subsidized coverage,
penalty equal to $3,000 x # of fulltimers who decline coverage
and receive subsidized Exchange coverage (not to exceed the
amount computed in (1))
3. If offer appropriate coverage which (a) meets minimum value
test, and (b) is affordable, no penalty
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§§ 6055 and 6056 are PPACA reporting requirements intended to
provide information to the IRS and employees in order to enforce
certain PPACA requirements (i.e., 4980H penalties, the premium tax
credits and the individual penalty tax for failure to have coverage)
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On September 5, 2013, the IRS issued proposed rules implementing
the information reporting requirements under IRC §§ 6056 and 6055
o Massive and duplicative paperwork
IRS issued final regulations on March 10, 2014
o IRS intent is to streamline process for reporting duplicative
information required by §§ 6055 and 6056
o Many had hoped for W-2 reporting
o Final regulations helped, but requirements remain complex
o Very detailed information still is required to be reported
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The requirements will require many employers to modify payroll and
benefit systems
o Systems will need to be in place for information accumulation by
January 1, 2015
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Section 6056 – Applicable large employers (only) must report to the
IRS and to employees
Section 6055 – Insurers and employers that self-insure must report
minimum essential coverage information to the IRS and to the
individuals named in the report
Final regulations create a single consolidated form for information
reporting for self-insured plans, i.e., §§ 6056 and 6055 information is
reported on same form
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No penalties for failure to report in 2014
o No need to file for 2014
o Good faith standard for imposing 2015 reporting penalties for
incorrect filings
o Mid-size employers must comply with the reporting requirements
for 2015
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Who is subject to the 6056 reporting requirements?
o Applicable large employers only
o Applied on a controlled group basis
o Employer can use third parties to submit filing, e.g., other
members of controlled group or outside vendors
• Does not eliminate applicable large employer’s liability for
failure to file, untimely filing or improper filing
• Employer must still sign the return
• A filing must be made for each applicable large employer
even if member of a controlled group (different EIN)
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What information must be reported to the IRS?
o The employer’s name, date and employer identification number
(EIN)
o Name and telephone number of contact person
o Calendar year for which the information is reported
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o Information required to be provided per the proposed regulations
(cont.):
• A certification of whether the employer offers its full-time
employees and their dependents the opportunity to enroll in
“minimum essential coverage” under an eligible employersponsored plan per calendar month
• The number of full-time employees the employer has for
each month during the calendar year. This begins January 1,
2015 even for fiscal year plans
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o Information required to be provided per the proposed regulations
(cont.):
• The name, address and taxpayer identification number of
each full-time employee employed by the employer during
the calendar year and the months during which the employee
and any dependents were covered under a health benefit
plan sponsored by the employer during the calendar year
• Each full-time employee’s share of the lowest cost monthly
premium for self-only coverage providing minimum value
offered to the full-time employee, by calendar month
• Any other information required by the forms or instructions
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o Additional information will be collected through the use of
indicator codes (including whether the employer plan provided
minimum value and whether spouses could enroll, the number of
employees by month, whether an employee’s effective date of
coverage was affected by a waiting period, plus certain other
information about the filer)
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Very similar to 6056 reporting/same delay to 2015
Reporting is required for plan sponsors of self-insured plans,
insurers and other entities that provide minimum essential coverage
to an individual
o The entities do not have to be an applicable large employer
o Only report if “minimum essential coverage” is being provided
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What information must be provided in the 6055 filing?
o Similar to 6056
o The name, address and taxpayer identification number (TIN) of
the primary insured, and the name and TIN of each other
individual obtaining coverage under the policy (different than
6056). If no TIN, substitute date of birth
o The months during which the individual was covered for at least
one day during the calendar year
o Any other information required by the forms or instructions
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o If health insurance coverage is through an employer-provided
group health plan, the return must also contain the following
information:
• The name, address and employer identification number (EIN)
of the employer maintaining the plan
• Any other information the IRS may require to administer the
new tax credit for eligible small employers under Code § 45R
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“Qualifying offer”:
o Offer the employee minimum essential coverage providing
minimum value at a self-only cost not in excess of 9.5% of the
Federal Poverty Level, AND
o Offer minimum essential coverage to the employee’s family
(spouse and children)
Large employers who extend qualifying offers to employees for all
12 months of the year
o Report basic employee identification data and that employer
offered for entire calendar year
Large employer who does not extend for all 12 months – use a
special code on the simplified report
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Any employer that offers minimum essential coverage providing
minimum value that was affordable to at least 98% of full-time
employees, may report on all employees without distinguishing who
was specifically offered coverage
o The 98% is 95% in 2015
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Single, consolidated two-part form intended to simplify the process –
use for both 6056 and 6055
Large self-funded employers complete both parts of the form
Other employers and insurers complete their respective portions of
the form
Form is used to report to both the IRS and the individual
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IRS draft form expected soon
o Form 1095-B for non-large employers (6055 reporting only) with
a transmittal form (Form 1094-B)
o Form 1095-C for large self-funded employers (6056 and 6055
reporting) with a transmittal form (Form 1094-C)
A substitute form can be used as long as includes all the required
information – why use a substitute?
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Electronic filing:
o Electronic filing with the IRS is required for high volume filers
(250 or more returns of any type during the calendar year, e.g.,
W-2s, 1099s, income tax returns, employment tax returns, and
excise tax returns)
o Employee statements can be provided electronically if certain
requirements are met
• Similar to providing electronic SPDs and W-2s
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To individuals – January 31 of following year
To IRS
o February 28 of following year if paper filed
o March 31 of following year if electronic filing
o Filed based on calendar year regardless of plan year or
corporate/business year
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limbeckr@jacksonlewis.com
Thank you for your participation
in the UBA Employer Webinar Series
If your question was not answered during the webinar or
if you have a follow-up question, you can email the presenters today or
tomorrow at: UBAwebinars@jacksonlewis.com
www.UBAbenefits.com
www.jacksonlewis.com
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