Transition Relief for 2015

Employer Shared Responsibility Provisions

On Feb. 10, 2014, the IRS and Treasury issued final regulations and associated Questions and Answers on the Employer Shared Responsibility (“Play or Pay”) provisions under section 4980H of the Internal Revenue Code. Notice 2013-45, issued on July 9, 2013, provided as transition relief that no Employer Shared Responsibility payment applies for 2014. The final regulation also extends and adds certain transition relief applicable to 2015.

For periods on or after Jan. 1, 2016 (or, if applicable, for any period after the last day of the 2015 plan year) the transition relief for 2015 generally is not available. An employer may, however, use the shorter period in 2014 permitted for determining applicable large employer status for 2015 in determining applicable large employer status and full-time employee count for 2015 (but not for any subsequent year). See Determining Large Employer Status below.

Broadly speaking, employers will not be able to take advantage of these transition rules solely by modifying their plan years to fall into an applicable category.

Employers with 50 to 99 Full-Time Employees (or Equivalents)

Employers with 50 to 99 full-time employees (including full-time equivalents) in 2014 will not be subject to shared responsibility penalties until 2016.  In order to qualify for this delay:

• The employer may not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size requirement. A reduction in workforce size or overall hours of service for bona fide business reasons will not be considered to have been made in order to satisfy the workforce size condition.
• The employer may not eliminate or materially reduce coverage offered as of February 9, 2014.
• The employer must certify to the IRS that it meets the requirements for the delay.
• The relief applies to calendar year 2015 and any months in 2016 that are part of the 2015 plan year, provided that the employer has not modified its plan year after February 9, 2014.
• The compliance date for larger employers remains 2015.

Number of Employees Offered Coverage

In general, large employers must offer coverage to substantially all full-time employees as one of the requirements for avoiding shared responsibility penalties.  The IRS has set the threshold for “substantially all” as 95% of full-time employees.  However, for plan years beginning in 2015, that percentage is reduced to 70% for employers with 100 or more employees.  Note that this relief is not available for employers that modify their plan years after February 9, 2014.

Non-Calendar Year Plans

Transition relief is available for non-calendar year plans of employers that maintained non-calendar year plans as of December 27, 2012, and that have not modified the plan after that date.

• If an employee of an applicable large employer (whenever hired) who would be eligible for coverage effective beginning on the first day of the 2015 plan year under the eligibility terms of the plan as in effect on February 9, 2014, is offered affordable coverage that provides minimum value no later than the first day of the 2015 plan year, no shared responsibility payment will be due with respect to that employee for the period prior to the first day of the 2015 plan year.
• If an employer (1) had, as of any date in the 12 months ending on February 9, 2014, at least one quarter of all its employees covered under non-calendar year plans, or (2) offered coverage under those plans to one third or more of its employees during the open enrollment period that ended most recently before February 9, 2014, no shared responsibility payment will be due for any month prior to the first day of the 2015 plan year with respect to employees who (1) are offered affordable coverage that provides minimum value no later than the first day of the 2015 plan year, and (2) would not have been eligible for coverage under any group health plan maintained by the applicable large employer member as of February 9, 2014, that has a calendar year plan year.   Note however, that this exception does not apply unless the employer offers coverage to substantially all its full-time employees and their dependents as of the first day of the 2015 plan year.
• If an employer (1) had, as of any date in the 12 months ending on February 9, 2014, at least one third of its full-time employees covered under non-calendar year plans, or (2) offered coverage under those plans to one half or more of its full-time employees during the open enrollment period that ended most recently before February 9, 2014, no shared responsibility payment will be due for any month prior to the first day of the 2015 plan year with respect to full-time employees who (1) are offered affordable coverage that provides minimum value no later than the first day of the 2015 plan year, and (2) would not have been eligible for coverage under any group health plan maintained by the applicable large employer member as of February 9, 2014, that has a calendar year plan year.   Note however, that this exception does not apply unless the employer offers coverage to substantially all its full-time employees and their dependents as of the first day of the 2015 plan year.

Penalty Reduction

Employers that do not offer coverage to employees are subject to a monthly penalty equal to the applicable monthly dollar time the number of full-time employees reduced by 30.  However, for 2015 plus any calendar months of 2016 that fall within the employer’s 2015 plan year, if a large employer with 100 or more full-time employees (including FTEs) on business days during 2014 is subject to an assessable payment for failure to offer coverage, the assessable payment will be calculated by reducing an applicable large employer number of full-time employees by 80 rather than 30.  This relief is not available for employers that modify their plan years after February 9, 2014.

Stability and Measurement Periods

The final rule extends transitional relief previously provided for calculation of a plan’s stability period. For purposes of stability periods beginning in 2015, employers may adopt a transition measurement period that is shorter than 12 consecutive months but that is no less than six consecutive months and that begins no later than July 1, 2014, and ends no earlier than 90 days before the first day of the plan year beginning on or after January 1, 2015.

Determining Large Employer Status

The final rule extends transitional relief to the determination large employer status. For the 2015 calendar year, an employer may determine its status as an applicable large employer by reference to a period of at least six consecutive calendar months, as chosen by the employer, during the 2014 calendar year (rather than the entire 2014 calendar year).

First Payroll in 2015

Generally, if an employer fails to offer coverage to a full-time employee for any day of a calendar month, that employee is treated as not offered coverage during the entire month. Solely for purposes of January 2015, if an employer offers coverage to a full-time employee no later than the first day of the first payroll period that begins in January 2015, the employee will be treated as having been offered coverage for January 2015.

Coverage for Dependents

This transition relief generally extends the transition relief that had been provided for plan years that begin in 2014 (2014 plan years) to plan years that begin in 2015 (2015 plan years). Under this transition relief, an employer that takes steps during its 2014 plan year toward offering dependent coverage will not be subject to an Employer Shared Responsibility payment solely on account of a failure to offer coverage to dependents for that plan year.

This extended transition relief applies to employers for the 2015 plan year for plans under which (1) dependent coverage is not offered, (2) dependent coverage that does not constitute minimum essential coverage is offered, or (3) dependent coverage is offered for some, but not all, dependents.