Skip to main content

2019 ACA compliance overview — Employer shared responsibility rules

The Affordable Care Act has made significant changes to group health plans since it was enacted in 2010. Many of these key reforms became effective in 2014 and 2015, including health plan design changes, increased wellness program incentives and employer shared responsibility penalties.

Changes to some ACA requirements, such as increased dollar limits, take effect in 2019 for employers sponsoring group health plans. To prepare for 2019, employers should review upcoming requirements and develop a compliance strategy.

This article provides an overview of the employer shared responsibility rules.

Employer Shared Responsibility Rules

Under the ACA’s employer shared responsibility rules, applicable large employers are required to offer affordable, minimum value health coverage to their full-time employees (and dependent children) or pay a penalty. These employer shared responsibility requirements are also known as the “employer mandate” or “pay or play” rules.

An applicable large employers will be subject to penalties if one or more full-time employees receive a subsidy for purchasing health coverage through an Exchange. An individual may be eligible for an Exchange subsidy either because the ALE:
  • does not offer coverage to that individual; or 
  • offers coverage that is “unaffordable” or does not provide “minimum value.” 

Applicable Large Employer Status

The ACA’s employer shared responsibility rules apply only to ALEs. ALEs are employers with 50 or more full-time employees (including full-time equivalent employees, or FTEs) on business days during the preceding calendar year. Employers determine each year, based on their current number of employees, whether they will be considered an ALE for the following year.

CHECKLIST: Determine your ALE status for 2019

  • Calculate the number of full-time employees for each calendar month in 2018 
  • Calculate the number of FTEs for each calendar month in 2018 by calculating the aggregate number of hours of service (but not more than 120 hours for any employee) for all employees who were not full-time employees for that month and dividing the total hours of service by 120. 
  • Add the number of full-time employees and FTEs (including fractions) calculated above for each month in 2018. Add up these monthly numbers and divide the sum by 12. Disregard fractions. 
  • If your result is 50 or more, you are likely an ALE for 2019. 
  • Keep in mind that there is a special exception for employers with seasonal workers. If your workforce exceeds 50 full-time employees (including FTEs) for 120 days or fewer during the 2018 calendar year, and the employees in excess of 50 who were employed during that time were seasonal workers, you will not be an ALE for 2019. 
  • Companies under common ownership may have to be combined to determine their ALE status. 

Offering coverage to full-time employees

To correctly offer coverage to full-time employees, ALEs must determine which employees are full-time employees under the employer shared responsibility rule definition. A full-time employee is an employee who was employed, on average, at least 30 hours of service per week (or 130 hours of service in a calendar month).

The IRS provided two methods for determining full-time employee status for purposes of offering coverage—the monthly measurement method and the look-back measurement method.

1 - MONTHLY MEASUREMENT METHOD:
Involves a month-to-month analysis where full-time employees are identified based on their hours of service for each month. This method is not based on averaging hours of service over a prior measurement method. Month-to-month measuring may cause practical difficulties for employers that have employees with varying hours or employment schedules, and could result in employees moving in and out of employer coverage on a monthly basis.

2 - LOOK-BACK MEASUREMENT METHOD:
The look-back measurement method is an optional safe harbor method for determining full-time status that can provide greater predictability for determining full-time status. The details of this method are based on whether the employees are ongoing or new and whether new employees are expected to work full time or are variable, seasonal or part time.

This method involves a measurement period for counting hours of service, an administrative period that allows time for enrollment and disenrollment and a stability period when coverage may need to be provided, depending on an employee’s average hours of service during the measurement period.

If an employer meets the requirements of the safe harbor, it will not be liable for penalties for employees who work full time during the stability period, if they did not work full-time hours during the measurement period.

CHECKLIST: Determine your full-time employees

  • Use the monthly measurement method or the look-back measurement method to confirm that health coverage will be offered to all full-time employees (and dependent children). If you have employees with varying hours, the look-back measurement method may be the best fit for you. 
  • To use the look-back measurement method, you will need to select your measurement, administrative and stability periods. 

This summary is a high-level overview of the employer shared responsibility rules. It does not provide an in-depth analysis specific to your organization. If you have any questions or would like to begin talking to an employee benefits consultant, please get in touch by email or by calling (800) 388-1963.

Popular posts from this blog

COVID-19: Retirement and Benefit Plan Resources

As the COVID-19 crisis continues to unfold, we are closely monitoring news and updates from top sources. We’ll be updating this section as new developments unfold. Here are several key articles and links to help plan sponsors and administrators navigate the COVID-19 impact to retirement and benefit plans: Retirement Plans 4 Key CARES Act Provisions for Retirement Plan Sponsors Markets React to Coronavirus   Important Considerations for Retirement Plan Sponsors during the Coronavirus Pandemic In Fed We Trust Participant Education Services: Timely Help from a Safe Distance CRDs 100% Taxable for New York State and Local Income Tax Purposes in 2020 IRS Permits Remote Notarization of Participant Elections   Employee Benefits CARES Act Expands Health Coverage Rules Understanding the Historic $2 Trillion Stimulus Package Employee Compensation and Benefits During Closures and Furloughs DOL Clarifies Exemptions to Coronavirus Paid Leave Laws Small Business Exemption to

Coronavirus-related distributions 100% taxable for New York state and local income tax purposes in 2020

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27. Under the Act, participants affected by the coronavirus may be able to take distributions in 2020 of up to $100,000 from an employer-sponsored retirement plan or an IRA. Although allowing these distributions from a qualified retirement plan is optional, we have seen that a number of employers have chosen to amend their plans to permit such distributions. The Act provides that coronavirus-related distributions will not be subject to the mandatory 20% withholding nor the 10% early withdrawal penalty (for those younger than 59½) that would otherwise apply.

Timely Elections of 457(b) Distributions

If you sponsor a non-governmental 457(b) tax-exempt plan for your key management and highly compensated employees, perhaps the most significant administrative task occurs at the time participants sever employment.  Each 457(b) plan has a specified time period by which a participant may make an election to defer payment and timely postpone taxation by electing a future distribution date.  If no timely election is made by the end of the specified time period (“default date”), payment will commence within a generally brief period of time after the default date elapses, which may not be what the participant intended.