We’re already 5 years into the ACA compliance journey and most employers seem to understand the new regulations. But there’s always something new coming to keep us on our toes. So what’s the latest requirement that should be on the radar of any company that is self-funded or has more than 50 employees? Reporting!
The 6055 and 6056 reporting requirements (which will support individual and employer mandate compliance and subsidy substantiation) are fully underway and the first round of reporting is in less than 12 months. Plan sponsors are reviewing the details of the Employer Shared Responsibility (ESR) provisions -- and some are making startling discoveries.
The ESR applies to large employers and has two components: 4980H(a) and 4980H(b). For simplicity’s sake, let’s just call them “(a)” and “(b).” Also important to note: there is a possibility the annual (a) $2,000 and (b) $3,000 penalties could be escalated for 2015. ACA provides that the penalty amounts will be indexed over time (e.g., 4.1% higher for 2015 penalties), but IRS has yet to formally announce that it will apply the increase in 2016 since it will be the first year it assesses ACA penalties.
(a) Employers are safe under “(a)” if they offer Minimum Essential Coverage (MEC) to “substantially all” of their full-time, a.k.a 30-hour, employees.
- In 2015, “substantially all” means 70% of full-time employees if you have 100 or more full-time and full-time equivalent employees. (In 2016, “substantially all” moves to 95% of full-time employees and applies to employers with 50 or more full-time and full-time equivalent employees.) So in 2015 an employer with 100 FT eligible employees must make an offer of MEC to at least 70 of them. Great. Easy to achieve. Employers that had employees in a non-eligible class but who worked 30+ hours have a reprieve from making an offer of coverage as long as those employees do not represent more than 29% of the FT workforce.
- The penalty in 2015 under “(a)” is $2,000 times the number of FT eligible employees minus the first 80, if at least one employee gets Marketplace coverage and receives a subsidy.
(b) Employers may be assessed a penalty under “(b)” even if they are safe under “(a).”
- The penalty under “(b)” is $3,000 times the number employees who received a subsidy in the Marketplace and for whom:
1) the employer’s coverage was not affordable,
2) the employer’s coverage did not provide minimum value, or
3) the employer made no offer of coverage (i.e., the employee was part of the percentage of FT employees whom the employer excluded).
- Keep in mind the total amount of “(b)” penalties cannot exceed an employer’s maximum “(a)” penalties had it offered no coverage to any FT employee.
So in the case above, our employer is safe under “(a)”, but if any of the employees who were not offered coverage (those in the non-eligible class) receive a subsidy in the Marketplace the employer is subject to the $3,000 penalty per subsidized employee. This can be a huge variable. The employer’s liability may be anything from $0 (good), to $3,000 (not bad), to as much as $40,000 (catastrophic for some employers) if more than 13 of the 29 receive a subsidy on the Marketplace.
So while we are all busy focusing on preparing for 1094s and 1095s, it’s a good idea to work with a benefits advisor to assess your exposure and come up with a good play or pay strategy. Getting an unexpected penalty is not a great way to kick off the New Year.