Employer Mandate Transition Relief Tutorial: Non-Calendar-Year Plans

0

In this video, we examine the transition relief that’s available for non-calendar year plans and answer the question “when do the employer mandate penalties kick in for groups with a renewal date other than January 1st?”

Download Slides


The transition relief for non-calendar year plans is addressed by question 30 of the IRS FAQs that were released along with the Employer Mandate Final Rule:

30. I understand that the Employer Shared Responsibility provisions do not go into effect until 2015. However, the health plan that I offer to my employees runs on a non-calendar year plan year that starts in 2014 and will run into 2015. Do I need to make sure my plan complies with the Employer Shared Responsibility provisions in 2014 when the next non-calendar year plan year starts?

The preamble to the final regulations provides three pieces of transition relief addressing non-calendar year plans — (1) pre-2015 eligibility transition relief, (2) significant percentage transition relief (all employees) and (3) significant percentage transition relief (full-time employees).

The first piece of relief generally addresses employees that are already eligible to participate in the non-calendar year plan. Specifically the pre-2015 eligibility transition relief provides that for any employees (whenever hired) who are eligible for coverage on the first day of the 2015 plan year under the eligibility terms of the plan as of Feb. 9, 2014, (whether or not they take the coverage) and who are offered affordable coverage that provides minimum value effective no later than the first day of the 2015 plan year, the employer will not be subject to a potential Employer Shared Responsibility payment until the first day of the 2015 plan year.

The remaining two pieces of relief generally address employees that have not been eligible to participate in the non-calendar year plan. They provide that if the employer meets certain requirements generally related to the portion of the employer’s employees already eligible for or participating in the non-calendar year plan, the relief may be extended to those employees that have not been eligible to participate. The preamble to the final regulations provides additional information on the rules for determining whether an employer is eligible for this relief.

All of this transition relief applies for the period before the first day of the first non-calendar year plan year beginning in 2015 (the 2015 plan year) but only for employers that maintained non-calendar year plans as of Dec. 27, 2012, and only if the plan year was not modified after Dec. 27, 2012, to begin at a later calendar date. See question 36 on 2015 transition relief.


The transition relief for non-calendar year plans is further explained in section XV.D.1 of the Employer Mandate Final Rule:

XV. Transition Relief and Interim Guidance

D. Transition Guidance for 2015

1. Non-Calendar Year Plans

Section IX.A of the preamble to the proposed regulations provides transition guidance for the period prior to the first day of the plan year beginning in 2014 for employers sponsoring non-calendar year plans. 78 FR 218, 236.

The following three pieces of transition guidance apply for the period before the first day of the first non-calendar year plan year beginning in 2015 (the 2015 plan year) for employers that maintained non-calendar year plans as of December 27, 2012, if the plan year was not modified after December 27, 2012, to begin at a later calendar date. The first two pieces (pre-2015 eligibility transition guidance and significant percentage transition guidance (all employees)) are extensions of the rules provided in section IX.A of the preamble to the proposed regulations. A new option (significant percentage transition guidance (full-time employees)) is added in this preamble.

In essence, this guidance provides transition relief for the period before the first day of the 2015 plan year with respect to all employees who, under the eligibility terms of the plan as in effect on February 9, 2014, are eligible as of the first day of the 2015 plan year for coverage under a non-calendar year plan, and who are offered, no later than the first day of the 2015 plan year, affordable coverage that provides MV. Also, in general, unless the employees described in the preceding sentence comprise an insufficient percentage of all the employer’s employees, this guidance also provides relief with respect to all other employees of the employer who are offered affordable coverage that provides MV as of the first day of the 2015 plan year. This exception reflects that the need for transition relief enabling employers to begin offering coverage to employees who are not currently offered coverage at the beginning of a non-calendar year plan year, in order to coincide with the program for employees currently offered coverage, is not as compelling if the number of existing employees eligible for coverage under a non-calendar year plan is a relatively small portion of the employer’s total work force.

a. Pre-2015 Eligibility Transition Guidance

If an applicable large employer member maintained a non-calendar year plan as of December 27, 2012, and the plan year was not modified after December 27, 2012 to begin at a later calendar date, this rule applies with respect to employees of the applicable large employer member (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. If an employee described in the preceding sentence is offered affordable coverage that provides MV no later than the first day of the 2015 plan year, no section 4980H assessable payment will be due with respect to that employee for the period prior to the first day of the 2015 plan year. To provide relief with respect to employees who are not offered coverage during one or more calendar months in 2015 solely because they terminate employment before the beginning of the 2015 plan year, this relief also applies with respect to an employee 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, but for the fact that the employee terminated employment (and was not rehired) prior to the first day of the 2015 plan year. This relief only applies with respect to employees who would not have been eligible for coverage under any group health plan maintained by an applicable large employer member as of February 9, 2014, that has a calendar year plan year.

Notwithstanding the foregoing, an applicable large employer member may be subject to an assessable payment under section 4980H(a) if it does not offer coverage to all but five percent (or, if greater, five) of its full-time employees (and their dependents) (or, if the transition relief set forth in section XV.D.7 of this preamble applies, if it does not offer coverage to all but 30 percent of its full-time employees (and their dependents)) as of the first day of the 2015 plan year. If an applicable large employer member does not do so, an assessable payment under section 4980H(a) may be due for any calendar month in 2015 under the section 4980H(a) rules as applied without regard to the relief set forth in this section XV.D.1.a of the preamble. See section XV.D.5 of this preamble for transition relief regarding offers of coverage to dependents.

As an illustration of the application of this rule, assume Employer Z has 600 employees, all of whom are full-time employees within the meaning of the final regulations, and Employer Z maintained a plan with an April 1 plan year as of December 27, 2012 (Plan P). Plan P’s plan year was not modified after December 27, 2012, and all of Employer Z’s employees are eligible for coverage under Plan P under the eligibility terms as in effect on February 9, 2014, however coverage offered prior to the 2015 plan year is not affordable. All of Employer Z’s employees are offered affordable coverage that provides MV effective no later than April 1, 2015. In this case, no section 4980H assessable payment will be due with respect to any employee of Employer Z for the period before April 1, 2015. The same transition relief would apply to those 600 employees even if Employer Z also had a calendar year plan (Plan Q) and had a total of 1,000 full-time employees, 600 of whom were described above (and were not eligible for coverage under Plan Q) and 400 of whom were eligible for coverage under Plan Q as of January 1, 2015. However, the same transition relief would not apply to those 600 employees if as of April 1, 2015, the 400 other employees were not offered coverage (because as of that date Employer Z would not have offered coverage to all but five percent (or, if greater, five) of its full-time employees (and their dependents)) (and if the transition relief set forth in section XV.D.7 of this preamble applied, as of that date Employer Z would not have offered coverage to all but 30 percent of its full-time employees (and their dependents)).

b. Significant Percentage Transition Guidance (All Employees)

Additional transition guidance is also provided for employers that maintained a non-calendar year plan as of December 27, 2012 (or that maintained two or more non-calendar year plans that have the same plan year as of December 27, 2012), if the plan year of the non-calendar year plan was not modified to begin after December 27, 2012, at a later calendar date after December 27, 2012, and that either—(1) had, as of any date in the 12 months ending on February 9, 2014, at least one quarter of its employees covered under those 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. Under the additional transition guidance in this section, no assessable payment under section 4980H 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 MV 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. Notwithstanding the foregoing, if an applicable large employer member does not offer coverage to all but five percent (or, if greater, five) of its full-time employees (and their dependents) (or, if the transition relief set forth in section XV.D.7 of this preamble applies, if it does not offer coverage to all but 30 percent of its full-time employees (and their dependents)) as of the first day of the 2015 plan year, an assessable payment under section 4980H(a) may be due for any calendar month in 2015 under the section 4980H(a) rules as applied without regard to the relief set forth in this section XV.D.1.b of the preamble. See section XV.D.5 of this preamble for transition relief regarding offers of coverage to dependents.

For example, assume Employer Y has 1,100 employees. One thousand of Employer Y’s employees are full-time employees and 100 of Employer Y’s employees are not full-time employees. Employer Y maintained a plan with a July 1 plan year (Plan M) as of December 27, 2012. Plan M’s plan year was not modified after December 27, 2012, to begin at a later calendar date. Employer Y does not offer any coverage other than Plan M.

For purposes of applying the significant percentage transition guidance (all employees), Employer Y chooses December 1, 2013, as the date in the 12 months ending on February 9, 2014, to measure the number of employees it covered under Plan M. On December 1, 2013, Plan M covered 23 percent of Employer Y’s employees (253 out of 1,100). During the open enrollment period that ended most recently before February 9, 2014, Employer Y offered coverage under Plan M to 45 percent of its employees (495 out of 1,100). As of the first day of the 2015 plan year (July 1, 2015), Employer Y offers affordable coverage that provides MV under Plan M to all full-time employees. Employer Y does not offer coverage to employees who are not full-time employees.

Under the significant percentage transition guidance (all employees), no section 4980H assessable payment will be due with respect to any of the full-time employees of Employer Y for the period before July 1, 2015, because Employer Y offered coverage to 45 percent (which exceeds one third) of its employees during the open enrollment period that ended most recently before February 9, 2014, and the full-time employees of Employer Y are offered affordable coverage that provides MV no later than the first day of the 2015 plan year (July 1, 2015).

Relief is not provided under the significant percentage transition guidance (all employees) with respect to the 100 employees who are not full-time employees and to whom coverage is not offered as of July 1, 2015, but no relief is necessary for these employees because an employer is not liable for an assessable payment under section 4980H for failure to offer coverage to an employee who is not a full-time employee; however, nothing in section 4980H precludes an employer from providing coverage to employees who are not full-time employees.

c. Significant Percentage Transition Guidance (Full-Time Employees)

Commenters noted that because the significant percentage transition guidance (all employees), as set forth in section IX.A of the preamble to the proposed regulations and generally extended in section XV.D.1.b of this preamble, applies based on the total number of employees, including seasonal and part-time employees, employers with large numbers of seasonal or part-time employees might not be able to meet the requirements of the significant percentage transition guidance (all employees), regardless of the percentage of full-time employees eligible for or enrolled in health care coverage. Commenters requested that the significant percentage transition guidance (all employees) take into account only full-time employees (within the meaning of section 4980H).

Additional transition guidance is provided for employers that, as of December 27, 2012, maintained a non-calendar year plan (or two or more such plans that, as of that date, have the same plan year) if the plan year was not modified to begin after that date to begin at a later calendar date, and if the employer either—(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 those 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. Under the additional transition guidance in this section XV.D.1.c of the preamble, no payment under section 4980H 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 MV 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. Notwithstanding the foregoing, if an applicable large employer member does not offer coverage to all but five percent (or, if greater, five) of its full-time employees (and their dependents) (or, if the transition relief set forth in section XV.D.7 of this preamble applies, if it does not offer coverage to all but 30 percent of its full-time employees (and their dependents)) as of the first day of the 2015 plan year, an assessable payment under section 4980H(a) may be due for any calendar month in 2015 under the section 4980H(a) rules as applied without regard to the relief set forth in this section XV.D.1.c of the preamble. See section XV.D.5 of this preamble for transition relief regarding offers of coverage to dependents.

For example, assume Employer W has 2,000 employees, of whom 500 are full-time employees and 1,500 are not full-time employees. Employer W maintained a plan with a July 1 plan year (Plan N) as of December 27, 2012. Plan N’s plan year was not modified after December 27, 2012. Employer W does not offer any coverage other than Plan N.

For purposes of applying the significant percentage transition guidance (full-time employees), Employer W chooses December 1, 2013, as the date in the 12 months ending on February 9, 2014, to count the number of full-time employees it covered under Plan N. On December 1, 2013, Plan N covered 20 percent of Employer W’s full-time employees (100 of 500).

During the open enrollment period that ended most recently before February 9, 2014, Employer W offered coverage under Plan N to 60 percent of its full-time employees (that is, 300 of 500). As of the first day of the 2015 plan year (July 1, 2015), Employer W offers affordable coverage that provides MV under Plan N to all full-time employees. Employer W does not offer coverage to employees who are not full-time employees.

Under the significant percentage transition guidance (full-time employees), no section 4980H assessable payment will be due with respect to Employer W’s full-time employees for the period before July 1, 2015, because Employer W offered coverage to at least one half of its full-time employees during the open enrollment period that ended most recently before February 9, 2014, and the full-time employees of Employer W are offered affordable coverage that provides MV no later than the first day of the 2015 plan year (July 1, 2015).

Relief is not provided under the significant percentage transition guidance (full-time employees) with respect to Employer W’s employees that are not full-time employees, but no relief is necessary for these employees because an employer is not liable for an assessable payment under section 4980H for failure to offer coverage to an employee who is not a full-time employee; however, nothing in section 4980H precludes an employer from providing coverage to employees who are not full-time employees.

d. Requirement of No Change to Plan Year

The transition guidance for applicable large employer members sponsoring non-calendar year plans set forth in section XV.D.1 of this preamble are available for a non-calendar year plan only if that plan’s plan year was not modified after December 27, 2012, to begin at a later calendar date. For example, if, as of December 27, 2012, an applicable large employer member sponsored a non-calendar year plan with a plan year starting on July 1 and later changed the start of the plan year to December 1, the transition guidance for applicable large employer members sponsoring non-calendar year plans set forth in section XV.D.1 of this preamble would not apply.

e. Section 6056 Reporting for 2015 Transition Period for Non-Calendar Year Plans

Employers eligible for the transition guidance for plans with non-calendar year plan years remain subject to the reporting requirements under section 6056 for the entire 2015 calendar year. Because no section 4980H liability applies whether or not a full-time employee is offered coverage during the portion of the 2014 plan year falling in 2015, the applicable large employer may determine the full-time employees for that period for purposes of the section 6056 reporting requirements after the period has ended, using actual service data or using the look-back measurement method, and use those determinations for the reporting required for the period during 2015 that precedes the start of the 2015 plan year. In addition, the employer should be able to determine whether the coverage offered provides MV and the employee portion of the applicable premium in time to complete the required reporting for 2015 (that is, for section 6056 returns furnished to employees and filed with the IRS in 2016). Because this reporting is needed by the employee and the IRS for the administration of the premium tax credit, applicable large employers are required to report this information for the entire 2015 calendar year, even if during some calendar months in 2015 section 4980H liability will not apply by reason of the transition guidance for non-calendar year plan years. The section 6056 return instructions will provide additional information on how to report for 2015.


Comments are closed.