Hot off the press are the final regulations for the employer shared responsibility provisions of the Affordable Care Act (more commonly referred to as the “pay-or-play mandate”). In fact, the regulations are so new that they will not actually be published in the Federal Register until tomorrow, February 12. For those of you who are dying to get a first glimpse, a pre-publication version can be found here.
While the regulations are extensive (227 pages), many of the provisions of the proposed regulations have been retained. However, there are a couple important transition rules buried in the final regulations that provide a welcomed reprieve from the pay-or-play mandate for certain employers.
The pay-or-play mandate was initially set to take effect beginning in 2014. In July 2013, the IRS issued Notice 2013-45, which delayed the pay-or-play mandate until 2015 for all employers. The final regulations retain this delay, but also provide an extended delay for smaller “large employers.” This would include employers with an average of 50-99 full-time employees (including full-time equivalent employees), with full-time generally being defined under the Affordable Care Act as an average of 30 or more hours per week (assuming Congress does not change the full-time employee definition to 40 hours per week as is currently being considered). Employers with an average of 50-99 full-time employees are not subject to the pay-or-play mandate until the first plan year beginning on/after 1/1/2016, provided the employer:
- does not reduce its workforce between 2/9/2014 and 12/31/2014 in order to avail itself of the extended delay (i.e., to fall within the 50-99 employee range);
- satisfies certain coverage maintenance requirements for the period beginning on 2/9/2014 and ending on the last day of the first plan year beginning on or after 1/1/2015; and
- certifies that it satisfies all of the foregoing requirements on a designated form.
If an employer satisfies these requirements, the employer would not face any assessable penalty under code Section 4980H(a) or (b) for any calendar month during 2015 (for calendar year plans) or any calendar month during the portion of the 2015 plan year that falls in 2016 (for non-calendar year plans).
The final regulations also contain a favorable transition rule for larger “large employers” (i.e., those with 100+ full-time employees (including full-time equivalent employees)). While these employers are still subject to the pay-or-play mandate beginning in 2015, the final regulations loosen the rules governing the application of the “no coverage penalty” for 2015. As a reminder, this penalty applies if a large employer fails to offer coverage to at least 95% of its full-time employees and their dependents. Employers that do not satisfy this coverage requirement are subject to a penalty of $2,000/year (adjusted for inflation after 2014) for each full-time employee (less first 30 full-time employees).
For the 2015 plan year only, the final regulations alter these rules a bit for employers with 100+ full-time employees. Under the modified rules, an employer with 100+ full-time employees will not face a “no coverage penalty” if the employer offers coverage to at least 70% of its employees and their dependents. Further, if an employer with 100+ full-time employees is subject to the “no coverage penalty” by virtue of covering less than 70% of its full-time employees, the penalty is equal to $2,000/year for each full-time employee (less first 80 full-time employees).
These transition rules should come as a welcome surprise to employers who are currently working through the inherent difficulties of complying with the pay-or-play mandate. However, employers should keep in mind that these transition rules are temporary and limited. So, while putting pay-or-play planning on the backburner until late 2014 (or late 2015 for employers with 50-99 full-time employees) might seem attractive, employers should begin working with trusted advisors now to make sure they are ready when they face the full brunt of these rules.
