More than five years after its enactment, the Affordable Care Act (ACA) continues to be one of the top concerns for employers, and rightly so: the ACA is one of the most comprehensive laws impacting employee benefits since the Employee Retirement Income Security Act of 1974.
Phased implementation of the ACA requirements has kept employers consistently busy over the last few years, but there is still more to come. Throughout the end of 2015 and into the first half of 2016, employers will continue to focus on the employer shared responsibility provisions of the ACA, tackle the new reporting requirements (not an easy feat, to say the least), and begin planning for the “Cadillac” plan tax.
Here is your “simplified” cheat sheet and some tips for what’s ahead.
Employer Shared Responsibility
Employers with 100 full-time equivalent employees or more are subject to employer shared responsibility provisions in 2015. The employer shared responsibility provisions are the employer penalty provisions under the ACA. Penalties apply if an employer fails to offer minimum essential coverage that is affordable and provides minimum value to full-time employees.
Employers with between 50 and 99 full-time equivalent employees (“mid-size employers”) are subject to employer shared responsibility in 2016. To prepare for employer shared responsibility, mid-size employers should:
- Identify full-time employees based on the ACA definition of full-time (those who average 30 hours of work per week in one month), considering special classifications such as staffing employees, independent contractors, temporary or short-term employees and even interns.
- Assess whether the monthly measurement method or look-back measurement method to determine full-time status is best based on the nature of the company’s workforce.
- Update plan documents and summary plan descriptions (SPDs) if necessary for the measurement method selected.
- Determine the appropriate safe harbor the company will use for the affordability calculation: W-2, rate of pay, or federal poverty line.
Large employers subject to the ACA’s employer shared responsibility provisions this year should closely monitor their processes to ensure accurate implementation of the ACA’s measurement method and affordability calculation and document offers and waivers of coverage. Penalties will not be assessed until after employer reporting and individual tax filings in 2016, but once a penalty is assessed, there is no retroactive correction. If an employer finds a gap in its processes or a mistake, it should take steps to correct immediately to reduce the amount of potential penalties.
The ACA’s reporting requirements apply to all employers with over 50 full-time equivalent employees for calendar year 2015. There is no extra year for reporting for mid-size employers, as there is under the employer shared responsibility provisions. With the exception of small employers, we can find solidarity (and probably empathy too) with our fellow employers because we are all tackling this requirement together on the same schedule.
It is easy to get lost in the confusing numeric labels given to the ACA’s reporting requirements. There is Section 6055 reporting and Section 6056 reporting—and each of these reporting requirements are accomplished on either Internal Revenue Service (IRS) Tax Form 1094-C, 1095-C, 1094-B, or 1095-B. To simplify, here is what is generally required for employers:
- Regardless of whether sponsoring or participating in a fully-insured or self-funded plan, employers will complete the “C” reporting. The “B” reporting is for insurance carriers (with some exceptions).
- Employers will complete Form 1095-C for each full-time employee and distribute to full-time employees (very similar to Form W-2 requirements and actually on the same distribution schedule) by January 31 of each year).
- Employers will “transmit” all these individual 1095-Cs to the IRS along with Form 1094-C. (Think of 1094-C as a “cover sheet.”)
The forms themselves are not easy to complete. There is a system of codes that an employer must use on various lines of the forms to tell the story of the employee’s employment and health coverage with the employer during the 2015 calendar year.
Cadillac Plan Tax
What has become known as the “Cadillac” plan tax is a 40 percent excise tax charged to employers on the cost of health coverage that exceeds certain annual limits. The Cadillac plan tax does not begin until 2018, but it is one of the more controversial provisions of the law since it in essence penalizes employers that offer benefit-rich plans to employees.
There is a lot of talk and some significant support for the repeal of this part of the law, but the IRS is proceeding with regulations that define how the tax will work. Employers will want to stay tuned to the debate on this provision and consider what alterations they may need to make to plans to avoid the potential tax.