January 15, 2015
Large employers subject to the employer shared responsibility penalty under the Affordable Care Act1 that contribute to multiemployer plans will generally be protected from the penalty with respect to those full-time employees for whom the employer is required to contribute to the plan. This Capital Checkup provides an overview of the employer penalty and then explores how contributing to a multiemployer plan protects the employer from the penalty and what information plan administrators should be providing to the plan’s contributing employers as these employers implement strategies to avoid the penalty and fulfill their reporting obligations under the Affordable Care Act.
The penalty rules for contributing employers are clear and understandable, and should encourage these employers to remain in multiemployer plans. Those employers who are considering collective bargaining arrangements that require contributions to multiemployer plans may also be confident that participating in these arrangements will not increase their employer penalty obligations.
The purpose of the employer shared responsibility penalty is to encourage large employers (those with at least 50 full-time employees, including full-time equivalents2) to offer coverage to their full-time employees, defined as those who work on average at least 30 hours per week (or 130 hours per month). To avoid the stiffest version of the penalty, employers must offer health coverage to their full-time employees (and to their children through the end of the month in which they turn age 26). To avoid being assessed a penalty with respect to a specific full-time employee, the coverage that is offered must meet two requirements: the coverage must meet a 60 percent minimum value standard, and it must be considered affordable for that employee. The employer penalty is generally effective January 1, 2015. For more information on the employer penalty, see Segal Consulting’s January 15, 2015 Capital Checkup, “Affordable Care Act’s Employer Shared Responsibility Penalty Takes Effect in 2015.”
The final employer penalty rule3 adopts a proposed rule first announced in late 2012. In essence, a contributing employer is treated as offering coverage, and is generally protected from a penalty with respect to a specific full-time employee, if the following three criteria are met:
Under the final rule, it is clear that employers are protected from the employer penalty even during the period before participants become eligible for coverage, under the rules of the specific multiemployer plan. This recognizes the unique operating structure of most multiemployer plans — that it is the trustees, not the employers, who set eligibility rules and the rules may vary considerably from one industry to another and one plan to another. In fact, employers will not know when employees become eligible under the plan.
Not every multiemployer plan will meet the three criteria, so it is important for plans and contributing employers to discuss whether these rules apply in any particular situation. Communications between plans and contributing employers are discussed below.
The plan must offer coverage to dependent children through the end of the month in which they turn 26. The final rule allows a one-year good-faith period for plan sponsors to add dependent coverage to the plan if the plan does not currently cover dependents.4 Accordingly, if the trustees take steps in 2015 to add dependent coverage effective for the 2016 plan year, employers would not be liable for the employer penalty solely for failing to offer dependent coverage.
The plan’s coverage must be affordable. Affordability is measured based on the employee’s contribution for self-only coverage. Consequently, as long as a participant does not pay anything for self-only coverage under a multiemployer plan, the plan would always be affordable. (Contributions made by employers pursuant to CBAs are not considered when determining whether a plan is affordable.)
In some CBAs, there is an employee contribution toward self-only coverage. This could be paid on a pre-tax basis through the employer’s cafeteria plan, or possibly paid on an after-tax basis. Many multiemployers that charge for self-only coverage will fit under a design-based affordability safe harbor measured by reference to the Federal Poverty Level (FPL) for a single individual. For 2015, under this safe harbor, coverage will be deemed affordable if the participant’s cost for self-only coverage does not exceed $92.39 per month.5
The final rule also established a rule that coverage under a multiemployer plan will be considered affordable if an employee’s required contribution toward self-only coverage under the plan does not exceed 9.5 percent of the wages reported to the multiemployer plan. Wages may be determined based on actual wages, or on an hourly wage rate under the applicable CBA.
The plan must provide minimum value. Generally, a plan provides minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is 60 percent of those costs. Most multiemployer plan coverage meets or exceeds the 60 percent test. Trustees are familiar with this standard because the Summary of Benefits and Coverage (SBC) for the 2014 plan year includes information on minimum value.6
Large employers that contribute to multiemployer plans for some employees often have other employees who are not covered under the multiemployer plan. These employees must be considered when the employer is planning its strategy to avoid the penalty.
Large employers should be reviewing how they provide coverage to all employees. The multiemployer rule protects the employer with respect to its employees for whom it has signed a CBA or participation agreement, but it does not change the employer’s responsibilities to provide coverage to other employees or pay the penalty. In addition, the employer is responsible for reporting to the Internal Revenue Service (IRS), in 2016, which of its employees were full-time employees, based on their hours of service for the employer. Any penalty that is owed would be paid by the contributing employer, not by the plan, based on the employer’s total workforce (bargained or not).
Multiemployer plan trustees should communicate three key pieces of information to contributing employers:
Armed with this information, contributing employers can rest assured that they will be treated as offering coverage and will not be assessed a penalty with respect to a specific full-time employee for whom they are required to make contributions to the plan. This information will allow them to complete the reporting forms that must be filed with the IRS in 2016 reflecting offers of coverage in 2015.
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As with all issues involving the interpretation or application of laws and regulations, trustees of multiemployer plans should rely on their fund counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related guidance, including the new guidance summarized in this Capital Checkup. Segal Consulting can be retained to work with trustees on comments and on determining whether plan coverage is affordable and minimum value, as well as on expanding coverage to all classes of dependents required to be covered.
1 The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup.)
2 Under certain conditions, smaller large employers — those with at least 50 full-time employees (including full-time equivalents) but fewer than 100 — will not be subject to the penalty until 2016. (Return to the Capital Checkup.)
4 Some multiemployer plans do not currently provide coverage for dependent children. These plans will need to consider adding this coverage. The plan may charge for dependent coverage, and the charge would not affect whether the plan is considered “affordable.” (Return to the Capital Checkup.)
5 A slightly high monthly charge would be allowed in Hawaii and Alaska because the FPL for a single person is higher in those states. (Return to the Capital Checkup.)
6 For more information about the SBC, see Segal’s August 2, 2013 Capital Checkup, “Affordable Care Act’s Summary of Benefits and Coverage Must be Completed for 2014 Plan Year.” (Return to the Capital Checkup.)
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