Bloomberg BNA's Pension & Benefits Blog is a special resource offered by Bloomberg BNA to provide commentary and insight on news and trends reported in our publications: Pension & Benefits Daily, Pension & Benefits Reporter, and the Benefits Practice Resource Center. The authors of the blog are members of our Pension & Benefits Publications Advisory Board.
The ideas presented here are those of individuals, and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members. We reserve the right not to post comments that are abusive or otherwise objectionable.
Communications regarding the Pension & Benefits Blog may be directed to Dana Domone via e-mail to firstname.lastname@example.org.
Wednesday, April 25, 2012
by Gary M. Ford
Recently, there has been a flurry of commentary on the Supreme
Court arguments on the constitutionality of the Patient Protection
and Affordable Care Act's (ACA) requirement that individuals
maintain health coverage or pay a penalty. In addition to the
individual mandate requirement, and not in dispute in the current
litigation, the ACA also requires certain employers to provide
health coverage to their full-time employees. Under the
requirement—which is referred to in various circles as the
"employer shared responsibility requirement," "employer mandate,"
or the "play or pay mandate"—employers that employ at least 50 full-time employees must offer health coverage to their full-time
employees (and their dependents) or face a possible penalty.
The ACA defines "full-time" for these purposes as working, on
average, at least 30 hours per week.
The Internal Revenue Service, Department of Labor, and Department of
Health and Human Services have issued a series of
notices and other guidance that summarize their intended
direction in implementing the employer shared responsibility
requirement and related ACA requirements. Most recently, IRS
Notice 2012-17 and DOL Technical Release 2012-01 address the ACA
employer shared responsibility requirement, automatic enrollment
requirement, and waiting period limitation in a series of frequently asked questions and answers. Importantly for employers that might be subject to the employer
shared responsibility mandate, the guidance issued to date suggests
that the agencies intend to allow a look-back/stability period
during which an employer may determine which of its employees are
full time. This means that, for current employees, the agencies are considering allowing employers to determine whether an
employee has averaged at least 30 hours a week by looking back up
to 12 months. Employers with highly mobile employees or work
that varies seasonally may find that this look-back approach helps
avoid classifying temporary or seasonal employees as
The agencies have suggested a different, shorter period for
determining whether new employees are full-time employees. For new hires, an employer generally must determine whether (1) as
of the date of hire, the employee is reasonably expected to work an
average of at least 30 hours per week, and (2) as of the end of the
employee's first three months of employment, the hours worked
during that three-month period are reasonably viewed as representative
of the average hours the employee is expected to work on an annual
basis. If a newly-hired employee is expected to work
full time on an annual basis, and the employee does in fact work
full time during the first three-month period of employment, the
newly hired employee is treated as full time and must be offered
health coverage as of the end of that first three-month period.
What if, based on the facts and circumstances at the time of hire,
the employer cannot reasonably determine whether a newly hired
employee is expected to work full time on an annual basis? In
general, the guidance provides that, when such an employee works at
least 30 hours per week during the first three-month period and
those hours are reasonably considered representative of the average
hours expected to be worked by the employee on an annual basis, the
employee is considered full time at the end of the three-month
period. If, on the other hand, the employee averages 30 or
more hours per week during the first three-month period, but those
hours are not considered as representative of the average hours
expected to be worked by the employee on an annual basis, the
employer may take an additional three month period to determine the
employee's status. Thus, it appears that employers will have
up to six months to determine whether a new hire is
a full-time employee.
The recent guidance may be helpful for employers when considering
benefit plan designs for 2014 and beyond. That said, the
guidance provided by the agencies on the application of the
employer shared responsibility requirements is not binding and
could change when they issue proposed regulations.
to post a comment.
IRS to Focus on Safe Harbor 401(k) Plans, Other Concerns Highlighted in Questionnaire
IRS Makes Employers’ Internal Controls a Priority in Employee Plan Audits
Implications of ASU 2011-4 for sponsors of ESOPs
FASB Issues Exposure Draft on ESOP Disclosures; Comment Period Open
Follow-Up Q&A From EBN Webinar