Think You Can Delay Your Compliance? Think Again.

Feb 14

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2/14/2013  RssIcon

I participated in a panel discussion recently in which a panelist proposed a creative solution to delaying an employer’s compliance with the Shared Responsibility requirements of the Affordable Care Act. The Shared Responsibility requirements—a/k/a the “Play or Pay Mandates”—are generally set to be effective January 1, 2014.

The panelist’s proposed approach to delaying implementation of the Play or Pay Mandates: simply change the plan year to a December 31 plan year and then the plan won’t have to comply until December 31, 2014.

Pretty creative, huh? There’s only one problem with that advice: it won’t work.

While recent guidance does provide some transitional relief for off-calendar year plans, the rules set out by the Internal Revenue Service (IRS) preclude an employer from gaming the start of the Play or Pay Mandates in the fashion proposed by the panelist by changing a plan year to a different plan year after December 27, 2012.

In general, the Play or Pay mandates are applicable on January 1, 2014 for all plans, regardless of whether they are a calendar year plan or an off-calendar year plan. A special transition rule does apply, however, to certain off-calendar year plans, as long as they meet some pretty tough requirements.

These requirements are:
  • The non-calendar year plan had to have been in place on December 27, 2012; and
  • The plan must have been offered to at least one third of all employees (full-time and part-time) at the most recent open enrollment period prior to December 27, 2012; or
  • The plan currently covers at least 25% of all employees as of the end of its most recent open enrollment period (or any date between October 31—December 27, 2012).
In addition, the employer must offer affordable coverage that provides 60% minimum value coverage to all full-time employees starting with the 2014 plan year.

In other words, if an employer sponsors an off-calendar year plan on December 27, 2012 and offers coverage to at least a third of the workforce (full- and part-time employees) or has a “take up” rate for all employees (full- and part-time) of at least 25% and affordable coverage is offered starting on the first day of the plan year that starts after January 1, 2014, then the Play or Pay penalties won’t begin to apply until the first day of the first plan year after January 1, 2014.

If an off-calendar year plan cannot meet all of these requirements, the Play or Pay Mandates are applicable to that plan as of January 1, 2014, even if January 1 falls right in the middle of its plan year.

Employers sponsoring off-calendar year plans should talk with their ProSential Group Broker to see if they meet this transition relief. Gimmicky tricks to avoid or delay the law simply won’t work.

This blog prepared by Peter Marathas of Proskauer.

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