Employer-Shared Responsibility Provisions: Transition Relief for Non-Calendar Year Plans

By Kristi R. Gauthier, Esq.
Clark Hill PLC

April 29, 2014 – Generally speaking, the employer-shared responsibility provisions under the Patient Protection and Affordable Care Act (“PPACA”) take effect on January 1, 2015. However, the recently released final regulations provide for much anticipated transition relief for group health plans maintained on a non-calendar year basis. Essentially the final regulations continue the transition relief that was set forth in the proposed regulations and allow for employers meeting strict criteria to avoid potential employer-shared responsibility penalties until the start of their plan year beginning in 2015, as opposed to having to comply on January 1, 2015.

Employers maintaining non-calendar year group health plans will be eligible for the non-calendar year plan transition relief if:

1. The Employer maintained the non-calendar year plan on December 27, 2012; and

2. Since December 27, 2012, the employer has not changed the plan year to begin on a later date.

If eligible for the transition relief, employers will not be subject to applicable employer-shared responsibility penalties until the first day of the plan year beginning after January 1, 2015 with respect to the following groups of full-time employees:

1.    Employees who no later than the first day of the plan year beginning after January 1, 2015 are offered “affordable” and “minimum value” coverage (as those terms are defined pursuant to PPACA) in accordance with plan eligibility terms in effect on February 9, 2014 (the date of the final regulations) and would not have been eligible for any calendar year plan maintained by the employer (or member of the employer’s controlled group, if applicable) as of February 9, 2014; and

2.    All other employees who are offered coverage no later than the first day of the plan year beginning after January 1, 2015 regardless of the eligibility terms of the plan on February 9, 2014, as long as the following three (3) conditions are met:

        a. A “sufficient percentage” (see below) of employees were either offered or provided coverage under the non-calendar year plan prior to February 9, 2014;
        b. The coverage offered as of the first day of the plan year after January 1, 2015 is “affordable” and provides “minimum value”; and
        c. The employees would not have been eligible for coverage under any calendar year plan maintained by the employer (or member of the employer’s controlled group, if applicable) as of February 9, 2014.

For these purposes, the final regulations define “sufficient percentage” of employees as being:

1. As of any date during the 12 months ending on February 9, 2014, at least 25% of the employer’s total employees (full-time and part-time) or at least one-third of the employer’s full-time employees are covered under the non-calendar year plan; or

2. At least one-third of its total employees (full-time and part-time) or at least 50% of the employer’s full-time employees were offered coverage under the non-calendar year plan during the most recent open enrollment period ending before February 9, 2014.

Eligibility for this transition relief requires compliance with the complex rules set forth above. Therefore, it is important for employers who maintain a non-calendar year plan to work closely with their benefits consultants and legal advisors to determine whether they are eligible for this transition relief.

*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.

Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.