IRS/Treasury Discuss Shared Responsibility Payment Guidance And Safe Harbors


During the September 20 ALI-CLE seminar Retirement, Deferred Compensation, and Welfare Plans of Tax-Exempt and Governmental Employers, Stephen Tackney, special counsel in the IRS Office of Division Counsel/Associate Chief Counsel, Tax Exempt and Government Entities (TE/GE), and Rachel Levy, attorney-advisor in the Treasury Office of Benefits Tax Counsel, discussed the latest guidance implementing applicable employers’ shared responsibility payment under the Patient Protection and Affordable Care Act (ACA). “The IRS and Treasury are trying to provide employers [potentially subject to the Code Sec. 4980H assessed payment] as much flexibility as possible within the range that we can get to,” said Tackney.


The guidance, released as Notice 2012-58, I.R.B. 2012-41, addressed several gray areas relating to ongoing, but potentially “non-full-time” employees that employers might not be required to add to their group health care plans. Tackney also mentioned other issues that the IRS is considering, such as whether guidance would be appropriate for employers with high-turnover employees, meaning those who are not specifically hired for a short-term or temporary basis, but who are likely to quit after a few months. Also covered during the panel was the allocation of the required medical loss ratio (MLR) rebates required of certain insurers that do not use the requisite percentage of their health care premiums.


Safe harbors. Levy and Tackney first summarized the current statutory rules and past guidance on the employer shared responsibility requirement of Code Sec. 4980H. To begin with, Code Sec. 4980H requires applicable employers to either offer minimum essential health care coverage to their full-time employees, defined as those who work an average of 30 hours a week, or pay a penalty. “Under the terms of the statute, it is really a look-forward provision, where employers need to know who will be full-time for the month,” Levy said.


The first safe harbor in Notice 2012-58 expands to 12 months the look-back measurement period for employers to determine whether their ongoing employee is a full-time employee under Code Sec. 4980H. The period was previously outlined with respect to variable-hour or seasonal employees in Notice 2012-17, I.R.B. 2012-9, 430. “What guidance has done is try to give employers a way of fairly establishing what employees are full-time [for purposes of the requirement to offer health care coverage],” said Levy.


Levy gave several examples of ongoing employees that might work an average of 30 hours a week or more but, because they are not employed beyond a certain number of months, might not cause employers to become subject to the employer shared responsibility payment. One example would be a variable employee, such as a waiter whose work hours, based on the facts and circumstances, cannot be immediately determined. Another example involves a seasonal employee, such as a ski instructor who works at a resort for five months out of a year. “We’re talking about conditions where, week-by-week, an employee’s work hours could change, for example waiters or salespeople,” Tackney said.


“You don’t necessarily want to offer these employees coverage if your policy is to only offer coverage to full-time employees,” said Levy. She added that the guidance had not, however, addressed employees who transfer between different jobs for the same employer. Nor had the IRS or Treasury finished their analysis of requested comments on high-turn-over employees, meaning employees hired to a full-time position where the employer knows a large percentage of its hires will leave within three months. Additionally, the IRS and Treasury are open to comments concerning employees hired to work for more than 30 hours a week, but for a period just over three months.


In addition, Notice 2012-58 provides that, where an employee is reasonably expected at his or her start date to work full-time, an employer that sponsors a group plan that offers coverage to the employee at or before the end of 90 days will not be subject to the employer responsibility payment.


Further, an employer will not be subject to an assessable payment under Code Sec. 4980H(b) for an employee if the coverage offered is affordable based on the wages reported in Box 1 of the employee’s Form W-2.


Finally, Notice 2012-58 provides that employers can rely on Notice 2012-58, Notice 2011-73, I.R.B. 2011-40, 474, Notice 2011-36, I.R.B. 2011-21, 792, and Notice 2012-17, I.R.B. 2012-9, 430, through the end of 2014.




“The ACA requires that, if insurers don’t use a certain percentage of their premiums for health care quality and improving services and clinical services, they have to rebate those to the medical loss ratio back to enrollees. For the individual market, the medical loss ratio is 80 percent,” Lou Campagna, chief in the Division of Fiduciary Interpretations Office of Regulations and Interpretations at the Department of Labor (DOL), summarized. “When the rebates come back to plan policyholders, ERISA is implicated because now the fiduciary is in receipt of potentially plan assets, and the fiduciary has to make certain decisions.”


Campagna discussed how the DOL addressed the question of how to address rebate payments. “We have been dealing with situations regarding litigation settlements coming back to plans and having to be reallocated down to the fiscal level for a number of years,” Campagna said. “We have applied a lot of the principles we have articulated in the mutualization area and other areas to this particular principle. All of these are contained in the Technical Release 2011-04.”


“Basically the threshold issue is, ‘Do you have plan assets?’ and ‘How much of the rebate is plan assets?’” The next step, Campagna said, would be to ask who the policyholder is. If the plan is the policyholder, generally all of the rebate would be plan assets. In a situation where the employer is the policyholder, generally the determination would be made in accordance with the ordinary notion of property rights, Campagna said.


Questions regarding the determination of plan assets and the allocation of rebate money can be directed to the DOL. Generally, however, it would be the fiduciary’s call, Campagna said. He also recommended that fiduciaries document their decision in the event questions arise later. “For fiduciaries, it is important that they get a record for themselves as to how they made some of these decisions.”