Pay or Play Penalty—Multiemployer Plans

Pay or Play Penalty—Multiemployer Plans

by Posted on: December 15, 2014Categories: HR & Compliance   

The Affordable Care Act (ACA) imposes “pay or play” requirements on applicable large employers. Under these requirements, applicable large employers that do not offer health coverage to their full-time employees and their dependents, or that offer coverage that is either unaffordable or does not provide minimum value, may be subject to a penalty. This penalty is also referred to as a “shared responsibility payment.”

On Feb. 12, 2014, the IRS published final regulations on the ACA’s employer shared responsibility rules. These regulations finalize provisions in proposed regulations released by the IRS on Jan. 2, 2013. Under the final regulations, applicable large employers that have fewer than 100 full-time employees generally will have an additional year, until 2016, to comply with the pay or play rules. Applicable large employers with 100 or more full-time employees must comply with the pay or play rules starting in 2015.

In addition, the final regulations extend the transition guidance provided in the proposed regulations for employers that contribute to multiemployer plans. According to the IRS, this transition guidance is intended to provide an administratively feasible way for employers that contribute to multiemployer plans to comply with the ACA’s pay or play requirements.

Multiemployer Plans

A “multiemployer plan” is a collectively bargained plan maintained by more than one employer and has a joint board of trustees representing employees and employers. Each participating employer’s relationship with the plan, and the employee’s participation in the plan, differs from the typical single-employer-sponsored arrangement. For example, service at participating employers generally is aggregated to determine an employee’s eligibility to participate in the multiemployer plan, even though the participating employers generally are not related.

Transition guidance

This transition guidance applies to an applicable large employer that is required by a collective bargaining agreement to make contributions (with respect to some or all of its employees) to a multiemployer plan that:

  • Offers, to individuals who satisfy the plan’s eligibility conditions, coverage that is affordable and provides minimum value; and
  • Offers coverage to those individuals’ dependents.

Under this transition rule, with respect to employees for whom the employer is required to make contributions to the multiemployer plan, the applicable large employer will not be treated as failing to offer the opportunity to enroll in minimum essential coverage to full-time employees (and their dependents) and will not be subject to a pay or play penalty.

In addition, to determine whether coverage under the multiemployer plan is affordable, employers participating in the plan may use any of the affordability safe harbors described in the final regulations (that is, the Form W-2, rate of pay or federal poverty line safe harbor). Coverage under a multiemployer plan will also be considered affordable with respect to a full-time employee if the employee’s required contribution, if any, toward self-only health coverage under the plan does not exceed 9.5 percent of the wages reported to the multiemployer plan. The amount of the wages may be determined based on actual wages or an hourly wage rate under the applicable collective bargaining agreement.

If a pay or play penalty is assessed, it would be payable by a participating applicable large employer and that employer would be responsible for identifying its full-time employees for this purpose (which would be based on hours of service for that employer). If the applicable large employer contributes to one or more multiemployer plans and also maintains a single employer plan, the transition guidance applies to each multiemployer plan but not to the single employer plan.

Employers may rely on this transition guidance until it is modified by the IRS. The final regulations provide that any future guidance that limits the scope of the transition guidance will be applied prospectively and will apply no earlier than Jan. 1 of the calendar year beginning at least six months after the date of issuance of the new guidance.

Source: Internal Revenue Service

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