Category: News

Employer Mandate Provisions Implemented but Need Improvement, TIGTA Finds

April 21, 2017

A newly released Treasury Inspector General for Tax Administration (TIGTA) report found that, although the IRS has implemented processes and procedures in an effort to ensure that employers subject to the Employer Shared Responsibility Provision of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) could comply with information reporting requirements. However, some of the processes did not function as intended, which resulted in the IRS not having accurate and complete data for use in its compliance strategy to identify noncompliant employers potentially subject to the Employer Shared Responsibility Payment. TIGTA also found that, due to system errors, the Service was unable to process paper information returns timely and accurately (TIGTA Report, No. 2017-43-027, April 7, 2017).

As of October 28, 2016, the IRS had processed 439,201 Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and nearly 110-million Forms 1095-C, Employer-Provided Health Insurance Offer and Coverage. Also as of that date, nearly five months after the May 31 filing deadline, the IRS estimated that approximately 16,000 paper Forms 1094-C and 1.4-million paper Forms 1095-C had not been processed.

The criteria used to identify validation errors in the submissions did not always work as intended, according to the report, which cited examples of erroneously generated error codes when no error condition existed, and error codes not being generated when an error condition did exist. As of August 25, 2016, the IRS reported 16 of the 141 total error codes for Forms 1094-C and 1095-C on the known issues report. Several of the error codes did not function as intended because the IRS did not sufficiently test its error code programming.

The report also noted that the development and implementation of key systems needed to identify noncompliant employers subject to an Employer Shared Responsibility Payment have been delayed, not initiated or cancelled. The IRS’s implementation of the post-filing compliance validation system was initially scheduled for January 2017; however, it has been delayed to May 2017.

TIGTA made seven recommendations to the commissioner, IRS Small Business/Self-Employed Division, to improve the processing of Forms 1094-C and 1095-C, which included ensuring that paper Forms 1094-C and 1095-C are timely transferred to the ACA Information Returns system for Processing Year 2017. IRS officials agreed with six of the seven recommendations but did not agree that it should establish a time frame for employers to correct errors identified on Forms 1094-C and 1095-C. The Service may reevaluate the need for additional written guidance in the future.

Who is “full-time” and eligible to participate in your benefit plan?

With all of the recent changes ensuing from the ACA, it is important not to overlook some very basic and long-standing aspects of plan compliance, design, drafting and management. Primarily those embedded in significant part in a ruling legislated 40 years ago, the Employee Retirement Income Security Act known as “ERISA.”

An ERISA requirement that if left unaddressed can have significant penalties under the ACA – defining who is eligible to participate in an employee benefit plan. Of course defining who is eligible is not specific to group health plans, and is critically important for all employee benefit plans, including retirement plans, although, here, we are focusing on group health plans.

Plan documents that plan sponsors receive from their insurance carriers and third party administrators often do not drill down on which employees are eligible to participate. Adding to the long-standing prerequisite under ERISA to describe the rules for eligibility in plan documents furnished to employees, the employer shared responsibility penalties under Internal Revenue Code § 4980H and related regulations, make it important to confirm that eligibility provisions are carefully drafted. For many plan sponsors, a “wrap-document” may be a useful tool for addressing this and other provisions concerning the plan.

ERISA requires plan sponsors to furnish summary plan descriptions (“SPDs”) to plan participants and beneficiaries. DOL regulations provide a laundry list of content requirements for SPDs. Many continue to rely on the belief the insurance certificate they receive from their insurance carriers (or plan description in the case of a self-funded plan) are compliant “SPDs.” In most cases, they are not.

It is not unusual to find that no added requirements on eligibility were established by the plan sponsor to account for the clear IRS rules on “full-time” for eligibility; if established they might be found in an employee handbook which is not an SPD or a plan document.

Under the ACA, an applicable large employer (“ALE”), generally one with 50 or more full time equivalent employees, could incur weighty penalties if it fails to offer minimum essential coverage to its “full-time employees”. IRS regulations provide extensive guidance concerning how to determine which employees are “full-time” employees for purposes of the employee shared responsibility penalties. In general, a full-time employee is one that on average works 30 or more hours per week. For those plan sponsors seeking to avoid the shared responsibility penalties they must be offering the right kind of coverage to the right kind of “full-time” employees.

Offering coverage to all employees working 30 or more hours per week may result in the plan sponsor avoiding penalties, but it also could result in the company offering coverage to more employees than necessary to avoid the penalties, or not enough, depending on how the language is applied. For plan sponsors that have a significant part of their workforce on variable hour schedules, it can be a challenge to determine when employees are “regularly working” the minimum number of hours required for eligibility. This challenge is heightened when employees take leaves of absence, change positions or make other changes in their employment.

In addition to concerns about ACA penalties, employers should also consider that employees may be more likely to closely scrutinize plan documents for eligibility as they seek to avoid penalties of their own under the ACA individual mandate. A variable hour employee may feel she has been “regularly working” 30 hours per week after working 30 hours per week for two or three months, even though her employer is using a twelve-month initial measurement period permitted under IRS regulations to determine her full-time status. Under the terms of a plan stating the eligibility requirement as “regularly working 30 or more hours per week,” she might have a claim under ERISA, regardless of the ACA penalty issues.

The IRS regulations referenced above provide safe harbors to determine when employees are “full-time” employees for purposes of the penalty. Under one method, employers can “look back” over a period of months (as few as 3 but not more than 12) to determine if an employee worked on average more than 30 hours per week, and for an employee that does, treat that employee as a full-time employee during a future period, the “stability period,” even if the employee’s hours worked in some weeks during that future period go below 30. Many plan sponsors are following those rules to determine who is eligible under their plans, believing that if they then offer the appropriate level of affordable coverage to those employees, they will avoid the penalties. However, their plan documents and SPDs may not describe these rules; that is, the rules to comply with the IRS safe harbors.

Simply incorporating the IRS regulations into the SPD by reference may not be a practical approach, and may not comply with ERISA and the DOL regulations.

However, plan sponsors will want to consider what additional language they need in their plan documents, particularly their SPDs, to appropriately reflect how eligibility is determined for purposes of ACA and to meet the DOL’s content requirements for SPDs.

So, as plan sponsors scramble to comply with the ACA employer shared responsibility mandate, they need to remember their ERISA basics and ask themselves, “What does my plan document say?

If you find your health and welfare plan is missing any critical pieces contact us at or Shelene Brookshear directly to discuss the details of your Plan at