THE AFFORDABLE CARE ACT:

DECISIONS THAT NEED TO BE MADE

NOW

April 2014

Introduction

What we will cover today:

Employer mandate and penalties – latest

guidance

Transition rules for 2015

Delayed effective date for certain employers

Temporary reduction in coverage requirement

Determining full-time employees

Eligibility and waiting periods

Categories of employees

Next steps

A look ahead

Speakers

Mark Boxer Partner

Employee Benefits and

Executive Compensation

DLA Piper

Anne Pachciarek Partner

Employee Benefits and

Executive

Compensation

DLA Piper

2 75034720.1

Employer mandate

Employer mandate – tax penalty for “large employers” that don’t offer minimum essential coverage

to full-time employees (and their dependents) – applies to employers with more than 99 employees

in 2015

Employers with 50-99 employees have until 2016 to comply – conditions for relief

A large employer is subject to penalty if

at least one full-time employee receives

a subsidy for exchange coverage and:

The employer fails to

offer coverage to

“substantially all” full-

time employees (and their

dependents) (the “no

coverage penalty”); or

Coverage is unaffordable

(employee contribution

must be less than 9.5% of

income) or does not

provide minimum value

(the “inadequate

coverage penalty”)

3 75034720.1

No coverage penalty

A large employer is subject to a penalty if at least one full-time

employee receives a subsidy for exchange coverage and the

employer fails to offer coverage to “substantially all” full-time

employees (and their dependents)

Effective dates

Substantial compliance

Dependent coverage

4 75034720.1

Inadequate coverage penalty

A large employer is subject to a penalty if at least one full-

time employee receives a subsidy for exchange coverage

and coverage is unaffordable or does not provide minimum

value

5 75034720.1

Employer penalties

Penalty amounts

No coverage penalty: $2,000 per year,

per full-time employee in excess of 30

full-time employees (80 in 2015)

Inadequate coverage penalty: $3,000 per

year, per full-time employee for whom

coverage is unaffordable or does not

provide minimum value and who receives

a subsidy to purchase coverage through

an exchange

Penalty amounts are indexed: $2,000

penalty is estimated to be $2,120 in 2015

and $3,000 penalty is estimated to be

$3,180 in 2015

6 75034720.1

Fiscal year plans

Calendar year plans – employer mandate is effective 1/1/15

If employer has 100 or more full-time employees

Non-calendar year plans (relief from 1/1/15 to beginning of the

plan year)

Standard transition relief: beginning of the plan year within 2015 if:

Non-calendar year plan was maintained prior to 12/27/2012

Plan year not modified after 12/27/12 to begin at a calendar date

Applies to all employees who would be eligible for coverage under the

terms of the plan in effect on 2/9/2014

Plan offers affordable care that provides minimum value as of first day

of the 2015 plan year

7 75034720.1

Fiscal year plans

Example

Employer Z has 600 employees, all of whom are full-time employees (average 30 or more hours

a week)

Employer Z maintained a plan with an April 1 plan year as of December 27, 2012 (Plan P).

Plan P’s year was not modified after December 27, 2012, and all of Employer Z’s employees are

eligible for coverage under Plan P under the eligibility terms as in effect on February 9, 2014.

Coverage offered prior to the 2015 plan year is not affordable.

As of April 1, 2015, Plan P’s coverage is both affordable and provides minimum value.

Conclusion

No section 4980H assessable payment will be due with respect to any employee of Employer Z

for the period before April 1, 2015.

The same transition relief would apply to those 600 employees even if Employer Z also had a

calendar year plan (Plan Q) and had a total of 1,000 full-time employees, 600 of whom were

described above (and were not eligible for coverage under Plan Q) and 400 of whom were

eligible for coverage under Plan Q as of January 1, 2015.

8 75034720.1

Fiscal year plans

Additional transition guidance

Significant percentage transition guidance (all employees) relief:

beginning of the plan year within 2015 if:

Plan maintained prior to 12/27/12

Plan year was not modified after 12/27/12 to begin at a later calendar

date and that either had:

(1) as of any date in the 12 months ending on 2/9/14, at least ¼ of its

employees covered under the non-calendar year plan(s), or

(2) offered coverage under the plan(s) to 1/3 or more of its employees during

the open enrollment period that ended most recently before 2/1/14

9 75034720.1

Fiscal year plans

Additional transition guidance

Significant percentage transition guidance (full-time employees)

relief: beginning of the plan year within 2015 if:

Plan maintained prior to 12/27/12

Plan year was not modified after 12/27/12 to begin at a later calendar

date and that either had:

(1) as of any date in the 12 months ending on 2/9/14, at least 1/3 of its full-

time employees covered under the non-calendar year plan(s), or

(2) offered coverage under the plan(s) to 1/2 or more of its full-time

employees during the open enrollment period that ended most recently

before 2/1/14

10 75034720.1

Employers subject to the mandate

Businesses subject to the mandate

How to calculate whether you have 50

(or 100, for 2015) full-time equivalent

employees

Controlled group rules

Total number of Full-Time

Employees + Total Hours Worked By

Part-time Employees

120

= Total Number of Full-time

Equivalent Employees

11 75034720.1

Determining full-time employees

Who must be offered coverage – determining full-time

employees

Penalty amount turns on who is considered a full-time

employee

How to make the calculation of full-time employee

Hours of service rules

12 75034720.1

Hours of service

Hours of service

Generally based on the term “hours of service” used for qualified

retirement plans

Each hour for which an employee is paid, or entitled to payment,

for:

Performance of duties for the employer

Period of time during which no duties are performed due to vacation,

holiday, illness, incapacity (other than disability), layoff, jury duty,

military duty or leave of absence.

Rules of counting special unpaid leave of absence (FMLA, USERRA, jury

duty) – either ignore periods of unpaid leave; or crediting hours of service

for the periods of special unpaid leave (periods of less than a week – use

any reasonable method of counting).

13 75034720.1

Methods of counting hours

Methods of counting hours

Employees paid on an hourly basis – actual hours

Employees paid on a non-hourly basis – actual hours or

equivalency method

One day = 8 hours

One week = 40 hours

One month = 130 hours

Method can be changed once per year

Can use different methods for different categories of employees

No use of equivalencies if use would result in substantial

understatement of hours

14 75034720.1

Special rules for counting hours

Exclusions from definition of hour of service

Volunteer employees – hours worked by volunteers who do not receive

compensation in exchange for the performance of services.

Student employees – hours of service performed by students in positions

subsidized thru federal work study programs or substantially similar state or political

subdivision program

Special situations

Members of religious orders – no special rule

Adjunct faculty, commissioned salespeople and airline employees and categories

of hours (layovers and on-call) – use of reasonable methods of crediting hours

Example: Adjunct teachers – 2 ¼ hours of credit for each hour of classroom

time

Impact of summer vacation etc. (educational organizations) – ignore breaks or

credit hours of service during the break

15 75034720.1

More special rules

Special situations (continued)

Layover hours for airline employees and others

Use of reasonable methods of crediting hours

Layovers – count hours if employee is getting paid for layover or if

layover hours are counted toward required hours to be paid regular

compensation

8 hours for each day an employee is required to stay away from home

is deemed reasonable by the IRS unless that amount would understate

the employee’s actual hours

On-call hours

Not reasonable not to count on-call hours that (i) are paid; (ii) where employee

must remain on employer’s premises; or (iii) where the employees are

restricted from using their time for their own purposes

16 75034720.1

Full-time employees

Determining full-time status – two

different methods – monthly

measurement period or optional safe

harbors

Look-back measurement period

Administrative period

Stability period

17 75034720.1

Tracking eligibility alternative measurement

methods

New employee – non-variable

Employee who is reasonably expected to work full time (average

annually 30 or more hours per week) as of date of hire.

No more than a 90 day waiting period

Recommend 1st of the month after 60 days

Full-time status reassessed at the end of the first standard

measurement period

Variable hourly employee

Employee in which ER has not been able to determine in good

faith whether employee will average 30 or more hours a week per

year

18 75034720.1

Eligibility – alternative measurement period methods

Monthly measurement method

Alternative to the look-back measurement period

Identifies full-time employees based on hours of service for each calendar month

For any given month an employee is or is not full-time and entitled to coverage

Employee can be offered coverage the first day of the fourth calendar month after becomes eligible for coverage (must still comply with 90 day waiting period rule).

Can only be used once per period of employment

Default method if employer does not choose the look-back method

Difficulties

Workforce with fluctuating hours

Fully insured plans

Can result in gaps of coverage – employer may be subject to penalties

Special rule if go from full-time to part-time

Look-back measurement method – A fixed period of 3 months to 12 consecutive months – new variable/seasonal employees

Employer can elect different look-back measurement period for different categories of employees

Employer may use payroll periods as a measurement tool

Employees hours of service are calculated within the measurement period

19 75034720.1

Eligibility – alternative measurement

period methods

Standard measurement period– A fixed period of 3 months to 12 consecutive months – ongoing employees

Employer can choose the beginning and duration of the period

Standard measurement period must be the same for same category of employees (e.g., hourly, salaried)

Employer may use payroll periods as a measurement tool

Employees hours of service are calculated within the measurement period

Administrative period – no more than 90 days.

Period between the look-back/standard measurement period and coverage date.

Administrative period can not extend the look-back/standard measurement period beyond 12 months or shorten stability period

Administrative period may not cause lapse in coverage – overlap previous stability periods

Look-back period and administrative period can be in the aggregate 13 months (e.g., measurement period April 1, 2015 – March 31, 2016; administrative period April 1 – April 30)

20 75034720.1

Eligibility – alternative measurement

period methods

Stability period – period during which employee is eligible for

coverage (credited with service of 30 hours or more) & follows

the look-back/standard measurement period and any

administrative period

Length of stability period is equal to or greater than the look-back

/standard measurement period but no shorter than 6 months

If employee does not satisfy the full-time 30 hour requirement the

stability period may not exceed the standard measurement period

Administrative period overlaps with the stability period after first

year in which employee is deemed full-time.

Reduction of work schedule during the stability period does not

effect full-time status

21 75034720.1

Eligibility – alternative measurement

period methods

Administrative period – no more than 90 days.

Period between standard measurement period and coverage date.

Administrative period can not extend standard measurement

period beyond 12 months or shorten stability period

Administrative period may not cause lapse in coverage – overlap

previous stability periods

Look-back period and administrative period can be in the

aggregate 13 months (e.g., SMP April 1, 2015 – March 31, 2016;

administrative period April 1 – April 30)

22 75034720.1

23 75034720.1

24 75034720.1

25 75034720.1

Special considerations

Seasonal employees

Employees whose customary annual employment is 6 months or

less and the period of employment should begin each year in the

same part of the year (e.g., summer, winter)

The normal period of employment can be extended and still be

considered a seasonal employee (e.g., ski instructor who is asked

to stay longer due to extended ski season)

If a seasonal employee is transferred into a permanent position

and if such employee would have been a full-time employee if

originally hired into the new position then employer has until the

earlier of the 4th month following the change in employment status

or if earlier the first month following the end of the initial

measurement period to treat the employee as full-time.

26 75034720.1

Special considerations

New variable/seasonal employees – start date of initial measurement period

Employer may elect start date to be hire date or any other date up to and including the first day of the month following the employee’s start date

Change in employment status – see third bullet under seasonal employees

Rehires and break in service rules

Employer may designate an employee who has a break in service of 13 weeks (not credited with any hours of service) as a new employees (educational organizations- 13 weeks is extended to 26 weeks)

An employer is allowed to institute a rule of parity – employee is rehired after at least 4 weeks during which no hours of service were credited and the period exceeded the period of employment prior to the break

27 75034720.1

Special considerations

Break-in-service rules for continuing employees

FMLA, USERRA & jury duty

Absence due to any of the above during standard measurement period

average weekly hours are calculated by either

Subtracting the period of the special leave (not to exceed 13 weeks)

Crediting hours of service for the unpaid leave period

Employment break rules – educational organizations

Summer vacations and similar breaks – same rule as above (not to

exceed 26 weeks)

28 75034720.1

Steps for employers

Figure out whether business is subject to mandate and penalties – remember

controlled group rules

Determine full-time employees – two methods

Review health insurance offerings and whether employer will incur a penalty –

consider substantial compliance rule, dependents and spouses, affordability,

minimum value

Determine the amount of the penalty versus cost of coverage, and decide

whether to pay or play – think about offering bronze coverage

Make sure to comply with market reforms, reporting requirements and other

obligations

Keep good employment and enrollment records

Coordinate compliance with others in organization

29 75034720.1

PRESENTERS

Anne M. Pachciarek helps companies establish and operate their

employee benefit plans, such as medical plans, 401(k) plans, pension

plans and executive compensation programs. She has more than 20

years of experience on all aspects of employee benefit matters, having

worked as an employee benefits attorney for her entire career. She works

with public companies and closely held businesses to find solutions to a

wide range of ERISA compliance, fiduciary responsibility and plan

administration problems. She also advises on welfare plans, pension and

profit-sharing plans, cafeteria plans and deferred compensation programs,

as well as on the handling of benefit plans in mergers and acquisitions.

Anne Pachciarek

Partner, Employee Benefits and

Executive Compensation

Chicago

T: +1 312 368 3488

EDUCATION

J.D., Northwestern University

School of Law 1982

B.A., University of Illinois at

Urbana-Champaign 1979

This communication may be considered attorney advertising under the rules of some states. The information and materials contained herein have

been provided as a service by the law firm of DLA Piper LLP; however, the information and materials do not, and are not intended to, constitute legal

advice. Neither transmission nor receipt of such information and materials will create an attorney-client relationship between the sender and

receiver. The hiring of an attorney is an important decision that should not be based solely upon advertisements or solicitations. Users are advised

not to take, or refrain from taking, any action based upon the information and materials contained herein without consulting legal counsel engaged

for a particular matter. Furthermore, prior results do not guarantee a similar outcome.

Mark Boxer

Partner, Employee Benefits and Executive

Compensation

San Francisco

T: +1 415 836 2535

EDUCATION

LL.M., New York University School of Law 1989

J.D., University of San Francisco School of Law

1988

M.B.A., University of Wisconsin 1976

B.S., Drake University 1975

Mark Boxer has been an employee benefits lawyer for his entire career

from 1989 to the present. He advises employers on all aspects of employee

benefit matters including health and welfare and retirement plans and has

12 years of experience in health care administration.

Mr. Boxer designs and drafts qualified retirement plans and welfare plans

and advises clients on their fiduciary duties under Title I of ERISA and on

the design and funding of executive deferred compensation arrangements.

30 75034720.1