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Affordable Care Act Pay or Play Penalties—Helpful Look-back Measurement Examples

The Affordable Care Act (ACA) imposes a penalty on applicable large employers (ALEs) that do not offer health insurance coverage to substantially all full-time employees and dependents. Penalties may also be imposed if coverage is offered, but is unaffordable or does not provide minimum value. The ACA’s employer penalty rules are often referred to as “employer shared responsibility” or “pay or play” rules.

On Feb. 12, 2014, the IRS published final regulations on the ACA’s employer shared responsibility rules. The final regulations provide an optional safe harbor method that employers can use for determining full-time status, called the look-back measurement method. The look-back measurement method involves a measurement period for counting hours of service, a stability period when coverage may need to be provided, depending on an employee’s average hours of service during the measurement period, and an administrative period that allows time for enrollment and disenrollment.

This Legislative Brief provides examples of potential measurement, administrative and stability periods for plan years beginning in each month throughout the 2015 and 2016 calendar years. These examples assume that the employer will be using a 12-month standard measurement period, a two-month administrative period and a 12-month stability period.

It also provides examples of optional transition measurement periods in 2015, if allowed for the plan year. The final regulations allow employers to use shorter measurement periods for stability periods starting in 2015 under the look-back measurement method. For 2015, employers can determine full-time status by reference to a transition measurement period in 2014 that:
• Is shorter than 12 consecutive months, but not less than six consecutive months long; and
• Begins no later than July 1, 2014, and ends no earlier than 90 days before the first day of the first plan year beginning on or after Jan. 1, 2015.

If permitted under the employer shared responsibility rules with respect to their plan years, employers can choose to use either the standard measurement period or the transition measurement period for stability periods beginning in 2015.

PLAN YEAR SELECTION
The final rules state that the plan year must be 12 consecutive months, unless a short plan year of less than 12 consecutive months is permitted for a valid business purpose. A plan year may begin on any day of a year and must end on the preceding day in the following year (for example, a plan year that begins on Oct. 15, 2015, must end on Oct. 14, 2016).

Once established, a plan year is effective for the first plan year and for all subsequent plan years unless it is changed, provided that such change will only be recognized if made for a valid business purpose. Note that a change in the plan year is not permitted if the principal purpose of the change in plan year is to avoid the employer shared responsibility requirements.

CALENDAR-YEAR PLANS
A calendar-year plan is a health plan that has a plan year running on the calendar year. Thus, the plan year of a calendar-year plan is a period of 12 consecutive months beginning on Jan. 1 and ending on Dec. 31 of the same calendar year.

Plan Year: Jan. 1 — Dec. 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Nov. 1, 2013 — Oct. 31, 2014 May 1, 2014 — Oct. 31, 2014 Nov. 1, 2014 — Dec. 31, 2014 Jan. 1, 2015 — Dec. 31, 2015
2016 Plan Year Nov. 1, 2014 — Oct. 31, 2015 N/A Nov. 1, 2015 — Dec. 31, 2015 Jan. 1, 2016 — Dec. 31, 2016

 

NON-CALENDAR-YEAR PLANS
A non-calendar-year plan is a health plan that has a plan year that does not run on the calendar year. Thus, the plan year of a non-calendar-year plan is a period of 12 consecutive months beginning in any month after Jan. 1. As a result, the plan year of a non-calendar-year plan will run during parts of two consecutive calendar years.

Plan year: Feb. 1 — Jan. 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Dec. 1, 2013 — Nov. 30, 2014 June 1, 2014 — Nov. 30, 2014 Dec. 1, 2014 — Jan. 31, 2015 Feb. 1, 2015 — Jan. 31, 2016
2016 Plan Year Dec. 1, 2014 — Nov. 30, 2015 N/A Dec. 1, 2015 — Jan. 31, 2016 Feb. 1, 2016 — Jan. 31, 2017
Plan year: March 1 — Feb. 28 (or Feb. 29, during a leap year)
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Jan. 1, 2014 — Dec. 31, 2014 July 1, 2014 — Dec. 31, 2014 Jan. 1, 2015 — Feb. 28, 2015 March 1, 2015 — Feb. 29, 2016
2016 Plan Year Jan. 1, 2015 — Dec. 31, 2015 N/A Jan. 1, 2016 — Feb. 29, 2016 March 1, 2016 — Feb. 28, 2017
Plan year: April 1 — March 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Feb. 1, 2014 — Jan. 31, 2015 July 1, 2014 — Jan. 31, 2015 Feb. 1, 2015 — March 31, 2015 April 1, 2015 — March 31, 2016
2016 Plan Year Feb. 1, 2015 — Jan. 31, 2016 N/A Feb. 1, 2016 — March 31, 2016 April 1, 2016 — March 31, 2017
Plan year: May 1 — April 30
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year March 1, 2014 — Feb. 28, 2015 July 1, 2014 — Feb. 28, 2015 March 1, 2015 — April 30, 2015 May 1, 2015 — April 30, 2016
2016 Plan Year March 1, 2015 — Feb. 29, 2016 N/A March 1, 2016 — April 30, 2016 May 1, 2016 — April 30, 2017
Plan year: June 1 — May 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year April 1, 2014 — March 31, 2015 July 1, 2014 — March 31, 2015 April 1, 2015 — May 31, 2015 June 1, 2015 — May 31, 2016
2016 Plan Year April 1, 2015 — March 31, 2016 N/A April 1, 2016 — May 31, 2016 June 1, 2016 — May 31, 2017
Plan year: July 1 — June 30
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year May 1, 2014 — April 30, 2015 July 1, 2014 — April 30, 2015 May 1, 2015 — June 30, 2015 July 1, 2015 — June 30, 2016
2016 Plan Year May 1, 2015 — April 30, 2016 N/A May 1, 2016 — June 30, 2016 July 1, 2016 — June 30, 2017
Plan year: Aug. 1 — July 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year June 1, 2014 — May 31, 2015 July 1, 2014 — May 31, 2015 June 1, 2015 — July 31, 2015 Aug. 1, 2015 — July 31, 2016
2016 Plan Year June 1, 2015 — May 31, 2016 N/A June 1, 2016 — July 31, 2016 Aug. 1, 2016 — July 31, 2017
Plan year: Sept. 1 — Aug. 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year July 1, 2014 — June 30, 2015 N/A July 1, 2015 — Aug. 31, 2015 Sept. 1, 2015 — Aug. 31, 2016
2016 Plan Year July 1, 2015 — June 30, 2016 N/A July 1, 2016 — Aug. 31, 2016 Sept. 1, 2016 — Aug. 31, 2017
Plan year: Oct. 1 — Sept. 30
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Aug. 1, 2014 — July 31, 2015 N/A Aug. 1, 2015 — Sept. 30, 2015 Oct. 1, 2015 — Sept. 30, 2016
2016 Plan Year Aug. 1, 2015 — July 31, 2016 N/A Aug. 1, 2016 — Sept. 30, 2016 Oct. 1, 2016 — Sept. 30, 2017
Plan year: Nov. 1 — Oct. 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Sept. 1, 2014 — Aug. 31, 2015 N/A Sept. 1, 2015 — Oct. 31, 2015 Nov. 1, 2015 — Oct. 31, 2016
2016 Plan Year Sept. 1, 2015 — Aug. 31, 2016 N/A Sept. 1, 2016 — Oct. 31, 2016 Nov. 1, 2016 — Oct. 31, 2017
Plan year: Dec. 1 — Nov. 30
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Oct. 1, 2014 — Sept. 30, 2015 N/A Oct. 1, 2015 — Nov. 30, 2015 Dec. 1, 2015 — Nov. 30, 2016
2016 Plan Year Oct. 1, 2015 — Sept. 30, 2016 N/A Oct. 1, 2016 — Nov. 30, 2016 Dec. 1, 2016 — Nov. 30, 2017

MORE INFORMATION
Please contact CIBC of Illinois, Inc. for more information on the employer shared responsibility rules.

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Affordable Anxiety and Controlled Groups: You Can Run, but You Can’t Hide

Part 3: Affiliated Service Groups

By William Johnson- President and CEO

CIBC of Illinois, Inc.

www.cibcinc.com

In the previous two parts of the Controlled Group series we looked at a few different types of groups that the IRS deems Controlled Groups, or groups where two or more employers must be grouped together and treated as a single employer for certain purposes. Today, we will look at the final types of controlled groups, Affiliated Service Groups.

What is an Affiliated Service Group?

Affiliated Service Group rules are directed at professionals (for example, doctors, attorney and accountants) and other service organizations that that use separate service companies or management companies.

An Affiliated Service Group is a group of two or more organizations that have a service relationship and sometimes an ownership relationship. These relationships include; A-Organization groups, which consist of a First Service Organization (FSO) and at least one A-Organization, B-Organization groups, which consist of an FSO and at least one B-Organization, and Management groups.

An organization is defined as a sole proprietorship, partnership, corporation or any other type of entity regardless of its ownership format. Let’s look at the different types of organizations and their classification criterion.

Service Organization

An organization engaged in any one or more of the following fields is considered a service organization: accounting; actuarial science; insurance; architecture; health; law; performing arts; consulting; and engineering.

A professional services corporation is a corporation organized to provide professional services and has a least one shareholder who is licensed to perform the services for which the corporation is organized.

A-Organization Groups

An A-Organization group consists of an FSO and at least one A-Organization. A service organization is an A-Organization if it is a partner or shareholder in the FSO, and itt consistently performs services for the FSO or is regularly associated with the FSO in performing services for third parties. The working relationship test involves reviewing the facts and circumstances of each relationship.

Example – Blue Partnership is a law partnership. Yella Corporation is a partner in the law firm. Blue provides paralegal and administrative services for the attorneys in the law firm.

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Yella is an A-Organization because is it a partner in the FSO and it is regularly associated with the law firm in performing services for third parties. Thus, Blue Partnership and Yella Corporation are an affiliated service group. 

B-Organization Groups

Another classification is a B-Organization. An organization qualifies as a B-Organization if a significant part of business is the performance of services for the FSO, for one or more A-Organizations or for both, the services are historically performed by employees in the service field of the FSO or the A-Organizations, and those who are highly compensated employees of the FSO or the A-Organizations that in total hold 10 percent or more of the interests in the organization.

It is very important to note that a B-Organization does not need to be a service organization.

A facts and circumstances analysis applies when determining whether providing services constitutes a substantial portion of the business of an organization. There are two tests that are used to verify the facts and circumstances. These are a service receipts safe harbor test and a total receipts threshold test.

Example – Green Partnership is an accounting firm with 13 partners that are deemed highly compensated employees under IRS Code 414(q). Each partner owns 1 percent of the stock of Stella Blue Corporation. Stella Blue provides services to Green of a type historically performed by employees in the accounting field. A significant portion of Stella Blue’s business consists of providing services to ABC.

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Green is an FSO. Stella Blue is a B-Organization because a significant portion of its business involves performing services for the accounting firm of a type historically performed by employees in the accounting field. Also, more than 10 percent of the interests in Green are held by highly compensated employees of the FSO. Thus, Green Partnership and Stella Blue Corporation are an affiliated service group. 

Remember, the aggregation rules of Code section 318 apply. An individual is considered to own stock owned by his spouse, children, grandchildren and parents. Also, Code section 318 contains attribution rules for business relationships.

Management Groups

The final type of Affiliated Service group we will examine is the management-type affiliated service group. They exist if an organization performs management functions, and the management organization’s principal business is performing management functions on a regular and continuing basis for a recipient organization.

It is crucial to note that there does not need to be any common ownership between the management organization and the organization for which it provides services.

A recipient organization is an organization for which management services are performed, any organizations aggregated under the controlled group or affiliated service group rules,andrelated organizations (described under IRS Code section 144(a)(3)).

There are tests that can be used to determine a management organization’s principal business on a regular and continuing basis: tax-year rolling percentage test; percentage of gross receipts test; and facts and circumstances test.

Example: Sam and Dave Corporations are part of a controlled group. Shoe Corporation performs management functions for Sam Corporation on a consistent basis, and this is Shoe Corporation’s principal business. Sam and Dave Corporations are treated as the service recipient. In this scenario, Sam, Dave and Shoe Corporations are an affiliated service group.

We hope this series has helped spur some thought on how the ACA (via the IRS) will assess your business and the compliance issues associated with how it is set up. We are not lawyers, and we always recommend consulting legal professionals for specific answers to your situation. We do know that these laws are having a great impact on how people are, and will be structuring their organizations going forward.

This article is intended for informational purposes only and should not be construed as legal advice. Please consult with a legal professional for legal opinions.

 To get more information on CIBC of Illinois, visit us at www.CIBCINC.Com or call toll free 877-936-3580.

Pay or Play for Educational Institutions: There WILL Be a Test!

By Andrew Wheeler

Director of eCommerce

 www.CIBCinc.com

When I was growing up, I remember many of my teachers saying that there was five hours of prep time for every hour spent in the classroom teaching. At the time, I couldn’t have cared less, especially when adjunct professors would try and use this equation to motivate us to prepare for class more effectively. It was a calculation that I made in my head; me plus preparation equaled no 25 cent drafts at the Village Green. Hence my 20 year gap between when I started college and when I finished my Masters.

Now, I have many clients in the world of education. That old axiom, especially since the Affordable Care Act became law, rings loud and clear. Educational organizations have a distinct and separate set of hoops to jump through, and only careful preparation and calculation will help administrators negotiate around the pitfalls.  The same shared responsibility mandate apples for these institutions, whether they are self or fully insured. The difference lies in how they quantify and qualify full time employees.

Every Hour Counts

 

First, let’s look at how to calculate the hours of employees of educational institutions with relation to their full time or part time status. Remember, all employees over 30 hours per week, or 130 hours per month are considered full time.OfficeProfessor

Until final guidance is issued, employers must use a reasonable method for crediting hours of service. The IRS says that a method of crediting hours would not be reasonable if it took into account only classroom or other instruction time and not other hours that are necessary to perform the employee’s duties, such as class preparation time.  Clear as mud, right?  Basically, office hours count toward full time status, as do any other prep time.

Looking Forward Back

There is also something called a look-back period that will be used for this industry segment, as well as other segments. For ongoing employees, an employer looks at each employee’s full-time status by looking back at a measurement period lasting between 3 to 12 consecutive calendar months, as chosen by the employer, to decide whether the employee averaged at least 30 hours of service per week during this time.  If the employee was employed for at least 30 hours of service per week during the measurement period, he or she is considered a full-time employee for a set period into the future, known as the stability period. The stability period must be at least six calendar months and no shorter in duration than the measurement period.

Employers may need some time between the measurement and stability periods to figure out which employees are eligible for coverage….and also to notify and enroll employees. Hence, employers may use a 90 day administrative period between the measurement and stability periods.

An employer will not be subject to a tax /penalty for not offering coverage to new full-time employees during the first three calendar months of employment, so probationary periods for new employees still are legal under ACA. If the employer uses a look-back period for its ongoing employees, the employer may also use a similar method for new variable hour or seasonal employees.

Leaves and Breaks

When looking at breaks in the academic year that are paid leave periods, the employer must credit employees with hours of service. The proposed regulations include special averaging methodologies for employment break periods of employees of educational organizations. The proposed regulations state that an employment break period is a period of at least four consecutive weeks during which an employee is not credited with an hour of service. Special unpaid leave, which does not apply in this scenario, includes leave under the Family and Medical Leave Act (FMLA), the Uniformed Services Employment and Reemployment Rights Act (USERRA) and jury duty. 

The proposed regulations assess that the educational organization must apply one of the following methods to employment break periods related to or arising out of non-working weeks or months under the academic calendar. An educational organization either:

  • Treats employees as credited with hours of service for the employment break period at a rate equal  to the average weekly rate at which the  employee was credited with hours of service during the  weeks in the measurement period that are not part of an  employment break period; or,
  • Averages hours of service per week for the employee during the measurement period excluding the  employment break period and uses that average as the average for the entire measurement period.

We have found this is difficult for institutions of higher learning to manage. They have a stable of adjunct professors that will surely see credit-hour class assignments reduced in order to mitigate the financial exposure to ACA. Considering the nature of most labor agreements, it becomes problematic for institutions to be able to afford the increase in benefits allocation. When push comes to shove, it seems that the educator is getting shoved into a more limited class schedule. Again, this is a generalization…but it is not an uncommon scenario. We look at each scenario on its own merit, we do our homework, and then we present our findings. We know that there will be a test, and educational intuitions don’t have the resources to fail. That’s where we come in.

 To get more information on CIBC of Illinois, visit us at www.CIBCINC.Com or call toll free 877-936-3580.

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