January 28, 2014
- House Committee Discusses 30-Hour Full-Time Employee Rule
- Senate GOP Introduces PPACA Alternative
- IRS Issues Guidance Clarifying PPACA Individual Mandate
- PBGC Proposes Regulations for Valuation of Multiemployer Pension Plans
House Committee Discusses 30-Hour Full-Time Employee Rule
Republican members of the U.S. House of Representatives Ways and Means Committee closely scrutinized the definition of “full-time employee,” as instituted by the Patient Protection and Affordable Care Act (PPACA), in a January 28 hearing.
The PPACA "shared responsibility" employer mandate, which will now take effect in 2015, requires employers with 50 or more full-time (or equivalent) employees to offer health coverage that satisfies affordability and minimum value requirements to their full-time employees or pay a penalty if even one full-time employee receives a premium tax credit for health coverage obtained through a health insurance exchange. Under PPACA and Internal Revenue Service Notice 2012-58, "full-time employee" is defined as one who works, on average, at least 30 hours per week.
In 2013, committee member Todd C. Young (R-IN) introduced the Save American Workers Act (H.R. 2575), which would replace the number 30 (hours per week) with the number 40 (hours per week) for purposes of identifying full-time employees, and modify the calculation of full-time equivalent workers by requiring employers to divide the aggregate number of hours of service of employees who are not full-time employees by 174 rather than 120. An effectively identical bipartisan measure has been introduced in the Senate as the Forty Hours is Full Time Act (S. 1188).
In his opening statement, Committee Chairman Dave Camp (R-MI) criticized PPACA generally and related stories of how the “30-hour rule” has harmed businesses and individuals. “The best thing we could do is repeal the entire law. But that cannot and should not deter us from looking at specific pieces of the law, which is what we’ll do today.”
The committee heard testimony from the following witnesses:
- Lanhee J. Chen, research fellow at Stanford University’s Hoover Institution, said that PPACA “creates enormous disincentives for businesses to grow and hire new workers,” and argued that the 30-hour rule adversely effects vulnerable populations – women, the young, the aged and the poor – that can least afford to be hurt.
- Peter Anastos, owner and co-founder of Maine Course Hospitality Group, talked about how the 30-hour rule – in conjunction with the individual mandate – will increase his health care costs and put his business at a competitive disadvantage with smaller companies that are not required to offer coverage. He expressed support for legislation to raise the definition of full-time to 40 hours.
- Neil Trautwein, vice president and employee benefits counsel at the National Retail Federation, described how the 30-hour rule has created specific challenges and complexity for the retail industry. He urged substantial changes to the PPACA employer mandate and endorsed H.R. 2575.
- Thomas J. Snyder, president of Ivy Tech Community College, described the 30-year rule as an “unfunded mandate” that could impose new costs of $10 to $12 million per year for his institution. He suggested that his college, by limiting adjunct faculty to fewer than 30 hours per week, will have difficulty maintaining a curriculum and qualified teaching staff for its students.
- Helen Levy, research associate professor at the University of Michigan’s Institute for Social Research, suggested that moving the full-time definition to 40 hours would put many more uninsured workers at risk of having hours cut. She described case studies of Massachusetts and Hawaii showing that similar employer mandates have yielded positive results.
During the question-and-answer period, Democrats and Republicans generally traded talking points for and against PPACA, with Democrats arguing that the 30-year rule is necessary to ensure expanded coverage and Republicans characterizing the law as hurting businesses and economic growth.
Most notably, from a “total rewards” benefits perspective, Representative Dave Reichert (R-WA) noted that the loss of hours and wages attributable to the 30-hour rule could adversely affect individuals’ ability to contribute to a 401(k) plan and otherwise save for retirement.
The hearing dialogue did not substantively address other elements of the employer mandate, including the temporary delay provided by the Obama Administration last year or the requirements (under tax code Sections 4980H, 6055 and 6056) currently being finalized by regulatory agencies.
Senate GOP Introduces PPACA Alternative
Senior Republicans in the U.S. Senate unveiled a new legislative alternative to the Patient Protection and Affordable Care Act (PPACA) on January 27, the latest effort to “repeal and replace” the health care law.
The Patient Choice, Affordability, Responsibility, and Empowerment (CARE) Act has not yet been prepared as legislative language, but the senators have issued a detailed summary, a side-by-side comparison between the proposal and PPACA, Frequently Asked Questions about the proposal and illustrative examples of how the proposal would work.
Most notably, the plan would cap the employer health insurance exclusion – under which the value of employer-provided insurance is excluded from income tax – at 65 percent of an average plan’s cost. (Details of how this would be measured is still to be determined.) A repeal and replace measure introduced by Republicans in the House of Representatives, the American Health Care Reform Act (H.R. 3121), would also limit the tax excludability of coverage for workers covered by an employer-sponsored plan.
The Senate proposal would eliminate both the employer and employee mandates and restore more power to the states to govern the individual market, while implementing a number of cost-containment measures such as medical malpractice reform. (The proposal would retain PPACA’s adult child coverage provision.)
Like prior attempts to replace PPACA, the Patient CARE Act is unlikely to advance beyond the House, and is intended to be more of a “message” bill. However, the tax policy embraced by this measure could ultimately be considered as part of a comprehensive tax reform measure.
IRS Issues Guidance Clarifying PPACA Individual Mandate
In proposed regulations and Notice 2014-10, issued on January 23, the Internal Revenue Service (IRS) clarified certain aspects of the individual shared responsibility requirement (or “individual mandate”) of the Patient Protection and Affordable Care Act (PPACA), as well as the treatment of health reimbursement accounts (HRAs), cafeteria plans, wellness programs and limited-benefit plans for the purposes of certain exemptions from the requirement.
Under Internal Revenue Code Section 5000A, nonexempt individuals must maintain “minimum essential coverage” (MEC) for themselves and any dependents (including coverage under an "eligible employer-sponsored plan”) or make a "shared responsibility payment" on their federal income tax return. Final regulationsissued under Section 5000A in August 2013 provide implementation guidance regarding the maintenance of MEC and liability for the shared responsibility payment.
Notice 2014-10 specifically provides transition relief from the individual mandate payment for months in 2014 for individuals covered under certain limited-benefit government-sponsored programs. These include such Medicaid programs as family planning services, tuberculosis-related services, pregnancy-related services and emergency medical conditions, as well as certain demonstration projects, coverage for medically needy individuals, and space available care, or line-of-duty care that does not provide a scope of benefits comparable to the full TRICARE program for civilian employees of the U.S. Department of Defense.
The proposed regulations issued simultaneously with Notice 2014-10 provide guidance on determining the affordability of coverage under Section 5000A. The preamble to the previously issued final regulations under Section 5000A described rules to be included in subsequent regulations for determining, for purposes of the lack of affordable coverage exemption, the required contribution for individuals eligible to enroll in an eligible employer-sponsored plan that provides employer contributions to HRAs or wellness program incentives. The subsequent rules were to address these issues consistent with the rules contemplated in the preamble to the Section 5000A final regulations. Similar to the proposed regulations for the Section 36B premium tax credit, these new proposed rules provide that:
- Treatment of HRAs: An employer’s new contributions to an HRA can reduce an employee’s required contribution if the HRA is integrated with an employer-sponsored plan and the employee may use the amounts to pay premiums. Amounts in an HRA that may be used only for cost-sharing are not taken into account when determining affordability because they cannot affect the employee’s out-of-pocket cost of acquiring MEC.
- Treatment of wellness program incentives: only incentives related to tobacco use will be treated as “earned” for purposes of determining an individual’s required contribution for coverage under an employer-sponsored plan.
The proposed regulations also request comment on the treatment of employer contributions under a Section 125 cafeteria plan for purposes of the individual mandate to the extent employees may not opt to receive the employer contributions as a taxable benefit, such as cash. The proposed regulations also provide or clarify rules under Section 5000A addressing the definition of excepted benefits, hardship exemptions that may be claimed on a federal income tax return, and the computation of the monthly penalty amount. Comments on the proposed regulations are due to IRS by April 28. For more information, or to provide input for a Council comment letter, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.
PBGC Proposes Regulations for Valuation of Multiemployer Pension Plans
On January 28, the Pension Benefit Guaranty Corporation (PBGC) released proposed regulations that would ease valuation and notice requirements for small, terminated multiemployer plans. The rules are intended “to reduce burden[s] on multiemployer plans and sponsors and to facilitate potentially beneficial plan merger transactions.”
Specifically, the proposal would:
- reduce the annual actuarial valuations required for certain small terminated but not insolvent plans to once every three years,
- shorten the advance notice filing requirements from 120 days to 45 days for mergers in situations that do not involve a compliance determination, and
- eliminate the requirement to annually update the notice of insolvency.
The proposed rule would allow valuations for plans that were terminated by mass withdrawal but are not insolvent (still able to pay all benefits payable during the year) and where the value of nonforfeitable benefits is $25 million or less to be performed every three years instead of annually as required under the current regulations. A footnote in the proposal indicates the PBGC’s reasoning that once the plan terminates, administrative costs come out of plan assets since no additional contributions are being made by the former employers. Since any plans with nonforfeitable benefits in excess of $25 million must continue to file annually, the plans could move in and out of the three-year or annual valuation cycle, as applicable, as the value of nonforfeitable benefits changes. This proposal would be applicable to the first post-termination valuation after the effective date of the final rule.
Current rules require that plan sponsors of all plans involved in a merger or transfer must jointly file a notice with the PBGC 120 days before the transaction. The proposed rule would shorter the notice period to 45 days where no compliance determination is requested. According to the proposal, the purpose of the notice is to confirm that plan sponsors have met the four criteria for a statutory transaction. The proposed regulations are intended to reduce burdens since many requests to waive the notice requirement are filed so that a merger can proceed as of the end of the plan year. This proposal would be applicable to mergers planned to be consummated on or after the 45th day after the effective date of the final rule.
Terminated multiemployer plans that determine they will be insolvent for a plan year must provide a series of notices and updates, including a notice of insolvency, to the PBGC as well as to participants and beneficiaries. The proposed rule would eliminate the requirement to provide annual updates to the notice of insolvency. The PBGC now believes that eliminating the annual updates will not pose any increase in the risk of loss to the PBGC or plan participants. This portion of the proposed rule would be applicable as of the effective date of the final rule.
As we have previously reported, the multiemployer pension funding provisions of the Pension Protection Act of 2006 (PPA) are scheduled to expire after 2014 and a substantial minority of multiemployer plans are reportedly in so-called "critical" condition. According to the PBGC, which insures multiemployer and single-employer defined benefit pensions, the multiemployer insurance fund is projected to be exhausted by 2023. The legislative and regulatory treatment of multiemployer plans is significant because they face similar pressures as the single-employer plan system and, though the two systems are subject to different rules, legislation and rules focused on multiemployer plans may have provisions targeted to single-employer plans.
For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.