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Employer Mandate, Waiting Period, and Auto-Enrollment Issues – Part I

March 14, 2012

The IRS, DoL and HHS recently issued guidance (IRS Notice 2012-17; DOL Technical Release 2012-1) in the form of Frequently Asked Questions (FAQs) on various issues related to the PPACA employer mandate, waiting period limitation and auto-enrollment requirement. Below we discuss several questions we have received on these PPACA provisions.

When will employers be required to implement the PPACA auto-enrollment requirements?

PPACA added section 18A to the Fair Labor Standards Act (FLSA), which requires employers with 200 or more full-time employees to automatically enroll new full-time employees in one of the employer's health plans and to continue the enrollment of current employees. Previous agency FAQ guidance issued in 2010 had stated that employers would not be required to comply with the requirement before DOL regulations are applicable. The recent FAQ guidance states that DOL has concluded that its regulations will not be ready to take effect by 2014, and that until regulations are issued, employers will not be required to comply with the auto-enrollment requirement. It also states that DOL is working to coordinate the guidance with the employer mandate and waiting period guidance.

Could an employer be subject to an employer mandate penalty for not offering health coverage to an employee during a 90-day waiting period?

The new FAQ guidance indicates that future Treasury and IRS proposed regulations will address coordination of the employer mandate and waiting period limitation rules, and the guidance is expected to provide that an employer will not be subject to an employer mandate penalty for failing to offer coverage to an employee during the first 3 months after the employee's date of hire.

Are the agencies still planning to permit employers to use look-back and stability periods to identify full-time employees for purposes of the employer mandate?

The recent FAQs state that Treasury and IRS intend to issue proposed regulations or other guidance that would allow employers to use "look-back periods" and "stability periods" of up to 12 months for purposes of determining full-time employee status of current employees, as previously described in Notice 2011-36.

Do the agencies still intend to issue guidance providing for an "affordability safe harbor" for employers under the employer mandate?

IRS Notice 2011-73 stated that future proposed regulations will provide a safe-harbor permitting employers to use an employee's wages as reported on the Form W-2 to determine the "affordability" of plan coverage for purposes of the employer mandate penalty. The FAQ guidance confirms that Treasury and IRA still intend to issue affordability safe harbor guidance.

Will the PPACA 90-day limitation on waiting periods effectively require employers to offer coverage to part-time employees after they have worked 90 days?

The recent FAQs state that the waiting period limitation does not require employers to offer coverage to part-time employees or any other classification of employees, and employers may exclude part-time employees (or other classifications of employees) from coverage entirely. Instead, the PPACA waiting period limitation merely prohibits requiring "otherwise eligible" employees to wait more than 90 days before coverage is effective.

This column appeared in Second Opinions, a weekly PlanSponsor feature to help plan sponsors understand what they need to do to prepare for the impact of the Patient Protection and Affordable Care Act. Groom principals, Christy Tinnes and Brigen Winters, serve as the health care reform experts and field weekly questions regarding the new law.