The Patient Protection and Accountable Care Act (PPACA) has a number of employer provisions that all seem to fall, generally speaking, under an umbrella called “employer shared responsibility.”
Briefly, the PPACA mandates that large employers, those more than 50 employees including full-time equivalents, offer affordable coverage, which is that the lowest cost option for an employee is less than 9.5 percent of income. The coverage also must carry a minimum robustness — an actuarial value of at least 60 percent — to all eligible employees. If the employer doesn’t follow this, it must pay some kind of penalty.
Smart Business spoke with Tobias Kennedy, vice president of Sales and Service at Montage Insurance Solutions, about how these penalties are triggered, in the first of a three-part series on the employer shared responsibility provision.
How can the employer shared responsibility penalties be triggered?
The penalties are only triggered by an employee of yours receiving a subsidy to purchase an individual policy through the coming exchanges. And, employees are only eligible for a subsidy if they earn less than 400 percent of the federal poverty level and are not eligible for another qualifying coverage like Medicare, Medicaid (Medi-Cal) or a qualified employer plan.
How does the penalty for not offering enough coverage impact employers?
The way this fine is triggered is you, the employer, do not offer insurance coverage to at least 95 percent of your staff. The key words are ‘offer’ and ‘95 percent.’ If they decline, you are not at fault, and at 95 percent there is some minimal leeway. So if you fail to offer coverage to at least 95 percent of your people, and one of them goes to the exchange and gets a subsidy, you are fined. It’s important to note this penalty, like all PPACA penalties, is a non-deductible tax penalty — so finance teams really need to factor that in when evaluating costs.
This penalty’s costs are — pro-rated monthly for each violating month — $2,000 per year multiplied by every single full-time employee you have, which obviously can add up. The bill has a provision where you can, for the purposes of calculating the penalty dollar amount, deduct 30 employees from your full-time equivalent count. In other words, if you have 530 full-time employees, you’re fined on only 500 at $2,000 per person, per year for an annual fine of $1 million.
How does the affordability penalty work?
The second penalty, also non-deductible, centers on affordability. In this case, while you are still fined an annual amount that is pro-rated monthly, the fine is actually $3,000 annually but only assessed on people affected. It also is only up to a maximum of what you would have paid for not offering coverage at all.
It’s important to note that the employer is only going to be penalized on the people for which coverage is unaffordable. In other words, there are going to be times where you want to be strategic about this. You may have a situation where your employee/employer premium split is in compliance for most of your staff — where the dollar amount you ask the employees to pay for premium is less than 9.5 percent of most employees’ incomes. But, a couple of employees actually earn a smaller salary, so they are outside of the 9.5 percent. In this case, the employer needs to know it has a choice: Either raise your employer contribution or pay a fine on those couple of employees. Again, the penalty is only $3,000 per person affected, so it may be less expensive to pay those couple of fines than to completely restructure the way you split premiums.
Next, we’ll address how you know which employees qualify for coverage. A lot of employers have part timers, variable-hour people and project-based staff. So with all of these fines, it’s important to know exactly how you find the safe harbor of which employees qualify and don’t qualify for benefits.
Tobias Kennedy is vice president of Sales and Service at Montage Insurance Solutions. Reach him at (818) 676-0044 or firstname.lastname@example.org.
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If your company has a benefit plan such as a 401(k) with 100 or more eligible participants, each year you are required to have an audit performed on that plan that is filed with the IRS and the Department of Labor (DOL). Failing to do so could mean major penalties for your business, says Danielle B. Gisondo, CPA, a principal with Skoda Minotti.
“What often happens is that a company gets to that 100 employee mark and it is not aware of the requirement,” says Gisondo. “A few weeks before the deadline, the company that is preparing the required Form 5500 for all benefits plans for the company will send the company a letter that says, ‘You need to have an annual audit this year because your participant count has climbed to more than 100, so please forward us your auditor’s information.’ The company may read that and begin the search for an auditor or just ignore it. And ignorance of the requirement is no excuse.”
Smart Business spoke with Gisondo about what you need to know to stay on the right side of the law and avoid stiff penalties.
When is a benefit plan audit required?
ERISA requires that an audit be performed on most benefit plans with more than 100 eligible participants. The auditor is required to be an independent accounting firm, one that is independent not only of the client but of whomever is administering the plan and holding the investments.
Every plan has to come up with a standard plan document that outlines how the plan should operate relating to contributions, distributions and loans. The DOL wants to make sure companies are properly running their plans in accordance with what their plan document says.
What happens if a company does not have a benefit plan audit performed?
If a company fails to have an audit performed, it will be faced with penalties from the DOL and the IRS, which can get very steep. If you fail to file at all, the penalties can be up to $30,000 per year per plan. And a deficient filing can result in penalties of up to $50,000 per year per plan.
How long does the benefit plan audit process take?
If the auditors get everything they need, the process typically takes three to four weeks. If there’s a delay in getting information, either from the client or from one of the third parties involved, it may take six or seven weeks to complete.
The auditors will first compile a comprehensive request list with everything they need copies of and access to. Depending on the size of the plan, the auditors will be on site for one to three days and will typically work with someone in HR or accounting to get the necessary information. The rest of the work is done off site to minimize disruptions to the client’s business.
What are the deadlines?
For a calendar year-end plan, the initial due date for Form 5500 and the audit is July 31. If you can’t meet that deadline, you can file a two and a half month extension, which brings the due date to Oct. 15.
What steps can you take if you realize you should have had an audit performed but you didn’t?
If the IRS/DOL notifies you that you should have had an audit, it’s difficult to get out of paying the penalties by saying that you didn’t realize you needed one.
However, the DOL offers compliance programs that companies can go through if they failed to file. These programs allow you to pay a reduced fee that varies depending on the type of plan and the number of participants. Once you have paid that fee and file the necessary 5500 forms and audits as needed, you can be relieved of the penalties.
If you know you have a problem, don’t wait. Reach out to the IRS/DOL and let them know you have a problem. If they come to you and say, ‘We don’t have your 5500 form and the applicable audit,’ it’s too late to go through the compliance program and you will face major penalties.
What should companies consider when selecting a benefit plan auditor?
Ask if the firm has expertise in performing benefit plan audits. A lot of people assume that any accounting firm can do them, but it is a separate area of expertise and you should make sure the firm has it. Accountants undergo specialized training on an annual basis to ensure they are comfortable with all of the changes that continue to come from the IRS and the DOL.
Make sure the people you are working with are properly trained, that they know what they are doing and that they audit multiple plans, because a firm that audits just one or two plans doesn’t have the experience of a firm that is doing 20 or 30. Also ask about the audit process and ensure that whomever you are working with has the experience necessary to perform the work.
Danielle B. Gisondo, CPA is a principal with Skoda Minotti. Reach her at (440) 449-6800 or email@example.com.
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