On September 18, 2014, the Internal Revenue Service (IRS) issued Notice 2014-55 which allows employers to amend their Section 125 plans to recognize several new change in status events.
Open Enrollment in the Health Insurance Marketplace
Prior to this new notice, an opportunity to enroll in the health insurance Marketplace (or “exchange”) was not considered a change in status event. This made it difficult for employees in non-calendar year plans to move between a group health plan and the Marketplace since Marketplace coverage generally operates on a calendar year.
Effective immediately, an employer may treat open enrollment for Marketplace coverage as a change in status event, and allow an employee and other covered dependents to drop group medical coverage mid-year to enroll in a Marketplace plan. Marketplace coverage must begin on the day after coverage under the employer’s plan ends.
This change in coverage under the employer’s plan may only relate to dropping medical coverage — an employee may not change his or her health flexible spending account (HFSA) contributions, dental coverage, or vision coverage because Marketplace coverage is being elected. The employer may rely on the employee’s statement that the individuals dropping coverage are moving to Marketplace coverage — the employer does not need to obtain proof that Marketplace coverage was put into place.
Special Enrollment in the Health Insurance Marketplace
Prior to this notice, special enrollment in the health insurance Marketplace was not considered a change in status event. This meant that an employee who experienced a special enrollment event (such as marriage, birth, or adoption) might be able to enroll the new family member in Marketplace coverage mid-year but could not move other family members to Marketplace coverage. Effective immediately, an employer may treat special enrollment in Marketplace coverage as a change in status event, and allow an employee and other covered dependents to drop group medical coverage mid-year to enroll in a Marketplace plan. Marketplace coverage must begin on the day after coverage under the employer’s plan ends.
This change may only relate to dropping medical coverage — an employee may not change his or her HFSA contributions, dental coverage, or vision coverage because Marketplace coverage is being elected.
The employer may rely on the employee’s statement that the individuals dropping coverage are moving to Marketplace coverage — the employer does not need to obtain proof that Marketplace coverage was put into place.
Revocation Due to Reduction in Hours of Service
The third new permitted change in status event is designed to address issues that may arise if the employer chooses to measure hours using the lookback (measurement and stability periods) method of determining hours for purposes of meeting the employer-shared responsibility requirements. In this situation, to avoid employer-shared responsibility penalties, the employer must offer the employee coverage throughout the following stability period if the employee averaged 30 or more hours per week during the measurement period, even if the employee’s hours are reduced below 30 hours per week. Maintaining the same coverage despite lower income may cause a financial hardship to the employee.
Under the new change in status event, if the employee remains eligible for group medical coverage, even though he or she is now working fewer than 30 hours per week, the employee may revoke the group medical coverage election mid-year to enroll himself or herself (and any covered dependents) in either Marketplace or other employer-provided coverage. The employee may not discontinue all medical coverage, and the new coverage must provide minimum essential coverage. The employee may not change any election of dental or vision coverage or any HFSA election. The new coverage must be effective no later than the first day of the second month following the month that includes the date the original coverage is discontinued.
The employer may rely on the employee’s statement that the individuals dropping coverage are moving to Marketplace or other minimum essential coverage — the employer does not need to obtain proof that this coverage was put into place.
An employer may choose to add any, all or none of these new change in status events under its Section 125 plan. The Section 125 plan must be amended to include any new change in status event by the end of the 2015 plan year.
An employer that chooses to recognize the new change in status events may begin administering its plan to include them immediately. This means, for example, that a non-calendar year plan could allow employees to discontinue employer-provided coverage and enroll in the Marketplace for 2015. Keep in mind that while the employee and dependents may enroll in Marketplace coverage, a premium tax credit will not be available while the person remains eligible for minimum value, affordable (based on the cost of self-only) coverage offered by the employer.
If the employer chooses to include any new change in status events, that decision should be communicated to employees promptly, even though the actual plan amendment is not needed immediately.
For more information about PPACA provisions and how they impact your group health plan, request UBA’s decision guides.
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The Patient Protection and Affordable Care Act (PPACA) is driving companies to look at many aspects of their organization more strategically.
The Patient Protection and Affordable Care Act (PPACA) is driving companies to look at many aspects of their organization more strategically.
By Peter Freska, MPH, CEBS
Benefits Advisor, The LBL Group
A United Benefit Advisors Partner Firm
The Patient Protection and Affordable Care Act (PPACA) is driving companies to look at many aspects of their organization more strategically. With an estimated 2.5 million people in Professional Employer Group (PEO) arrangements totaling $92 billion in annual revenue, the spotlight was cast on them (source: https://www.napeo.org/about/annualreport.pdf). The questions related to the implications of PPACA on PEOs are many, and the law is still out for interpretation.
With this in mind, I have always said that there is a place for PEOs… and they sometimes make sense. However, in my opinion an organization that has grown from the average PEO size of 20 employees (source: https://www.napeo.org/about/annualreport.pdf) to more than 100, likely has an administrative cost higher than a similarly situated organization with a true employer-employee relationship. Keep in mind that in most scenarios the point of a PEO is risk and cost mitigation, but as an organization grows, administrative personnel and functions such as payroll servicing, hiring & firing, training, etc. are still needed internally. Additionally, with companies in the 100 t
o 250 employee range, most health & welfare benefits are pooled, already reducing exposure to medical loss risk. As a company grows past the 250 employee range, cost may be mitigated in other forms such as employee well-being programs, self-funding arrangements, or participation in captives for a variety of insurances. So, if you are a company of more than 100 employees (which is a subject employer under PPACA), then here are seven easy steps to moving out of a PEO.
Decide if it is the right choice for your organization by doing a cost analysis. The cost analysis should include a complete breakdown of everything from workers’ compensation, employment practices liability insurance (EPLI), all health & welfare benefits, retirement plans, human resources, and administrative costs. To best judge these costs and benefits, they should be benchmarked in some fashion. For the health & welfare benefits, the best option is a robust health plan and ancillary benefits survey such as the United Benefit Advisors (UBA) Annual Health Plan Survey and the UBA Ancillary Benefits Survey. Utilizing these tools, your UBA Partner can outline the most appropriate costs and benefit levels for your company based on industry, employer size, state, region, and how it compares to national data.
Steps two, three, four, and five involve understanding what a company currently provides and what it would like to provide post-PEO.
Payroll and HRIS. There are many choices in an ever growing sea of vendors. The best bet is to look for a payroll and Human Resources Information System (HRIS) partner. This would be a company that is looking to the future of technology and is willing to understand the organization’s unique needs. With cloud-based technology becoming the predominant option here, technology companies are really the answer over payroll processing companies. People want the ability to access their information at anytime, anywhere, securely, and on their mobile device. While there are many companies that say they can do this through a variety of looped and bandaged-together products, there are very few with truly cloud-based platforms that were designed from the ground up for today’s users. One worth looking at is Paylocity.
Business insurance: This piece is a driver of many organizations to join a PEO. As stated earlier, risk mitigation (especially with workers’ compensation insurance) is great for small companies. However, requesting an experience modification worksheet from your PEO along with the last five years of loss runs can be an enlightening experience. Couple this with a loss control visit, and I would venture a guess that the PEO will change its tune. Also, according to the California Department of Industrial Relations: “The fact that you engage a PEO does not release you from liability. Employers have a responsibility to ensure their workers are covered by a valid workers’ compensation policy. So before you turn your vital programs like workers’ comp and payroll over to a third party, be sure you are dealing with a reputable, legally insured PEO.” (source: https://www.dir.ca.gov/peo.html).
Retirement: Understanding the entire program that is currently offered to the co-employees (or leased employees within a PEO) can be difficult. A PEO should be able to outline the costs and assets allocated to the portion of the retirement plan that accounts for the company in question. When transitioning out of the PEO’s plan, it is important to schedule individual meetings with all employees in order to properly explain the new employer sponsored retirement plan and how to rollover any existing funds from the prior plan. These funds will be crucial in building up the retirement plan assets to reduce the costs applied.
Health & Welfare: As previously mentioned, benchmarking your benefits is integral. Moving out of a PEO opens the company to the entire market of choices. Knowing what the right fit is for the company in question will allow the management team to allocate the proper funding type and contributions. Request for quotes, carrier negotiations, benefit modeling, decisions, implementation, and enrollment – all must come and be aligned with the latest health care reform rules, regulations and guidance, in order to avoid significant penalties to both the organization and potentially to the employees.
HR Manager: While most companies with more than 100 employees will agree that they need an HR manager, they may have divergent opinions on when to bring them into the fold. One school of thought is that the HR manager to be hired should be part of the process, included in business partner decisions and selection. The second option is that the company team, with or without outside assistance, drives the process and implements each step. This culminates with the hiring of an HR manager to assist in the final enrollment and implementation pieces of the new startup programs. In either method, it is crucial that the company culture be outlined at all levels. While a company may have been in existence for many years, moving out of a PEO is much like starting a new company. Many of the same pieces must be played strategically in order to garner the best result for long-term sustainable growth that attracts and retains the best and brightest team members.
The Final Step: Don’t forget to read the current PEO contract. Many organizations fall victim to termination guidelines and/or costs. Be savvy and aware of the pitfalls, and make sure that the PEO is duly notified in writing of the intention to dissolve the co-employment relationship as of the proper future date.
And that is all. With proper notification to the PEO, an organization can move out of a PEO relationship in just over one month. Generally speaking, it is ideal to move out before January 1 to reduce the payroll tax implications. Ultimately, partner with an advisory firm that can guide the company through the process and the first payroll will work out just right.
