Category Archives: Affordable Care Act

Update on ACA Reporting Duties – Revised for IRS Notice 2016-70

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ACA reporting deadlines for applicable large employers arrive early in 2017 and, through Notice 2016-70,  the IRS has now offered a 30-day extension on the January 31, 2017 deadline to furnish employee statements – Forms 1095-C.  The new deadline is March 2, 2017 and it is a hard deadline, no 30-day extension may be obtained.  There is no extension on the deadline to file Forms 1095-C with the IRS under cover of transmittal Form 1094-C.  The deadline for paper filing is February 28, 2017 and the electronic filing deadline is March 31, 2017.  (Electronic filing is required for applicable large employers filing 250 or more employee statements.)

Also in Notice 2016-70, the IRS extended its good faith compliance policy for timely furnished and filed 2016 Forms 1095-C and 1094-C that may contain inaccurate or incomplete information.  This relief is only available for timely filed, but inaccurate or incomplete returns.  Relief for failure to furnish/file altogether is available only on a showing of reasonable cause, and this is a narrow standard (e.g., fire, flood, major illness).

In addition to covering the new transition relief, this-brief-powerpoint-presentation summarizes some changes in the final 2016 Forms 1094-C and 1095-c, from last year’s versions, and includes some helpful hints for accurate and timely reporting.

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Filed under Affordable Care Act, Applicable Large Employer Reporting, Employer Shared Responsibility, Minimum Essential Coverage Reporting, PPACA, Uncategorized

Untangling ACA Opt-Out Payment Rules

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As group health coverage premiums soar ever higher, it has become increasingly popular for employers to offer employees cash in exchange for their opting out of group coverage. When the cash opt-out payments are provided outside of a Section 125 cafeteria plan, they may have the unintended consequence of reducing the affordability of employer group health coverage, because the IRS views the cash opt-out payment as compensation that the employee effectively forfeits by enrolling in coverage.[1]  Unaffordable coverage may entitle the employee to premium tax credits under IRC § 36, and may also exempt the employee from individual mandate duties under IRC § 5000A.  This post focuses on the impact of opt-out payments on “applicable large employers” subject to employer shared responsibility duties under the ACA.  For such employers, reduced affordability of coverage will impact how offers of coverage are reported under ACA reporting rules (IRC § 6056) and could trigger excise tax payments under IRC § 4980H(b).

By way of background, the IRS addressed opt-out payments last year in the form of Notice 2015-87, concluding that a “conditional” opt-out payment – one that requires that the employee meet a criterion in addition to declining employer group coverage, such as showing proof of other group coverage – would not affect affordability. The Notice also offered transition relief for unconditional offers (paid simply for declining employer coverage) that were in place as of December 16, 2015, the date the Notice was published.  Unconditional opt-out arrangements adopted after December 16, 2015 do impact affordability.

Subsequently, in June 2015, the IRS addressed the affordability issue in proposed regulations under IRC § 36, governing individuals’ eligibility for premium tax credits. The proposed regulations refer to “eligible” opt-out arrangements rather than conditional ones.  An eligible opt-out payment  is one under which an employee’s right to receive payment is conditioned on the employee providing reasonable evidence that the employee and all his or her dependents (the employee’s “expected tax family”) have or will have minimum essential coverage other than individual coverage (whether purchased on or off the health exchange/Marketplace).  Reasonable evidence may include the employee’s attestation to the fact of other coverage, or provision of proof of coverage, but in any event the opt-out payment cannot be made if employer knows or has reason to know that the employee/dependents does not have or will not have alternative coverage.  Evidence of the alternative coverage must be provided no less frequently than every plan year, and no earlier than the open enrollment period for the plan year involved.

The proposed regulations are expected to be finalized this year and thus the “eligible opt-out arrangement” rules likely will apply to plan years beginning on or after January 1, 2017.   In the meantime, the following provides guidance to applicable large employers on conditional and unconditional opt-out payments for purposes of 2016 ACA compliance, and ACA reporting due to be furnished to employees and filed with the IRS early in 2017:

Unconditional opt-out arrangement: opt-out payments increase employee contributions for purposes of the “affordability” safe harbor, and should be added to line 15 of Form 1095-C, unless the arrangement was already in effect on December 16, 2015.  “In effect” for these purposes means that (i) the employer offered the arrangement (or a substantially similar arrangement) for a plan year that includes December 16, 2015; (ii) the employer’s board of directors or authorized officer specifically adopted the arrangement before December 16, 2015; or (iii) the employer communicated to employees in writing, on or before December 16, 2015, that it would offer the arrangement to employees at some time in the future.

Conditional opt-out arrangement: opt-out payments do not increase employee contributions whether or not the condition is met.  Do not include the opt-out payment in line 15 of Form 1095-C.

Opt-out arrangement under a collective bargaining agreement (CBA): if the CBA was in effect before December 16, 2015, treat as a conditional opt-out arrangement, as above, and do not include in line 15 of Form 1095-C.

Medicare Secondary Payer Act/TRICARE Implications: An applicable large employer for ACA purposes will also be subject to provisions of the Medicare Secondary Payer Act (MSPA) that prohibit offering financial incentives to Medicare-eligible employees (and persons married to Medicare-eligible employees) in exchange for dropping or declining private group health coverage[2]. In the official Medicare Secondary Payer (MSP) Manual, the Centers for Medicare and Medicaid Services (CMS) takes the position that a financial incentive is prohibited even if it is offered to all individuals who are eligible for coverage under a private group health plan, not just those who are Medicare-eligible. Traditionally the CMS has not actively enforced this rule, and has focused on incentives directed at Medicare-eligible populations. However, there are reports that the CMS may be retreating from its unofficial non-enforcement position with respect to opt-out payments. At stake is a potential civil monetary penalty of up to $5,000 for each violation. As a consequence, MSPA-covered employers with Medicare-eligible employees, or employees who are married to Medicare-eligible persons, should not put an opt-out arrangement in place, or continue an existing one, without first checking with their benefits attorney. Finally, please note that there are similar prohibitions on financial incentives to drop military coverage under TRICARE. TRICARE is administered by the Department of Defense, but along the same principles as apply to MSPA.

Note:   This post was published on October 6, 2016 by Employee Benefit Adviser.

[1] Note: employer flex contributions to a cafeteria plan reduce affordability unless they are “health flex contributions,” meaning that (i) the employee cannot elect to receive the contribution in cash; and (ii) the employee may use the amount only to pay for health-related expenses, whether premiums for minimum essential coverage or for medical expense reimbursements permitted under Code § 213, and not for dependent care expenses or other non-health cafeteria plan options. See IRS Notice 2015-87, Q&A 8.

 

[2] An employer is covered by the MSPA if it employs 20 or more employees for each working day in at least 20 weeks in either the current or the preceding calendar year.

 

 

 

 

 

 

 

 

 

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Filed under Affordable Care Act, Applicable Large Employer Reporting, Benefit Plan Design, Cafeteria Plans, Employer Shared Responsibility, Flex Plans, Health Care Reform, PPACA

Benefits Compliance: Where You Get It; What You Need (Poll)

Y01VDYAX63Changes in the law and continued advances in technology have made benefits compliance a constantly shifting landscape.  As one of many potential sources for your own path towards benefits compliance, E for ERISA would very much appreciate your participation in the following poll, which asks a few simple questions about where you currently get your benefits compliance services and what you may still need in that regard.  Thank you in advance for (anonymously) sharing your thoughts and experiences.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Filed under 401(k) Plans, 403(b) Plans, Affordable Care Act, Applicable Large Employer Reporting, Benefit Plan Design, Employer Shared Responsibility, ERISA, Federally Facilitated Exchange, Fiduciary and Fee Issues, Fiduciary Issues, Fringe Benefits, Health Care Reform, HIPAA and HITECH, Payroll Issues, Plan Reporting and Disclosure Duties, PPACA, Profit Sharing Plan, Uncategorized

Exchange Subsidy Notices: Prelude to ACA Tax Assessments

After a one-year delay, the federally-facilitated exchange (www.healthcare.gov) has begun mailing Applicable Large Employers (ALEs) notices listing employees who qualified for and received advance payment of premium tax credits or cost sharing reductions (collectively, “exchange subsidies”) for one or more months to date in 2016.  There is a model federal subsidy notice; state-facilitated health exchanges may use their own subsidy notices. In 2016, the notices will go to mailing addresses that employees supplied while enrolling on an exchange and hence may include worksite addresses rather than an employer’s administrative headquarters.  For that reason, ALEs should track all work locations for receipt of the exchange notices.

Each notice will identify one or more employees who received subsidies in 2016, and if the names include those of full-time employees who were offered affordable, minimum value or higher coverage (or enrolled in coverage, even if unaffordable) for the period involved, an appeal is appropriate and must be made within 90 days of the date on the exchange subsidy notice. This Employer Appeal Request Form may be used for http://www.healthcare.gov as well as the following state-based exchanges:  California, Colorado, D.C., Kentucky, Maryland, Massachusetts, New York and Vermont.  The appeals process is carried out via mail or fax this year but will eventually convert to a digital format.

Remember, these exchange subsidy notices are not themselves assessments of ACA penalty taxes which is a separate process carried out by IRS. And the IRS will assess ACA penalty taxes for 2015 without benefit of subsidy notices for that year.   However the subsidy notices now being released do provide a “heads up” regard to potential 2016 tax liability, and by filing an appeal an ALE can build the file it will need in the event of a later penalty tax assessment. Not only will a timely appeal document the fact that no ACA penalty tax should apply, it may also prevent the employee in question from later having to refund subsidy amounts to IRS, either through a reduced tax refund or with out-of-pocket funds.

In this regard, ALEs should keep in mind that coverage that is unaffordable for exchange purposes (i.e. entitles an individual to exchange subsidies) may be affordable for employer safe harbor/penalty assessment purposes (i.e., prevents assessment of an ACA employer penalty tax). They both use the same affordability percentage – 9.66% in 2016 – but apply it to different base amounts.  The exchanges look at the employee’s modified adjusted gross income (MAGI), which may be higher than the employer’s safe harbor definition (for instance when the employee’s household includes other wage earners), or may be smaller than the employer’s safe harbor definition (for instance, when the employee has large student loan interest expenses and/or alimony payments, both of which are excluded from MAGI).  Thus there will be instances in which an employer bears no ACA penalty liability with regard to coverage that is unaffordable for exchange purposes. The appeals process will make available to an employer information as to whether an employee’s household income exceeded the affordability threshold for exchange subsidies, along with other data used to establish eligibility for exchange subsidies.  A flowchart of the exchange subsidy notice and appeals process follows:Flowchart for Handling Exchange Subsidy Notices

We do not yet have details on how the IRS will go about assessing ACA penalties on ALEs for 2015 and subsequent years, other than that employers will have an opportunity to contest a tax assessment. All the more reason to engage in the appeal process, where appropriate, with regard to subsidy notices.

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Filed under Affordable Care Act, Covered California, Employer Shared Responsibility, Federally Facilitated Exchange, Health Care Reform, Health Insurance Marketplace, Premium Tax Credits, State Exchange

Final Rules on Wellness Program Design: A Chart and FAQs

Recent months have seen a flurry of new guidance related to wellness programs:

  • On May 17, 2016 the EEOC published final regulations and interpretive guidance on wellness programs that include disability-related questions (such as a Health Risk Assessment or HRA) and/or medical examinations (such as biometric testing). The new rules and guidance fall under Title I of the Americans with Disabilities Act (ADA), which permits collection of medical information under an employer’s “voluntary” wellness program. They replace proposed rules and guidance which were published in April 2015. We addressed the proposed rules in an earlier post.
  • In addition, EEOC published in the same issue of the Federal Register final regulations on wellness program participation by employees’ spouses, under Title II of the Genetic Information Nondisclosure Act (GINA). For GINA purposes, health status or health history about a family member, including a spouse, constitutes genetic of the employee. The rule replaces proposed regulations issued in October 2015.
  • In connection with the final rules the EEOC also published a model confidentiality notice to be provided to wellness program participants.
  • Finally, the Internal Revenue Service issued guidance regarding taxation of cash rewards to participate in wellness programs, and reimbursement of premiums paid through cafeteria plan deductions.

Overview. The new ADA and GINA regulations supplement, and in some instances contradict, existing wellness regulations under HIPAA, as modified by the ACA. Most notably, the HIPAA/ACA rules do not impose any incentive limitation on wellness programs that are “participation only,” whereas the ADA and GINA rules do impose a maximum incentive limit if the “participation only” program includes an HRA or biometric testing. The ADA and GINA regulations apply to employers with 15 or more employees, and to wellness programs that are “self-standing” as well as those offered in connection with a group health plan. HIPAA/ACA rules apply only to wellness programs that themselves comprise a group health plan, or that are offered with group health plans.

Effective Dates. The ADA and GINA incentive limits and ADA notice requirement discussed below go into effect for plan years beginning on or after January 1, 2017 (in most cases this will be the year of the health plan to which the wellness program relates). Employers may choose to voluntarily comply with these rules prior to that time. The balance of the new guidance goes into effect immediately, as the EEOC has characterized it as clarification of existing law.

Compliance Chart. Below is a chart summarizing permissible dollar or in-kind incentives for wellness program participation, along with some other requirements under the new ADA and GINA regulations, followed by some frequently asked questions on the new wellness program guidance.

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* If multiple health plans are offered, the 30% limit applies to the lowest cost major medical plan. If no plans are offered, the reference point is the premium paid for a 40 year old non-smoker enrolled in the second-lowest silver plan on the health exchange in the employer’s region.

Q.1:     What are reasonable design criteria for wellness programs under ADA regulations? 

A.1:      A wellness program is “reasonably designed to promote health or prevent disease” if it is (a) not highly suspect in the method chosen to promote health or prevent disease; (b) does not require an overly burdensome period of time to participate, involve unreasonably intrusive procedures or significant costs; (c) is not a subterfuge for violating the ADA or other legal requirements or a means to simply shift costs from employer to employees; and, (d) if medical information is collected, the program provides feedback or advice to participants about risk factors or uses aggregate medical data to design programs or treat specific conditions.

Q.2: How do these requirements differ from the requirements for wellness programs under HIPAA/ACA?

A.2: In addition to the differences in incentive limits noted in the chart above, the HIPAA/ACA test applies a reasonable design criteria only to health-contingent wellness programs, while the ADA rules apply to participation-only wellness programs that include HRAs and/or biometric testing.  In addition, the HIPAA/ACA rules require that participants have a chance to qualify for the full incentive at least annually, and must offer to waive incentive criteria, or offer a reasonable alternative standard, to permit equal participation by all similarly situated participants.  This is somewhat similar, but not identical, to the ADA reasonable accommodation requirement.  HIPAA/ACA also requires that notice of the waiver/reasonable alternative standard be provided.

Q.3: Do GINA wellness program regulations add any requirements?

A.3: Yes, if a spouse is requested to complete an HRA or undergo biometric testing, a separate incentive limit equal to 30% of the total cost of self-only coverage applies, and the spouse must sign a written, knowing and voluntary authorization to take part in the HRA or biometric testing.  The authorization must describe the genetic information being obtained (e.g. health history information in an HRA), how it will be used, and any restrictions on its disclosure.  Additionally, employers may not deny access to coverage or otherwise retaliate in the event a spouse refuses to provide HRA/biometric testing.

Q.4: What are the criteria of a “voluntary” wellness program under ADA regulations?

A.4: A wellness program is voluntary for ADA purposes if employees are not required to participate in the program, are not punished for not participating (e.g., not granted access to all health benefits or plan options), and are not subjected to adverse employment action, retaliation, coercion or other prohibited conduct in order to get them to participate, or to reach certain health goals. In addition, incentives are capped at the percentages shown in the chart, and participants are provided with a written notice re: collection and use of medical information.  The EEOC has provided a form of model notice.

Q.5: What does the model EEOC notice state, and is it mandatory or can we use our own version?

A.5: The notice, which should be provided prior to participation in an HRA or biometric exam, may be modified but must be written in language that recipients can understand, and must describe what medical information is collected, what measures will be used to protect its privacy and security, and must state that the information will not be sold, exchanged, transferred, or otherwise disclosed except as necessary and permitted under law in order to implement the wellness program.  Some of the provisions may repeat provisions of an existing HIPAA privacy notice.

Q.6: Can we email the ADA wellness program notice or must we distribute by hand?

A.6: You can email it so long as you are certain the email will reach the intended employees, e.g. through use of a current work email address, and so long as proper attention is brought to the nature of the notice (for instance, do not attach it to an email already containing a number of other, unrelated human resource forms or disclosures). You may also distribute in hard copy.  Your distribution method should take into account employee disabilities such as visual impairment, or learning disabilities.

Q.6: What confidentiality requirements apply under ADA regulations?

A.6: The employer must receive wellness data in aggregate form only, and may not require an employee to agree to the sale, exchange, sharing, transfer or other disclosure of medical information, or to waive ADA confidentiality protections, as a condition for participation.  Note that ADA confidentiality rules would apply to a wellness program not linked to a group health plan, and for a wellness program that is a health plan or is linked to one, HIPAA/ACA privacy, security and breach notification measures must also be followed.  These rules independently would prohibit the employer from viewing individualized health data.

Q.7: What is the impact of “de minimis” wellness incentives such as tee-shirts and water bottles?

A.7: The ADA regulations do not recognize a “de minimis” rule, thus the approximate dollar value of all “in-kind” incentives should be counted towards the 30% incentive limit.  By contrast, for federal income tax purposes, the IRS allows small items such as tee-shirts and water bottles to be excluded from participants’ taxable income as de minimis fringe benefits under Internal Revenue Code (“Code”) Section 132(e).  See IRS Memo 2016-22031, discussed below.

Q.8: How does the IRS treat cash incentives to participate in a wellness program treated under the Internal Revenue Code?

A.8: In IRS Memo 2016-22031 the IRS concluded that cash incentives to take part in a wellness program, or amounts paid or reimbursed for more than de minimis items that do not qualify as Code Section 213(d) medical expenses (such as gym memberships) are included in employees’ taxable income.  The same is true when an employer uses a wellness program to reimburse employees for premium or other coverage amounts withheld from their salary under a Section 125 cafeteria plan.

Q.9: What is the ADA’s  “insurance safe harbor” or “bona fide benefit plan” safe harbor, and can employers use it to justify a wellness program that does not meet the new ADA wellness program criteria?

A.9: The insurance safe harbor or “bona fide benefit plan” safe harbor permits the gathering of health data from employees so long as it is for underwriting or risk classification purposes, e.g., in order to determine insurability or establish premiums and other costs of coverage.   The safe harbor typically would apply to an insurance carrier but also could apply to a self-insured health plan.  In the past several years, a few employers have successfully used the safe harbor to prevail over EEOC federal court challenges to wellness programs that conditioned very high financial incentives on completion of an HRA or biometric testing; see, e.g., Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012); EEOC v. Flambeau, Inc., 131 F. Supp. 3d 849 (W.D.Wis. 2015).  The ADA regulations expressly make the insurance safe harbor unavailable to employers sponsoring wellness programs, but this does not resolve how the issue will be determined in federal courts.

Q.10: Are there other GINA regulations that impact wellness programs?

A.10: Yes, Title I of GINA applies to health insurance issuers and group health plans (including self-insured health plans), and prohibits requiring an individual to provide genetic information (including through answering a family history question on an HRA) prior to or in connection with plan enrollment, or at any time in connection with “underwriting purposes,” which broadly refers to any provision of a reward or incentive.  As a result of GINA Title I, a plan may use an HRA that requests family medical history only if it is requested to be completed after plan enrollment and is unrelated to enrollment, and if there is no premium reduction or any other reward offered.

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Filed under Affordable Care Act, Americans with Disabilities Act, Benefit Plan Design, Cafeteria Plans, Flex Plans, Fringe Benefits, GINA/Genetic Privacy, Health Care Reform, HIPAA and HITECH, PPACA, Wellness Programs

It’s Time for ALEs to “Do the Math” on Controlled Group Status

Applicable Large Employers (ALEs) subject to the ACA’s employer shared responsibility and reporting duties are running out of time in which to ascertain whether or not they are part of an “Aggregated ALE Group,” the members of which are treated as a single employer for benefit plan and certain ACA purposes. This in turn requires an analysis under Internal Revenue Code controlled group rules, as discussed below.

A definitive answer to the question of aggregated group status is required in order to file the Form 1094-C transmittal for employee statements (Forms 1095-C), which is due in hard copy by May 31, 2016, or via e-filing by June 30, 2016. (E-filing is encouraged for all ALEs but is mandated for those filing 250 or more Form 1095-C employee statements).

Specifically, Part II of Form 1094-C, line 21 asks whether the “ALE Member” filing the Form is part of an “Aggregated ALE Group,” and if the answer is yes, the ALE Member must identify, in Part III, the name and EIN of all other ALE Members of the Aggregated ALE Group.  Form 1094-C, like other IRS forms, must be signed under penalty of perjury.

Some ALEs with fewer than 50 full-time employees, including full-time equivalents (FTEs), are subject to employer shared responsibility only because they are part of an Aggregated ALE Group that collectively employs 50 or more full-time/FTE employees (or, in 2015, 100 or more).

Larger employers that have always had 100 or more full-time/FTE employees of their own may also have had to determine their status as part of an Aggregated ALE Group in order to determine who should furnish Form 1095-C employee statements for employees who worked for more than one aggregated employer during the same calendar month. (Generally the employer for whom the employee worked the most hours of service would be considered the reporting employer for that month.)

In either situation, these ALEs should already know that they are members of an Aggregated ALE Group and be in a position to identify other members of the Group on Part III of Form 1094-C.

However, employers that have always had 100 or more full-time/FTE employees of their own, and who have not shared employees with other group members as described above, may not have had occasion to determine whether or not they are part of an Aggregated ALE Group with other companies related in ownership. Now they must do so in order to accurately complete Form 1094-C.

In addition to Form 1094-C reporting duties, accurate knowledge of controlled group status is necessary in the event an ALE is subject to excise tax penalties under Internal Revenue Code (“Code”) § 4980H(a).  Before applying the excise tax rate ($270 per month, in 2016) to all full-time employees, the ALE may subtract the first 30 full-time employees.  That “budget” of 30 excludible full-time employees (80, in 2015) must be allocated among members of the Aggregated ALE Group in proportion to their total number of full-time employees.[1]

The three types of Aggregated ALE Groups are:

  • a “controlled group” consisting solely of corporations as defined under Code § 414(b);
  • a group of trades or businesses that includes partnerships and LLCs, that are under “common control” as defined under Code § 414(c); or
  • businesses, usually professional service organizations, that together form an “affiliated service group” (ASG) as defined under Code § 414(m).

The controlled group/common control/ASG rules (collectively, the “common control rules”) have applied for benefit plan purposes for many years but they have achieved new prominence under the ACA employer shared responsibility and ALE reporting rules. Determining whether or not common control exists requires identification and analysis of the relevant facts and application of the law to them, in the form of the above-cited Code sections, related Treasury Regulations, other agency guidance and federal case law.  The rules governing common control status are complex and can require a significant amount of factual digging, including when business ownership interests are held by family members or in trust, and where ownership interests must be traced through several layers of entity ownership.  Applicable large employers that share ownership with other business entities, particularly those with employees, and that have not already ascertained their common control status for ACA purposes, are encouraged to get this process started without further delay.

 

[1] Although aggregated group status is used to determine status as an ALE, and in order to allocate the budget of 30 excludible full-time employees, excise tax liability is determined separately for each ALE member within the group.

 

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Filed under Affordable Care Act, Applicable Large Employer Reporting, Benefit Plan Design, Common Control Issues, Employer Shared Responsibility, Health Care Reform, PPACA

ACA Reporting for Large Employers: Top 10 Rules for Success

Applicable Large Employers have approximately one month, until March 31, 2016,  to furnish Form 1095-C to full-time employees in relation to group health coverage offered (or not offered) in 2015.  Self-insured employers must also provide Form 1095-Cs to part-time employees who were covered under their plans in 2015.  Related IRS filing deadlines (transmittal Form 1094-C and attached Forms 1095-C) come later in the year, but the March 31, 2016 deadline to furnish employee statements is hard and final.  The attached PowerPoint presentation lists the Top 10 Rules for Success in completing Applicable Large Employer reporting, and includes bonus tips on opt-out payments, and increased ACA penalty amounts for 2015 and 2016.

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Filed under Affordable Care Act, Applicable Large Employer Reporting, Employer Shared Responsibility, Health Care Reform, Minimum Essential Coverage Reporting, Payroll Issues, Plan Reporting and Disclosure Duties, PPACA, Self-Insured Group Health Plans