Some of the most difficult and contentious provisions of the Affordable Care Act (“ACA”) are the employer mandate and upcoming reporting requirements effective in 2015.
“Difficult” because the employer mandate requires applicable large employers, generally those with 50 or more “full-time” employees, to offer coverage to full-time employees and dependents (other than spouses). If the employer mandate is not met, employers would be subject to penalties if a full-time employee receives government premium assistance through the marketplace. In addition, beginning this year, the ACA imposes new reporting requirements that will assist the Treasury Department in enforcing the employer and individual mandates.
“Contentious” because, well, the ACA is all about politics. Not surprisingly, the new Congress got off to a quick start. On January 8, the House passed the Save American Workers Act of 2015 which amended the Internal Revenue Code to change the definition of “full-time employee”, an employee who is employed on average at least 30 hours a week. The Act increases the threshold to 40 hours a week. The Act has been sent to the Senate where if passed will probably get vetoed by the President.
From a retirement plan standpoint, however, it’s different. While many employers do not want to include part-time employees in 401(k) plans for both cost and discrimination testing purposes, the IRS takes a decidedly dim view of any eligibility class that could exclude any employee who completes 1,000 hours of service. Indeed, the IRS issued guidance in 2007 regarding the extent to which part-time, temporary, seasonal, and project employees can be excluded under qualified retirement plans.
Retirement plans that improperly exclude these employees can be disqualified resulting in significant adverse tax consequences. Here are two takeaways for any concerns about this issue:
- Review the plan document to determine whether it has been properly drafted to exclude part-time and other non–full-time employees.
- Determine whether any of those employees were correctly excluded from plan participation.
Any issues? Then take advantage of one of the available IRS correction procedures.