Economic Disruption and the COVID Pandemic

Economic Disruption and the COVID Pandemic

Economic disruption in the first two quarters of 2020, combined with future business uncertainty about the COVID-19 pandemic, is prompting Employee Retirement Income Security Act (ERISA) retirement plan sponsors to review their pension plan management options.

Industry sectors that have been particularly hard-hit by COVID include retail, hospitality, health care, transportation, commercial real estate, and state and local governments. While the unemployment rate has recovered substantially, millions of workers remain unemployed. Employers are responding to the demands of the rapidly changing operating environment in a number of ways.

This article will address how ERISA retirement plan sponsors might react to maintain compliance and fiduciary obligations while protecting the future security of plan assets. Next month we will examine how retirement plan participants are responding to the pandemic.

COVID Considerations for ERISA Retirement Plan Sponsors

The pension fund industry is likely to see changes if behavioral economics influences the economic decision-making processes of retirement plan sponsors.

The impact of COVID on an ERISA retirement plan will depend on the type of plan involved and the requirements set forth in the Summary Plan Description (SPD) as well as related plan documents. The manager of a defined contribution plan typically has more flexibility than the sponsor of a defined benefit plan, for example.

All actions taken by a retirement plan sponsor must be evaluated in regard to fiduciary liability regulations. Potential cost reduction efforts may include the following:

• Reduce or suspend discretionary employer contributions in a retirement profit-sharing plan. There is no set amount of contribution required by law, and a plan amendment is not required for a plan sponsor to change the amount of its annual contribution. If there is an employer contribution, plan documents determine how it will be distributed.

• Reduce or suspend safe harbor contributions to a 401(k) plan. Notification requirements for these rules were changed recently under the Setting Every Community Up for Retirement Enhancement Act (SECURE Act).

• Reduce or suspend the match that an employer contributes to a plan participant’s account, up to a certain percentage. This action generally requires an amendment to the plan documents, making it a less attractive option. According to a June 2020 Willis Towers Watson survey, 15 percent of employers surveyed said they suspended or reduced their match and another 10% said they are considering action.

• Transfer pension obligations to third parties (typically life insurance companies) who assume responsibility for payment and administration of future pension payments to plan participants and their beneficiaries. We wrote about trends in this “de-risking” strategy in a December 2019 article titled, “Pension Risk Transfer Review for 2019.”

• Close a plan to new participants but continue to accrue benefits for existing participants. This is often referred to as a “soft” freeze.

• Monitor the management of plan distributions. The payment of a coronavirus-related distribution to a qualified individual must be reported by the eligible retirement plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

• Manage the tracking and reporting of COVID-19 layoffs and rehires in a business’s qualified retirement plan.

Background on ERISA Defined Benefit Plans versus Defined Contribution Plans

A “defined benefit plan” means that an employer is obligated to provide plan participants a pre-defined benefit level. The amount of payment could be either a fixed dollar amount payment at retirement (i.e., $100 per month), or a percentage of salary determined in part by the number of years employed. Regardless of the method used to calculate benefits, the sponsor of a defined benefit plan has limited flexibility in modifying benefit levels.

A “defined contribution plan” does not include the promise of a specific benefit payment at retirement. A 401(k) plan, profit-sharing plan, or employee stock ownership plan are the most common examples of defined contribution plans. Plan participants are completely vested in their own contributions (including any investment gains, losses or fees) and become vested in any contributions that may be made by the plan sponsor based on the terms of the plan.

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Annual Benefit Compliance Concerns

Annual Benefit Compliance Concerns

We are continually asked, “What are the compliance actions we need to take every year to ensure we are meeting annual benefit compliance requirements?”

Annual Employee Notices

Send out the following employee notices annually to ensure everyone is notified:

  • COBRA – Initial Notice (If 20+ Federal COBRA; if less than 20, State Continuation / “Mini-COBRA”)
  • CHIP (Child Health Insurance Plan)
  • MHPA (Mental Health Parity & Addiction Equity Act) (If 50+ employees)
  • NMHPA (Newborns & Mothers Health Protection Act)
  • WHCRA (Women’s Health & Cancer Rights Act)
  • Patient Protection
  • HIPAA (Health Insurance Portability and Accountability Act)
  • Wellness Program Disclosure (if offering a wellness program)
  • Grandfathered Plan (if offering a grandfathered plan)
  • Medicare Part D – Send by 10/15 and register with CMS
  • Health Exchange Notice – Distribute to new hires within 14 days of hire date
  • FMLA (Family Medical Leave Act) posting and notice (if 50 or more employees within a 75-mile radius)

Summary Plan Descriptions (SPD) or SPD Wraps

Although employers only have to distribute SPDs or SPD Wraps to participants once every five years, we recommend running a new document annually to incorporate any changes in your benefit plans each year, so you have a current, accurate document for distribution to new participants and as needed to existing participants.

Summary of Material Modification

  • Provide participants with a Summary of Material Modification (SMM) any time a benefit plan is materially impacted, such as when the value of the benefit goes up or down. Where possible, provide a 60-day notice of such changes, especially when benefits are reduced or
Qualifying COBRA Events
  • Send out continuation rights letters to those who lose coverage due to a qualifying event such as termination of employment or other qualifying events. Notice to plan within 30 days of the event, notice to the participant within 14 days of notice to
Annual Reports – ACA 1095/1094 Reports, W-2 Reports & 5500 Reports
  • ACA Reporting: Employers who are Applicable Large Employers (had 50 or more employees the previous year) and those who offer self-funded or partially self-funded plans are required to provide all full-time employees with Form 1095 C/B by January 31 annually, then to submit Form 1094 C/B to the IRS with copies of form 1095 by February 28 (if paper reporting) or by March 31 (if filing E-file). NOTE: These dates may be extended one to two days if the date falls on a weekend or if the IRS extends the
  • W-2 Health Cost Reporting – Employers with 250 W-2s the previous year are required to show health insurance cost for group plans on participant’s W-2 on reports due January 31 of each year.
  • 5500 Reporting – Employers with 100 or more participants in any group benefit plans are required to submit Form 5500 reports to the Department of Labor (DOL) the last day of the seventh month after the plan year ends (July 31 for a calendar-year plan).
  • SAR – Employers who report on form 5500 are also required by ERISA to provide participants with a Summary Annual Report (SAR) that includes necessary information from the 5500 reports such as funding and insurance, necessary financial information, rights to additional information and offer of assistance in non-English.
Nondiscrimination Testing
  • 125 POP and FSA – Employers who allow eligible premiums to be paid on a pre-tax basis through either a Premium Only Plan (POP) or Flexible Spending Account (FSA) must conduct annual nondiscrimination testing to ensure they are not favoring highly compensated employees. It is advisable to test early, allowing for any needed adjustments and again later in the year to ensure
  • Self-Funded Nondiscrimination Testing – All self-funded plans must conduct non-discrimination testing annually to ensure they do not favor highly compensated employees. It is advisable to test early, allowing for possible needed corrections and again later in the year to ensure

Nondiscrimination testing for fully-insured plans has not yet been defined, so it is not required.

  • Retirement Plans – 401(k) plans must also pass annual nondiscrimination testing or disallow contributions on a pre-tax basis if found, providing more than 1.25% benefit toward highly compensated employees. They also require an annual audit. It is advisable to test early, allowing for correct and again later in the year to ensure
  • MLR Reimbursements – If your organization receives any medical loss ratio reimbursements, make sure you handle the distribution of these by IRS and group plan guidelines.

 By Ken Spencer, President & CEO, HR Service, Inc.

ERISA solutions

ERISA Church Plan Exemption and States Reaction

In 2017, the United States Supreme Court ruled unanimously in Advocated Health Care Network v. Stapleton that the Employment Retirement Income Security Act (ERISA) did not apply to church-affiliated hospitals and assumedly other church-affiliated organizations.

ERISA and Church-Affiliated Organizations

Legislative history suggests that Congress trusts churches to protect and fund their pension plans adequately without Congress imposing requirements upon them. However, data suggests that church-affiliated organizations struggle with adequately contributing to their plans like many other state and private employers.

The Court’s ruling in Stapleton turned on the language of the church plan exemption included in ERISA. The exemption reads, “[a] plan established and maintained for its employees… by a church… includes a plan maintained by an organization… controlled by or associated with a church.”

The Court concluded that even church-affiliated organizations that come up with their own pension plans, rather than the church they are affiliated with doing so, would still be exempt from ERISA’s requirements. The Court reasoned that, “because Congress deemed the category of plans ‘established and maintained by a church’ to ‘include’ plans ‘maintained by’ [affiliates], those plans-… all those plans are exempt from ERISA’s requirements.”

The Court’s decision is a disappointment to employees of church-affiliated organizations hoping to receive pension protection from ERISA, particularly the employees of the three hospitals involved in the instant case-Saint Peter’s Healthcare System in New Jersey, Advocate Health Care Network in Illinois, and Dignity Health in California.

Many employees of these hospitals view their employers as big businesses posing as church-affiliated organizations in order to avoid ERISA’s requirements.

States’ Response to Stapleton Decision

Due to church-affiliated organizations being exempt from ERISA’s federal regulations and requirements, new legal and legislative strategies at the state court level are being introduced to try to protect pension plan participants affected by the Stapleton decision. These participants focus on the fact that the Court’s decision was limited in scope to what Congress intended when it amended the church plan exemption as part of the 1980 ERISA amendments. However, the Court did not establish what types of church-affiliated organizations would meet the exemption or what level of control or association with a church is required in order for an organization to meet the exemption.

An aggressive position is being taken by Stephen Del Soto, the receiver of an insolvent health services retirement plan in Rhode Island. Del Soto’s effort to reclassify and administer the insolvent pension plan as if the plan has been covered by ERISA for years is without precedent. Del Soto made an initial premium payment to Pension Benefit Guaranty Corporation (PBGC), an independent agency established as part of ERISA whose purpose, in part, is to serve as the administrator and subject to limitations, the insurer of pension benefits of distressed, insolvent and bankrupt employers’ pension plans which it has assumed responsibility for. The PBGC is funded by premiums paid by all pension plans covered by its insurance program.

Rhode Island has also passed state legislation that will require pension plans managed by religious organizations in the state to send financial updates to plan participants. This new legislation is still awaiting the governor’s approval before being put into effect.

The tax exemption status of most church-affiliated organizations is currently approved by the IRS. It is predicted that the exemption status for these organizations may undergo stronger scrutiny.

Mark Johnson, Ph.D., J.D., is an experienced pension and ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.

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Early ACA Renewal Strategy – Keeping It Legal

With major provisions of the Affordable Care Act (ACA) becoming effective as of the first plan year beginning on or after January 1, 2014, many small employers are considering an “early renewal” strategy to defer, as long as possible, some of the impact of these changes.  Under this strategy, a small employer renews its insurance contract early, for example on December 1, 2013, and makes corresponding changes to its plan documents, so the ACA provisions at issue don’t take effect until December 1, 2014.  While this approach may be a fit for some employers, it doesn’t work in all circumstances, is not without risks, and requires some additional paperwork.  Some states may restrict efforts to defer the implementation of healthcare reform change.

Community Rating

Small employers with a relatively healthy workforce have perhaps the largest incentive to consider the early renewal strategy because medical insurance rates for groups under 50 up to 100 in size, depending on the state, will be community rated starting with plan years beginning on or after January 1, 2014.  With community rating, all groups, those with serious medical challenges as well as healthy groups, are pooled together as one group to determine insurance rates.  Rates can vary by geography, age, family, and smoking status. The net effect to healthy groups, not currently rated up by insurance companies, will likely be significant rate increases.  An early renewal strategy could amount to thousands of dollars in savings.
Less healthy groups, those already rated up, will enjoy the new community rates allowing them to share their risk with more healthy groups.  If these employers have an effective date later than January 1, 2014, they too may want to consider an early renewal strategy (switching to a January 1st effective date), if the new pooled rates are better than what they currently have.

Small Employers Only

The early renewal strategy generally does not work for large employers (more than 50 full-time employee equivalents) subject to the “Shared Responsibility” (Play or Pay) requirements of the ACA.  Under the federal Shared Responsibility regulations, attempts during 2013 to change the applicable plan year are considered invalid and will not delay the employer’s effective date.

ERISA Requirements

As covered in our recent article on “Secrets to Passing an ERISA Audit,” ERISA legislation requires employers to provide a Summary Plan Description for their medical insurance plan and all health and welfare plans.  There is no small company exemption—all ERISA-governed employers, regardless of size, are required to provide a Summary Plan Description.

There is a common misperception that the information provided by insurance providers (e.g., the Certificate of Coverage or its Summary of Benefits) meets SPD requirements.  Many small employers erroneously think the insurance company or their insurance broker is responsible to provide them with these required plan documents.  However, the Plan sponsor (typically the employer) is the one held accountable when the plan is subject to an audit by the Department of Labor’s ERISA compliance division, the Employee Benefits Security Administration (EBSA).  Under healthcare reform, the EBSA has increased audits, including those of small employers.  DOL statistics show as many as three out of four plans have ERISA violations, with 70% resulting in fines.

ERISA requires SPDs to contain the following information:

• The Plan name;
• The Plan Sponsor/employer’s name and address;
• The Plan Sponsor’s EIN;
• The Plan administrator’s name, address, and phone number;
• Designation of any named fiduciaries;
• The Plan number for ERISA Form 5500 purposes;
• Type of Plan or description of benefits;
• The date of the end of the Plan Year for maintaining Plan’s fiscal records;
• Each trustee’s name, title, and address of principal place of business, if the Plan has a trust;
• The name and address of the Plan’s agent for service of the legal process, along with a statement that service may be made on a Plan trustee or administrator;
• The type of Plan administration;
• Eligibility terms and the effective date of participation;
• How insurer refunds are allocated to participants;
• Plan Sponsor’s amendment and termination rights and procedures, and what happens to Plan assets, in the event of Plan termination;
• Summary of Plan provisions governing benefits, rights, and obligations of participants under the Plan on termination, amendment, or elimination of benefits;
• Summary of Plan provisions governing the allocation and disposition of assets upon Plan termination;
• Claims procedures and time limits for lawsuits;
• A statement identifying circumstances that may result in loss or denial of benefits;
• The standard of review for benefits decisions;
• ERISA model statement of Participants’ rights;
• The sources of Plan contributions, and the method by which they are calculated;
• Interim SMMs since SPD was adopted or last restated;
• The fact that the employer is a participating employer or a member of a controlled group;
• Whether the Plan is maintained pursuant to one or more collective bargaining agreements, and that a copy of the agreement may be obtained upon request;
• A prominent offer of assistance in a non-English language (depending on the number of participants who are literate in the same non-English language);
• Identity of the insurer(s), if any.
Additionally, for group health plan SPDs, there must be:
• A detailed description of Plan provisions and exclusions;
•  A link to network providers;
• Plan limits, exceptions, and restrictions;
• Information regarding COBRA, HIPAA, WHCRA, among other federal mandates;
• Name and address of health insurer(s), if any and;
• A description of the role of health insurers.
Many of these requirements are provided in the certificate of insurance, provided by the insurance carrier.  But the employer and Plan-specific information, e.g., the Plan Sponsor’s name, address, and EIN, are clearly not provided in the generic Certificate of Insurance from the insurance company.

SPD Wrap

In order to address this legal inadequacy, some employers use what is referred to as a Summary Plan Description (SPD) “wrap” document, which serves to provide the missing, employer-specific information to the generic insurer documents, i.e. to “wrap” the insurer documents with the missing, required ERISA language.  The wrap document works together with the Certificate of Coverage to constitute the legally sufficient SPD.
Document Change Requirements
To be compliant, an early renewal strategy requires that governing plan documents, including the SPD, properly reflect the different plan year.  If the plan’s governing documents don’t reflect a different plan year, the market reform provisions of the ACA, e.g., small employer community rating, will in most cases default to a January 1, 2014 effective date, and the employer will be out of compliance.  Employers must document a valid business reason for changing their plan year.

Most employers currently have either a full Cafeteria 125 plan or a 125 premium only plan to allow employees to pay for their portion of medical or dental insurance on a pre-tax basis.  These documents must also be revised to avoid any fines or penalties.

Although federal regulators have not specifically addressed whether or not they support this strategy, many employers are moving forward with this approach.  They should proceed with caution, making sure that all documentation requirements have been satisfied.
by Ken Spencer, President and HR Coach, HR Service, Inc. & ERISA Solutions, Inc.
The foregoing is provided for general educational purposes only and is not intended as legal advice. Employers are well-advised to seek their own legal counsel before entering into these arrangements.

Greg Matis, Senior Counsel, Intermountain Healthcare
David P. Williams, ERISA Attorney, Snell & Wilmer L.L.P.

Secrets to Passing an ERISA Audit

What is ERISA and does it apply?

ERISA, which stands for the Employee Retirement Income Security Act, is a federal law regulating employer-sponsored group benefits.  Nearly every employer, regardless of their size, is subject to ERISA if they offer even one employer-provided group benefit such as health, dental, vision, accidental death & dismemberment, disability, or group term life insurance; medical flexible spending account or health reimbursement account; wellness and employee assistance program; or any other benefit for which the employer contributes to the cost.  The only exempt employers are churches and government entities.

Besides requiring certain plan features, the law also mandates detailed reporting requirements, both to the Department of Labor and other government agencies and to employees and covered members under your policies. While ERISA was first enacted in 1974, recent changes under the Patient Protection and Affordable Care Act (PPACA) have added additional requirements and changed reporting deadlines.


If you offer any of the above-mentioned health and welfare benefits, you must meet specific requirements, specifications, and deadlines for plan documents under ERISA as well as under PPACA.
The key ERISA and PPACA provisions are listed here and details of each follow:
• distribute a written plan document and Summary Plan Description (SPD) for every health and welfare benefit and any voluntary benefit pre-taxed under a 125 plan to all plan participants including spouses and COBRA enrollees,
• distribute ERISA benefit notices to all eligible employees on enrollment and re-enrollment of your health plan,
• notify participants of any change to a plan that materially affects the design or pricing,
• file Form 5500 and all applicable schedules within 7 months after the plan year ends for each plan that has more than 100 participants (not just employees) on the first day of the plan year,
• meet all fiduciary standards and plan terms,
• establish a trust fund that holds the plan’s assets, if applicable,
• establish a recordkeeping system to track contributions, benefit payments, maintain participant and beneficiary information, and to prepare reporting documents,
• provide a summary of benefits and a coverage explanation (SBC) and documentation of how and when it was distributed each year,
• verify fiduciary bonding needs for individuals handling funds and other property of employee benefit plans like a 401(k) plan, if applicable.
The deadline for each requirement varies, depending on when your plan was enacted, whether it is grandfathered under PPACA, whether material changes have been made, and other exceptions.  Copies of certain plan documents must be also available to participants and beneficiaries on written request.

SPD and Wrap Requirements
An employer must have a written Summary Plan Description (SPD) for each separate welfare benefit plan, informing participants of eligibility requirements, benefits, claims and appeals procedures, and rights under ERISA.  Your insurers may provide some but not all information required for SPD compliance.   It is a common mistake by employers to think the summary insurance information they receive from their insurance provider meets the SPD requirements.
A common approach is to combine all SPDs into one overall SPD Wrap notice, tying in the required ERISA language and simplifying the SPD notice process.  A customized SPD Wrap must include the name of the plan, plan sponsor, plan administrator, plan year, employer tax identification number, type of welfare plan, type of administration, summary of the benefits, detailed description of plan benefits for group health plans, provider network availability for group health plans, procedures for Qualified Medical Child Support Orders (QMCCOS), COBRA rights, plan contributions, and claims procedures. A Statement of ERISA Rights is also required.
The SPD and Wrap must be distributed to newly-enrolled participants within 90 days of when coverage started, or within 120 days of a new plan being established.

ERISA Benefit Notices

All eligible employees must receive ERISA Benefit Notices upon enrollment and re-enrollment of your health plan.
Depending on company size and other criteria, you may be required to provide employees with the following employee notifications:
• Medicare Part D Notice
• CHIP (if applicable in your state)
• Wellness Program Disclosure
• Women’s Health & Cancer Rights
• Hospital Stay Rights for Childbirth
• Mental Health & Parity Act
• HIPAA Notice
• Disclosure of Grandfather Status
• COBRA Rights – Initial Notice
In the event of certain Qualifying Events, additional required notices may include:
• COBRA Qualifying Event Letter
• HIPAA Breach Notice
• Medical Child Support Order Notice (MCSO)
• National Medical Support Notice (NMS)

Form 5500 and Summary Annual Report

ERISA further requires employers with 100 or more participants to annually report certain information to the DOL on Form 5500.
Form 5500 returns ask for information about the plan, including plan name, plan year, plan sponsor, plan number, participants, insurance costs, and financial data. Employers who set up an SPD Wrap can file one 5500 report for the SPD Wrap covering all health and welfare plans.
Once a Form 5500 is completed and filed, you must prepare a Summary Annual Report (SAR) for each of your welfare benefit plans subject to ERISA reporting, or just one if done under an SPD Wrap. The SAR summarizes Form 5500 information and notifies participants Form 5500 has been filed and a copy is available to those who request a copy.  SARs must be distributed to covered participants within nine months after the end of the plan year.  A SAR is not required for plans that are not required to file a Form 5500.


The Department of Labor’s Employee Benefits Services Administration (EBSA) routinely conducts audits of group health benefit plans to investigate or audit the plan’s compliance.  In addition, the Health Benefits Security Project (HBSP) was recently established under PPACA to add to EBSA’s compliance and enforcement initiatives.  It has been reported that smaller groups of fewer than 100 are being particularly targeted since the DOL does not have the ability to monitor them through a Form 5500 filing.   Audits are anticipated to increase significantly, given increased audit budgets and concerns over ERISA and PPACA violations.
If your company is selected for a DOL audit, a letter will be sent to the Plan Sponsor containing the list of documents the DOL would like to review.  The request for information typically goes back three to six years.


Every audit is unique.  However, reported trends show the following are typical areas of concern, in recent audits:
• Summary Plan Descriptions
• HIPAA compliance, particularly notices to employees about special enrollment rights
• PPACA Grandfathered Plan notices and documentation of coverage for adult children
• PPACA lifetime and annual limit requirements
• inadvertently excluding people who may be eligible to participate in the plan, including dependents up to age 2

The DOL reports common audit triggers include:

• the Department’s internal audit initiatives
• employee complaints
• press tips and public visibility of a company or its third-party vendors
• the Department’s Memorandum of Understanding with the IRS
• form 5500 filings inconsistencies or suspect information
• an audit of a plan’s auditor (if 100+ group)
• randomly selected
In the future, DOL audits will also likely focus on:
• employer communications and documentation
• employer reporting requirements
• coverage of essential health benefits, cost-sharing and out-of pocket limits for applicable plans
• annual limits, on non-essential health benefits only
• structure of group health benefit plans and offers of coverage
• waiting period limitation of 90 days
• exchange notice documents
• adherence to PPACA requirements

The employer is solely responsible for ERISA compliance.  Penalties may be enforced for failure to comply with ERISA regulations, including DOL enforcement actions and penalties as well as employee lawsuits. Certain infractions can entail up to $100/day penalty for every employee that is affected by a violation until the violation is corrected.  The penalty for late delivery of SPD or Wrap can be as much as $110/day per plan.  Late filing of form 5500 can result in fines as high as $1,100 per day.

The DOL estimate three out of four plans they audit have an ERISA violation, and about 70 percent of audits with violation have resulted in monetary fines to the employer.


Knowledge and familiarity of compliance requirements, complete documentation, and policies that show good faith efforts to comply are the best way to be prepared for an audit (as well as to avoid one in the first place).

Below is a summary of the items you should have in place to ensure ERISA compliance.

•  ERISA & PPACA requirements mentioned above
• Written ERISA plan document
• SPDs or the combined SPD Wrap prepared and distributed to all plan participants within 90 days of first day of coverage
• Summary of Material Modification (SMM) for any amendments such as carrier change, eligibility change, benefit structure change, etc. to your plans
• Form 5500 and SAR filed annually (only if you have over 100 enrolled participants in any benefit)
An organized employer with meticulous records who has a health insurance broker who helps review all of the company’s compliance materials annually will be in much better shape, if faced with a DOL audit than an employer who isn’t prepared.

by Rhonda Hollier, HR Coach, HR Service, Inc.

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Performance Management – Setting expectations and a path to achieve them

You can only achieve success if success is defined. Setting expectations means that you establish necessary outcomes for yourself and your teams. A goal is never reached if a plan is not designed to get us there. You must design how you’re going to achieve objectives by laying out a plan. Good expectations speak to ownership and empowerment. You must take ownership of the objective and approach. Expect the same from your employees through empowerment.

If you approach each day, each task, each unforeseen circumstance with the “it depends on me” attitude, and then act on it, you will be successful. This does not mean that you have to do it all ourselves – quite the contrary. If each member of your team used this approach then you would all own any solution and achievement by doing the very best and very most within your realm of assignment and accountability, and increase this realm as you go.

Performance Management Ingredients

There are three simple ingredients that can assure success in performance management:
1) What to communicate
2) How to communicate
3) What methods and resources to use

What to communicate for performance

You have ample opportunities to communicate with individuals, teams, groups, peers, etc. Effective management of performance is a result, in part, of leaders communicating the right message at the right time.

Goals and Objectives

Clearly communicate goals, objectives, expectations, and the reasons behind them. Everyone needs to know what they’re working
toward on a company, departmental, team, cell, and individual level. If you don’t know, you won’t reach it.
Define the parameters and with what independence you’re able to work. This helps employees define their roles and makes goals personal and achievable. Every person who makes an assignment must know the reason why and communicate that reason to the person who received it. Be prepared to offer the reasons in varying degrees of detail. In some cases, too much detail may make the recipient feel like they are being talked down to – “as if I didn’t know better.” In other cases, not enough detail can leave the employee feeling overwhelmed or confused.

What has been accomplished

Communicate achievements, performance metrics, failures, and benchmarks. Communicating these items motivates and challenges employees in their work. If they know that they accomplished something, most employees will do their best to repeat what they did to get there. If they don’t know what was accomplished (i.e., we haven’t told them), how do they know what their effort is worth? Conversely, when employees know of their failures or shortcomings, you can work together to make a change. Communicating performance metrics, measurements and benchmarks will reiterate what can and needs to be done.

What needs to be accomplished

At this point, you have identified any lag and what ground must be made up. As you do so, be sure what effort is required to achieve the overall goal. Therefore, high standards should be set. If you are on target, it is time to reinforce the effort, behavior, and foresight that put the team in that position, and redefines objectives.

How we get there

You accomplish and fulfill goals, objectives, and expectations in many ways. One way to do it is to use a DRRRIFT approach!

Develop – People’s development is essential. The majority of employees want to have increased responsibility with increased performance results. Development of procedures is also essential to do things a better or more efficient way. Reinforce – if you know what you did right, you can repeat it.  Repeat – good habits are hard to break. Achieving a pace and familiarization with tasks leads to consistent efficiency. A repetition is a form of development within a single scope by practice. Repetition is also a good way to teach and remind. Recognize – Know when a milestone is hit and reward it. Milestones could be anniversaries, birthdays, learning objectives, performance objectives, creative solutions, housekeeping, and new responsibilities. Rewarding could be an expression of gratitude, an announcement, a prize, a certificate/certification, additional responsibility/project, promotion, a treat, etc. Improve – when you know where you need to be strengthened, you will act in ways to make the improvements. Focus – if you can keep everybody on task you won’t have to worry about sidetracks and tangents, and everybody can motivate each other to accomplish the task. This can also help so that you don’t have to redo work you’ve already done. Train/Instruct – Show somebody how to do it. Give them sound principles and theories to build on. Give them all options to consider and let them choose the best course. Support and assist, along the way while following up.

How to Communicate for Performance

Communication occurs when a message is transmitted to the receiver, the receiver receives it, and acknowledgment is made.
In order to complete the communication cycle, the way you communicate must be the most effective for the situation you’re in.
It is important to remember the potential ego states of the individuals in a communication loop; which are often compared to “Parent, Child, and Adult.”

• The “Parent” is over-controlling, judgmental, commanding, pre-recorded, life-giving, and/or prejudiced.
• The “Child” is carefree, impulsive, emotional, irresponsible, spontaneous, and/or self-centered.
• The adult is emotionless, analytical, mature, logical, objective, and fact-based.
When dealing with difficult or potentially charged communication, you should always remain in the adult ego state, and do our best to
bring the other party there as well.

By Dusty Fenwick, Human Resource Manager, Cabinetry by Karman

How Attitude Affects Your Business

It is a proven fact that 65% percent of most businesses don’t make it through their first year, and another 40% of those businesses don’t make it through the next three years. The businesses that survive deliver a good product, have implanted good systems, have good people and have a strong person driving the ship. They understand that success doesn’t just happen. It takes a lot of work and perseverance. The owner understands that he/she is responsible for the business and acts accordingly. The business owner that doesn’t survive typically doesn’t take full responsibility for their actions, rationalizes failures and lives in denial.

Each of us is faced with choices every single day, as indicated on the choices line in Graph 1. We can decide when to sleep, what to wear, what to eat, whether to work, train our staff, be motivated, work as a team, do our best for the company, etc. You get the point. Most every choice we make not only affects us personally, but affects those around us as well. For example, if you eat deep fried foods every day, it will affect how you feel, look and act. Eventually, it will affect your health and ability to work and play. It may cause severe health problems and possibly end your life earlier than anticipated thus affecting your friends, coworkers and family. If an employee chooses not to come to work, it may affect coworkers, customers, his manager and the overall organization. The same could be said for choosing to look for the negative in others or whether or not to do your best work.

The choices we make have far reaching implications to us and others.

Living Below the Line

All of us know someone that blames others for everything wrong in their life. We also know people that make excuses for their lack of responsibility and ability to execute. Many times these same people are living in denial thinking that everything is just fine. Those that fall into that category are living below the line. Each of us falls below the line at times in our life. The trick is realizing that we go nowhere when we fall below the line and then finding our way back to the top. These individuals tend to be angrier and negative towards others. Many times their self-esteem is at risk as well. They consider themselves “victims” and instead of moving forward, they are pointing fingers at others or rationalizing why they are failing.

Living Above the Line

At the other end of the spectrum are those that live their lives above the line. These individuals tend to believe that life is what you make it. They take ownership, accountability and responsibility for everything that happens in their life. If things are going good or bad, they accept responsibility for their actions and make necessary changes to ensure that they always stay above the line. These individuals tend to be happier and look for the good in others and always look to turn the negatives into a learning experience. Those above the line are the “victors” who drive and motivate similar behavior in others. Choosing to operate above the line brings about results that have far reaching positive impacts on others, not to mention sets an example and tone for the organization.

Attitude in Others

Not only do we have to consider our own attitude, but bring people to our organization that have the right attitude as well. Having the right team to serve your customers and operate your business will also make or break your organization. Focus selection techniques and interview questions on finding people who live above the line and have the work ethic and overall personality needed to thrive at your organization. Too often, leaders hire on experience only and neglect the importance of attitude and personality.
When attitudes slip in employees, and believe us they will, coach them to stay above the line in keeping positive, accepting responsibility, being accountable and owning up to their challenges. When you hear blame placing, excuses and see acts of denial, find positive opportunities to coach employees to get back on the right track.

Charles Swindoll wrote, “The longer I live, the more I realize the impact of attitude on my life. Attitude, to me, is more important than facts. It is more important than the past, than education, than money, than circumstances, than failures, than successes, than what other people think or say or do. It is more important than appearance, giftedness or skill. It will make or break a company…a church… a home. The remarkable thing is we have a choice every day regarding the attitude we will embrace for that day. We cannot change our past… we cannot change the fact that people will act in a certain way. We cannot change the inevitable. The only thing we can do is play on the one string we have, and that is our attitude. I am convinced that life is 10% what happens to me and 90% how I react to it. And so it is with you… we are in charge of our attitude.

Building positive work environments starts with leaders and spreads through the organization. Be the person to set the tone in your organization. Chose to live above the line and when you slip into the victim state of blame placing, excuses and denial, get back to the top taking ownership, be accountable and be responsible for your choices. Hire and build teams who do the same. Commit to changing the negative aspects of your life and move to a better place. It’s such a simple principle and explains so many things in our personal and business lives.  Live above the line!

How to Complete ACA Reporting 

As we move closer to the Affordable Care Act (ACA) report filing deadlines, many organizations are faced with the daunting task of completing the IRS ACA reporting documents. The IRS recently released final forms and instructions. Although most of this article does not apply to organizations with fewer than 50 FT or Full-Time Equivalents (FTEs) who offer fully insured plans, they too must understand when these requirements apply.
This article will provide important areas of consideration and some guidance to help make your ACA Reporting smooth and effective.

Who needs to file?

Employers with 50 or more employees are considered Applicable Large Employers (ALEs) and must report and employers of any size who provide employer-sponsored self-insured health coverage. ALEs are those with 50 or more FTEs on business days in the preceding calendar year. Employees of all entities under common ownership must be counted. Employers with fewer than 50 FTEs who provide employer-sponsored self-insured health coverage are held to the same reporting requirements as ALEs.

Control Group/Common Ownership Consideration

Don’t forget the Employer’s Aggregation Rules. Companies that have a common owner or are otherwise related under rules of IRC section 414 typically fall into one bucket and are treated as a single employer for determining ALE status and are subject to the employer shared responsibility provisions, even if separately the employers would not be an ALE, and even if each entity has its own separate EIN. Which Reports do I need to file?

1. 1094-C and 1095-C: Employers with 50+ employees will need to use these forms to report both fully-insured and self-insured plans. Once completed for each employee, they must be submitted to the IRS using submittal form 1094-C.

2. 1094-B and 1095-B: Employers with fewer than 50 employees who provide employer-sponsored self-insured health coverage will use form 1094 & 1095-B. Click here for 1094-B and 1095-B IRS instructions.

What information is required?
Employers with 50+ employees will complete the “C” reporting regardless of whether sponsoring or participating in a fully insured or self-funded plan. The “B” reporting is for insurance carriers, small self-funded plans, and employers.

Employers must complete Form 1095-C for each full-time employee and distribute to full-time employees by Jan. 31 of each year and “transmit” all the individual 1095-Cs (information return) to the IRS along with Form 1094-C (transmittal form).
There is a system of codes (explained below) employers must use in various forms to indicate the employee’s employment and health coverage with the employer during the 2015 calendar year.

How do I complete the forms?

Under section 6055/6056, returns must be filed with the IRS according to the following instructions:


An employer must file a Form 1094-C (Transmittal Form) when it files one or more Forms 1095-C. Click here for full IRS 1094-C instructions.

Part I: Applicable Large Employer Member (ALE)

Line 1-8: Enter employer information and individually responsible for answering questions.

Lines 9-16: Designated Governmental Entities (DGE) only.

Line 17: Leave blank

Line 18: Enter the total number of Forms 1095-C that is being transmitted with Form 1094-C.

Line 19: If this is the Authoritative Transmittal for this ALE member, then check the box on Line 19  (One Authoritative Transmittal must be filed for each ALE, even if the employer files several 1094-Cs or if the ALE is a member of an aggregated group.) Authoritative Transmittal: Form 1094-C designated as the Authoritative Transmittal. However, an employer may file multiple Forms 1094-C, one “Authoritative Transmittal” Form 1094-C, identified on Line 19, Part I as the Authoritative Transmittal. One of the filed Forms 1094-C is designated as the Authoritative Transmittal and reports aggregate employer-level data. There must be only one Authoritative Transmittal filed for each employer. 

If this is the only Form 1094-C being filed for the employer, this Form 1094-C must report aggregate employee-level data for the employer and be identified on Line 19 as the Authoritative Transmittal.

PART II: ALE Member Information

Lines 20-22 to be completed only on the Authoritative Transmittal.

Line 20: The total number includes all Forms 1095-C that are filed for any individuals who enrolled in the employer-sponsored self-insured plan and that are filed with a separate transmittal filed by or on behalf of the employer.

Line 21: Check “No” and do not complete Part III, column (d), or Part IV if, for all 12 months of the calendar year, the employer was not a member of an Aggregated ALE Group.

Line 22: An employer may be eligible to use an alternative reporting method and/or a form of transition relief if any of the following apply:

1. Qualifying Offer Method: An employer is eligible to use this method if it certifies it made a qualifying offer of Minimum Essential Coverage (MEC) providing minimum value to at least one full-time employee for all months during the year in which the employee was a full-time employee for whom an employer shared responsibility payment could apply. Click here for additional details available under Part II, line 22 of the IRS instructions.

2. B. Qualifying Offer Method Transition Relief for 2015: An employer is eligible to use this method if it certifies it made a qualifying offer for at least one month in the calendar year 2015 to at least 95% of its FTEs. This does not include employees in a Limited Non-Assessment Period,e., a period during which an ALE is not subject to the employer pay-or-play penalty for a full-time employee, whether or not the employee was offered health coverage during that period. A Limited Non-Assessment Period generally refers to a period during which an ALE Member will not be subject to an assessable payment under section 4980H(a), and in certain cases section 4980H(b), for a full-time employee, regardless of whether that employee is offered health coverage during that period. Click here for LNAP examples.

3. Section 4980H Transition Relief: An employer is eligible to use this method if:

• The employer is an ALE or is part of an Aggregated ALE Group that had 50 to 99 full-time employees, including full-time equivalent employees, on business days in 2014;
• During the period of February 9, 2014, through December 31, 2014, the ALE or the Aggregated ALE Group of which the employer is a member did not reduce the size of its workforce or reduce the overall hours of service of its employees to qualify for the transition relief; and
• During the period of February 9, 2014, through December 31, 2015 (or, if the employer has a non-calendar-year plan(s)), ending on the last day of the 2015 plan year) the ALE or Aggregated ALE Group of which the employer is a member does not eliminate or materially reduce the health coverage if any; it offered as of February 9, 2014.

For an employer that is eligible for this 2015 transition relief, no assessable payment under section 4980H(a) or (b) will apply for any calendar month during 2015 and, if the employer has a non-calendar-year plan, will not apply for the portion of the 2015 plan year that falls in 2016.
1. 98% Offer Method: An employer is eligible to use this method if the employer offered affordable health coverage providing minimum value to at least 98% of its employees. It was filing a Form 1095-C and offered Minimum Essential Coverage to those employees’ dependents. If an employer uses this method, it is not required to complete the “Full-Time Employee Count” in Part III, column (b).

PART III: ALE Member Information-Monthly (Lines 23-25)

Column (a): MEC Offer Indicator – Note that although the instructions below say 95%, they also clarify later (page 16) that an employer can check yes if it offered coverage to at least 70% of full-time employees for calendar months in the 2015 plan year.

• Check yes if the employer offered minimum essential coverage to at least 95% of its full-time employees and their dependents for the entire calendar year on Line 23 for “All 12 Months” or for each of the 12 calendar months.
• Check yes for each applicable month if the employer offered minimum essential coverage to at least 95% of its full-time employees and their dependents only for certain calendar months.
• Check no for months, if any, for which the employer did not offer minimum essential coverage to at least 95% of its full-time employees and dependents.
• Check no if the employer did not offer minimum essential coverage to at least 95% of its full-time employees and their dependents for any of the 12 months for “All 12 Months” for each of the 12 calendar months.

However, an employer that did not offer minimum essential coverage to at least 95% of its full-time employees and their dependents but is eligible for certain transition relief described in the instructions later under Section 4980H Transition Relief for 2015 should enter an “X” in the “Yes” checkbox for Part III, Line 23, column (a), as applicable. Click here for Section 4980H Transition Relief for 2015.

Column (b): Full-Time Employee Count for ALE Member.   Enter the number of full-time employees for each month, but do not count any employee in a Limited Non-Assessment Period (LNAP). (If the number of full-time employees (excluding employees in a Limited Non-Assessment Period) for a month is zero, enter “0”). LNAP applies when someone is not offered coverage because they are within a measurement period to determine eligibility. Note the difference! In column (b), do not count employees in an LNP; but in column (c), employers include employees in an LNP in the count.

Column (c): Total Employee Count for ALE Member.

Enter the total number of all of your employees, including full-time employees and non-full-time employees and employees in a Limited Non-Assessment Period, for each calendar month. An employer must choose to use one of the following days of the month to determine the number of employees per month and must use that day for all months of the year:

• The first day of each month;
• The last day of each month;
• The 12th day of each month;
• The first day of the first payroll period that starts during each month;
• The last day of the first payroll period that starts during each month (provided that, for each month, the last day falls within the calendar month in which the payroll period starts).

If the total number of employees was the same for every month of the calendar year, enter that number inline 23, column (c) “All 12 Months,” or in the boxes for each calendar year. If the number of employees for any month is zero, enter “0”.

Alternative Reporting Method

An employer that is eligible to use the Qualifying Offer Method may furnish each full-time employee who didn’t enroll in self-insured coverage with either a copy of Form 1095-C as filed with the IRS or a statement containing:
• Employer name, address, EIN and contact name, and telephone number for additional information about coverage and employee information filed with IRS.
• A statement indicating the employee, spouse, and dependents, if any, received a Qualified Offer for all 12 months of the calendar year and are therefore not eligible for a premium tax credit and directing the employee to IRS Pub. 97, Premium Tax Credit (PTC) for more information.
Column (d): Aggregated Group Indicator
An employer that checked “yes” on Part II, Line 21, must complete this column. The employer has the option to check Line 23 or to check some or all of Lines 24-35, as applicable. If any checks are made in this column, the employer must complete Part IV.
Column (e): Section 4980H Transition Relief Indicator An employer that selected C on Part II, Line 22 (certifying that it is eligible for Section 4980H Transition Relief), must enter either: 

• Code A, if it is eligible for relief as an employer with 50-99 full-time employees; or
• Code B, if it is eligible for relief as an employer with 100 or more full-time employees and is eligible for the increased offset (from 30 to 80) allowed to be used for calculating penalties.

PART IV: Other ALE Members of Aggregated ALE Group (Lines 36-65)
An employer that checked “yes” on Part II, Line 21, must complete this part. Click here for further instructions.

An ALE must file a Form 1095-C (Information Return) for each employee who was a full-time employee for at least one month of the calendar year, even if the employee was not offered or enrolled in coverage. An ALE that sponsors a self-insured plan must file a Form 1095-C for each employee, regardless of full-time status, who enrolls in the coverage or enrolls a family member in the coverage. Click here for full IRS 1095-C instructions.

Part I: Employee/ALE Member (Employer)
Lines 1-6: Employee’s name, address, and SSN.
Lines 7-13: Enter Employer’s Name, EIN, complete address, name, and telephone number of the contact person responsible for answering questions (should match the one used on Form 1094-C).  Part II: Employee Offer and Coverage (Lines 14-16) Click here for full instructions. 

Line 14: Employer Offer of Health Coverage

Table 1: LINE 14

For each calendar month, enter the applicable code from Code Series 1. If the same code applies for all 12 calendar months, enter the applicable code in the “All 12 Months” box and do not complete the individual calendar month boxes or complete all individual calendar month boxes.
An employer offers health coverage for a month only if it offers health coverage that would provide coverage for every day of that calendar month. Thus, if an employee terminates coverage before the last day of the month, the employee does not actually have an offer of coverage for that month. See line 16, code 2B later, for how the employer may complete line 16 if an employee terminates coverage before the month’s last day.

If the employee was a full-time employee for at least one calendar month, a code must be entered for each calendar month, January through December, even if the employee was not a full-time employee for one or more calendar months. Enter the code identifying the type of health coverage actually offered by the employer (or on behalf of the employer) to the employee, if any. Do not enter a code for any other type of health coverage. The employer is treated as having offered (but the employee was not actually offered coverage). For example, do not enter a code for health coverage the employer is treated as having offered (but did not actually offer) under the dependent coverage transition relief or non-calendar year transition relief, even if the employee is included in the count of full-time employees offered minimum essential coverage for purposes of Form 1094-C, Part III, column (a). If the employee was not actually offered coverage, enter Code 1H (no offer of coverage) on line 14.

For reporting offers of coverage for 2015, an employer relying on the multiemployer arrangement interim guidance should enter code 1H on line 14 for any month for which the employer enters code 2E on line 16 (indicating that the employer was required to contribute to a multiemployer plan on behalf of the employee for that month and therefore is eligible for multiemployer interim rule relief). For a description of the multi-employer arrangement interim guidance, see Offer of health coverage in the Definitions section.

For reporting for 2015, Code 1H may be entered without regard to whether the employee was eligible to enroll or enrolled in coverage under the multiemployer plan. For reporting for 2016 and future years, ALE Members relying on the multiemployer arrangement interim guidance may be required to report offers of coverage made through a multi-employer plan differently.

Code Series 1: These codes specify the type of coverage offered to an employee and their spouse and dependents. The codes, which are used to assess employee and family member eligibility for premium tax credits for coverage through the exchange, are:

1A: Qualifying Offer.
1B: MEC providing minimum value offered to the employee only.

1C: MEC coverage provides minimum value to the employee, and at least MEC offered to the employee’s dependent(s), but no spouse.

1D: MEC provides minimum value to the employee, and at least MEC offered to the employee’s spouse, but not dependent(s).

1E: MEC provides minimum value to the employee, and at least MEC offered to the employee’s dependent(s) and spouse.

1F: MEC not providing minimum value offered to the employee; to the employee and the employee’s spouse or dependent(s); or to the employee and the employee’s spouse and dependents.

1G: Offer coverage to an employee who was not a full-time employee for any month of the calendar year and who enrolled in self-insured coverage for one or more months.

1H: No offer of coverage.

1I: Qualifying Offer Transition Relief 2015.
Even if an employee was not a full-time employee for one or more months, a code must be entered for each calendar month. These codes identify the type of health coverage actually offered by the employer.
Line 15: Employee Share of the Lowest Cost Monthly Premium for Self-Only Minimum Value Coverage.

Table 2: LINE 15
Complete Line 15 ONLY if code 1B, 1C, 1D, or 1E is entered on Line 14. If you are using 1A inline 14, Qualifying Offer Method, leave Line 15 blank for any month for which a Qualifying Offer is made.

Enter the amount of the employee share of the lowest-cost monthly premium for self-only MEC providing minimum value that is offered to the employee. To determine the monthly employee premium for the plan year, divide the total employee share of the premium for the plan year by the number of months in the plan year. If applicable, enter dollars and cents, and if no employee contribution is required, enter “0.00” – do not leave blank. If the same amount applies to all 12 months, an employer may enter the amount either once in the “All 12 Months” box or each monthly box. If the amount was not the same for all 12 months, an employer should enter the amount in each calendar month for which the employee was offered minimum value coverage. If you entered 1G, 1F, 1H, or 1I inline 14, leave line 15 blank.

Line 16: Applicable Section 4980H Safe Harbor. 

The codes here indicate that one of the following situations applies to the employee:
• The employee was not employed or was not employed full-time;
• The employee enrolled in the MEC offered;
• The employee was in a limited non-assessment period;
• Non-calendar-year transition relief applied to the employee;
• The employer met one of the Sections 4980H affordability safe harbors concerning this employee; or
• The employer was eligible for multi-employer interim rule relief for this employee.

Table 3: LINE 16
Only one code may be entered per calendar month. If none of the codes apply for a particular calendar month, boxes may be left blank. When more than one code applies for the same month, use code 2C for any month in which an employee enrolled in MEC. If the same code applies to all 12 months, an employer may enter the code either once in the “All 12 Months” box or each monthly box.

Code Series 2: An employer should understand all of the following code descriptions:
2A: To be used if an employee was not employed on any day of the calendar month. This includes terminated employees who were enrolled in COBRA coverage. Not to be used for a month in which the employer employed the individual for any day of the month or for the month in which employment ends.
2B: To be used if an employee was not a full-time employee for the month and did not enroll in MEC, if offered for the month, or was a full-time employee for the month and whose coverage or offer of coverage ended before the last day of the month solely because the employee terminated employment during the month. (Assumes the coverage or offer of coverage would have continued if the employee had not terminated employment.).

It was also to be used for January 2015 if an employee was offered health coverage no later than the first day of the first payroll period in January 2015. The coverage offered was affordable and provided minimum value.

2C: To be used if an employee enrolls in coverage offered. Not to be used if code 1G is entered in the “All 12 Months” box in Line 14 because the employee was not a full-time employee for any months of the calendar year. Also, not to be used for any month in which a terminated employee is enrolled in COBRA continuation coverage (enter code 2A instead).
2D: To be used for any month in which an employee was in a limited non-assessment period. Also, to be used if an employee was in an initial measurement period, rather than code 2B. Not to be used for an employee in a limited non-assessment period for whom the employer is also eligible for the multiemployer interim rule relief for the month (enter code 2E instead).
2E: To be used for any month for which the multiemployer arrangement interim guidance applies for the employee, regardless of whether any other code might also apply. If code 2C, 2F, 2G, or 2H also applies, enter code 2E.
2F: To be used if the employer used the Section 4980H Form W-2 safe harbor to determine the employee’s affordability for the year. If the safe harbor is used for an employee, it must be used for all months of the calendar year for which the employee is offered health coverage. (I.e., an employer cannot use W-2 safe harbor for some months and another safe harbor for others, for the same employee.)
2G: To be used if the employer used the Section 4980H federal poverty line safe harbor to determine the employee’s affordability for any month(s).
2H: To be used if the employer used the Section 4980H rate of pay safe harbor to determine the employee’s affordability for any month(s).
2I: To be used if non-calendar-year transition relief applies to the employee for the month.
Part III: Covered Individuals (Lines 17-22) Click here for full instructions. Complete this part ONLY if the employer offers employer-sponsored self-insured health coverage in which the employee or other individual enrolled. Employer-sponsored self-insured health coverage does not include coverage under a multiemployer plan.

Table 4: PART III
An ALE Member with a self-insured major medical plan and a health reimbursement arrangement (HRA) must report the coverage of an individual enrolled in both types of MEC coverage under only one of the arrangements. An ALE Member with an insured major medical plan and an HRA are not required to report HRA coverage of an individual if they are eligible for the HRA because they enrolled in the insured major medical plan. An ALE Member with an HRA must report coverage under the HRA for any individual who is not enrolled in a major medical plan of the ALE member (e.g., the individual enrolled in a spouse’s employer’s group health plan).
Only complete the checkbox if the employer is completing Part III. This part must be completed by an employer offering self-insured health coverage for any individual who was an employee for one or more calendar months of the year, whether full-time or not, and enrolled in the coverage.

The family members must be included on the same form as the employee if they have covered family members on the same plan (employee elected family coverage). This part may be completed by an employer that offers self-insured health coverage for individuals who enrolled in the coverage for at least one calendar month of the year and who were not employees for any calendar month. An employer that reports on any individual who was not an employee for any month of the calendar year must be sure to complete Part II, Line 14, using code 1G in the “All 12 Months” box or the box for each month. If a non-employee individual enrolls in coverage under a self-insured health plan, all family members covered due to the individual’s enrollment must be included on the same Form 1095-B or Form 1095-C who is offered and enrolls in the coverage.

Columns (a) through (c): Require the names, SSNs, and dates of birth of each individual enrolled in the coverage, including the employee reported in Part I, Line 1. Only enter a date of birth in Column (c) if there is no SSN reported in Column (b). For covered individuals who are not the employee, a tax identification number (TIN) may be entered if the covered individual does not have an SSN. Column (d): If the individual was covered for at least one day per month for all 12 months of the calendar year. Column (e): If an individual was not covered for all 12 months, the employer must check the box(es) corresponding to the month(s) in which the individual was covered for at least one day.

By: Kay Gillespie, HR & Compliance Coach & Deborah Siddoway, HR Solutions Director, HR Service, Inc. & ERISA Solutions


By now you have likely heard of the Department of Labor’s new Final Rule on the annual salary minimum for exemption from overtime. The December 1, 2016 effective date gives employers approximately six months to assess the impact of the new salary limits; make decisions about what changes to make to ensure compliance; implement new policies, procedures and systems to support the new changes; communicate the changes to those who will be impacted; and train leaders how to manage the changes.

Establish Who Will Not Be Impacted by the new law

Employees who are being paid on an hourly basis and paid overtime for hours worked over 40 per week will not be impacted. Certain professionals including outside sales employees, physicians, lawyers, judges, teachers and certain academic administrative personnel in educational institutions are not subject to the new salary limits. Certain retail employees paid on a commissioned basis will also not be impacted. There is no change to the annual salary limit for computer professionals who qualify for the DOL’s exemption for computer professionals, but the weekly limit will be raised to $913 per week. (See DOL Computer-Related Exemptions Fact Sheet.)

  • Determine Who Will Be Impacted Identify all current salaried, exempt employees who make less than $47,476 per year. The $47,476 minimum can include no more than 10% from nondiscretionary bonuses, incentive payments, and commissions that are paid at least quarterly. If you have employees who are not paid the same salary amount throughout the year, identify any who make less than $913 per week. Identify any employees who are currently making less than $134,004 and do NOT meet the full criteria for executive, administrative, professional, outside sales, or computer-related exemptions. (See DOL Highly-Compensated Workers Exemption Fact Sheet.) Also review the duties of all employees currently classified as exempt, regardless of income, to ensure they meet the “duties tests” of exemption eligibility. While the duties tests for exemption eligibility did not change, now is a good time to reclassify exempt employees whose duties have changed or who have been misclassified. (See DOL Exemption Fact Sheet.)
  • Consider Options for Impacted Employees Raise income to meet new levels — You may choose to raise an employee’s income to retain the exempt status, as long as they also meet the duties tests. This option is best for employees who have salaries close to the new salary level and who regularly work overtime. The salary minimum may include up to 10% in the form of non-discretionary payments. For example, employees earning a base pay of $42,728.40 plus at least 10% in commissions or bonuses paid on at least a quarterly basis may qualify for exemption status under the new limits. If the non-discretionary payment in a given quarter does not add up to the required minimum, the employee must be paid overtime pay for any overtime hours worked throughout that quarter or receive a “catch-up” payment at the end of the quarter to make up the difference. Salaried non-exempt — You may choose to pay impacted employees as salaried, non-exempt. Employees would continue to earn an established salary, but be paid overtime pay for any hours worked over 40 in a week. This option is ideal for employees who work 40 hours or fewer in a typical workweek and rarely work overtime. Reclassify as hourly non-exempt — You may choose to re-classify employees below the salary limit to hourly non-exempt. Their converted rate of pay could be a division of their salary rate by 2,080 hours, or it could be lower to accommodate for overtime anticipated to be paid. Estimate average overtime to be earned and determine whether to reduce base pay to compensate for overtime to be paid. Determine whether you can limit or eliminate overtime hours. Evaluate workload, to determine whether some tasks can be re-assigned or eliminated to limit overtime. Determine whether hiring part-time employees to manage workload and limit overtime would be beneficial. Consider whether reclassifying employees as non-exempt might affect eligibility for certain employee benefits, such as paid time off accrual, holiday pay, etc. Also consider how reclassification may impact morale.

  • Train Leaders and Supervisors Train leaders and supervisors on all policies and procedures associated with overtime rules, time tracking, and other associated issues. Address what constitutes compensable working time, disciplinary processes for unauthorized overtime, and ways to address complaints associated with these changes.

Communicate the new Changes 

Once all decisions have been made and policies and processes have been determined, notify employees of any changes that will impact them and when the changes will take effect. Be prepared to address employee concerns about the potential perceptions of demotion or loss of status, loss of flexibility or income potential, or other possible negative reactions. Communicate and have employees acknowledge any new policies or procedures associated with the changes.


  • Review Policies and Processes Ensure you have systems in place to monitor and record non-exempt employees’ hours. There are no specific federal requirements for tracking and recording hours, as long as the method is complete and accurate. For example, employees who typically work a fixed schedule could be required to submit only exceptions to their regular schedule. Implement or update policies regarding unauthorized overtime work, meal and rest breaks, and travel time. Address working from home or otherwise away from the workplace, including checking emails and taking or making phone calls, as this is considered a compensable time for non-exempt employees. If applicable, also consider travel policies for non-exempt employees, including how compensable time is defined and paid. Compliance & HR solutions providing what you need to know and do, when it’s needed.

Sources: U.S. Department of Labor Wage and Hour Division “New Overtime Rule Webinar Questions & Answers

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