ACA (“Obamacare”) Compliance Checklist for Employers
Many people don’t know that employer compliance with the ACA is self-reporting. That means that employers will be required to report their excise tax liabilities on their annual tax returns. The only way the feds will be able to check their work is going to be through audits. Since one of the primary mechanisms to fund the ACA is through collecting excise taxes, you bet your bottom dollar that audits will happen.
But the ACA was delayed. Didn’t we get an extra year to comply?
Well, first of all it is a huge mistake to think that the ACA delays mean that you do not have to do anything this year. You have probably heard that the penalties associated with the employer mandate were delayed until 2015. However, do you also know that the law itself was not delayed and there are many requirements that still impact employers? Some of these requirements carry a $100 per employee per day penalty for noncompliance.
Not only that, the law had transition rules that were going to give employers some leeway when they had to comply for 2014. With the delay in the employer mandate penalties, there are no more transition rules. Ignoring the ACA now is a huge mistake. You are not going to be able to use the excuse that you did not have time to plan. You were given an extra year to plan. Are you planning?
Why is this extra year important?
For starters, there are probably things you are doing this year that are impacting your obligations and taxes in 2015 and you may not even know about it. For example, if you want to take full advantage of the lookback-stability periods and administrative period in the ACA Regs, you would need to begin implementing changes in October or November of 2013. If you are not doing that, you could be giving money to the IRS in 2015 that could have stayed in your business. How much will that suck?
Not only that, the business owners I work with have already gotten a firm grasp of the law and are now starting to tweak their strategies. My new clients are often starting at square one trying to learn the basics. It is going to take them months before they are ready to start fine-tuning strategies so that they can save money. If you are not already thinking in this way, you are going to be giving your market share to my clients and funding the ACA by paying more than your fair share of excise taxes.
How do I prepare for an Audit?
Any one who has ever lived through an audit knows they are not fun. And I am not just talking about IRS audits. The Department of Labor’s Employment Benefits Services Administration (EBSA) will also be auditing for ERISA compliance.
Believe it or not, there are ways to make all audits less awful. When a business owner has every “i” dotted and “t” crossed, their audit is usually pretty short and painless. However, when a business does not have accurate records, can’t find documents, and has no explanation of why their books don’t jive, their audit is usually more painful and intrusive than a cavity search (not that I speak from experience – thank God.)
The ACA audits will be no different. If you are an employer and you have a well-documented strategy, accurate books and records and can show how you are complying with the ACA, your audit should be quick and painless. For those of you who do not even understand the Employer Mandate or the Controlled Group Analysis yet, get ready to bend over next year.
Preparing for an audit is not just pulling some papers together. Properly preparing for an audit entails:
(1) Learning the law
(2) Deciding on a strategy
(3) Implementing a strategy
(4) Documenting your strategy.
The following list is by no means exhaustive. Since everyone’s business is different, everyone’s audit will also be different. The documents you need will, to some effect, depend on the strategy you enlist. And since I am in the business of simplifying the ACA for employers, rather than confusing the bejeezus out of them, I have prepared this very simplified list for you to use as a starting point. My message to you is that at a bare minimum, you need to have these items ready:
Applicable large/small employer analysis
This is important both because you need to know this in order to plan for the ACA, but also because you may need to justify to your auditor why you have deemed yourself a large or small employer. If you are using the seasonal employee exception, you need to document why you think it applies to you. Likewise, if you believe you are not in a “controlled group” but your auditor thinks you are, it is only this documentation that is going to prove your case and save you from paying the $2,000 or $3,000 per employee penalties.
Lookback Period Analysis
The lookback period is how you are going to measure your employees full-time or part-time status over the previous year. Without the lookback period, you would be trying to figure out every month whether you had to offer your employees insurance or not. Using the lookback period can be a benefit, but only if you understand it, use it to your advantage and clearly document how you calculated your employees’ hours. As I mentioned earlier, if you want to take advantage of the full lookback and stability period as well as the full administrative period for 2015, you would have to begin in October or November 2013.
Census which reflects lookback period analysis
Again, this is how you will prove you followed the rules with your lookback analysis. Many of my clients have significantly reduced their penalty exposure simply by understanding this rule and properly implementing it with their staffs.
The Plan Document is required by ERISA and describes your plan’s terms and conditions. This has always been required but the ACA has created a new urgency to have this done, and done correctly. Since ACA compliance is self-reporting, the only evidence you will be able to rely upon in the event of an audit will be your own documentation. There are many strategic moves you can make with your plan document, but it better be properly documented or you could run afoul of ERISA laws.
Employee Handbooks that reflects any categories set forth in the Plan Document
This is especially critical if you are determining eligibility for different benefits based on class or category of employment. You have to be able to demonstration that you have an actual business reason to do what you are doing and what you are actually doing has to match your Plan Document. This provides a big opportunity for planning and also a big opportunity to step into a big pile of “it” with both the IRS and with the EBSA.
Summary Plan Description
This is different than the Plan Document. It is the plain English summary of the important features of the plan that you are required to give your employees.
Any Summary Material Modifications for the past 5 years (or the year before the ACA was enacted)
Generally, this Notice is required if coverage information changes after the first day of coverage and such change is not reflected in the summary plan description. This notice must be sent no later than 60 calendar days prior to the date upon which the change will become effective.
Exchange Notice (also known as the 1512 Notice)
Employers were required to give notice to all employees by October 1, 2103. In the future, this notice is required to be given within 14 days of employment.
Any documents provided to plan participants, preferably with a record of delivery for each plan participant
There are a number of notices I have prepared for my clients to provide to their employees. You should be giving your employees notice of various things as well – for example if you are offering insurance and a place for them to sign if they are declining coverage. Always keep a record of delivery for each notice you have provided. In the event any of your employees claim OSHA whistleblower status or seek a subsidy on the exchange because they claim you did not offer them insurance, your documentation may be all that stands between you and a penalty.
In addition to the basic list above, here are a few more:
- Current Insurance/Reinsurance Contract
- Current Renewal Form for fully insured plan
- Service Agreement with TPA if TPA has been retained (or any other vendor/fiduciary)
- Current Summary of Coverage if plan is fully insured (goes by a few different names, depending on insurer)
- Current Group Agreement if plan is fully insured
- Claims Data for the past 3 years (will only be available if plan is self-insured)
- Form 5500 Filing on plan for the last 3 years
- Summary Annual Reports for the last 3 years
- Summary of Benefits
- (In the future you will need Form 8928 for self-reporting, but that was delayed until 2015)
This list does not include every single thing you might need because preparing for the ACA is not a one size fits all approach. Your strategy will be different from the next guy’s and so will your audit. The one thing that is the same across the board, though is that you have to plan now.