Re: IRS Notice 2012-58: Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage (§ 4980H)
Dear Sir or Madam:
The Business Roundtable (BRT) is an association of chief executive officers of leading U.S. Companies. Together, our members’ companies employ more than 12 million individuals and provide health care coverage to nearly 40 million American workers, retirees, and their families. BRT is invested in addressing health care costs that hamper essential economic growth.
BRT appreciates the opportunity to submit comments in response to Internal Revenue Service (“IRS”) Notice 2012-58: Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage (§ 4980H) (“the Notice”). The Notice provides helpful additional guidance, applicable through 2014, on safe harbor methods that employers may use to determine which employees shall be treated as full-time employees for purposes of the shared employer responsibility provisions of § 4980H of the Internal Revenue Code (“IRC”).
BRT strongly supports the IRS’s application of a more uniform standard across all categories of employees - new or current. We applaud the IRS for their work on this Notice - as well as the Departments of Labor and Health and Human Services for their efforts in coordination with the IRS on Notice 2012-59: Guidance on 90-Day Waiting Period Limitation Under Public Health Service Act § 2708. The consistency afforded by these Notices, as well as the flexibility provided to employers and availability of an administrative period, are all extremely important for ensuring that employers are best able to manage the determinations processes for all employees and ensure compliance with the Patient Protection and Affordable Care Act (enacted March 23, 2010, Pub. L. No. 111-148 and Pub. L. No. 111- 152, collectively the “ACA”). BRT also sincerely appreciates that this Guidance provides certainty with respect to the applicability of these provisions through 2014.
Background
Notice 2012-58 provides for safe harbor methods that employers may use to determine which employees are treated as full-time employees for purposes of the shared employer responsibility provisions of IRC § 4980H. Specifically, the Notice reiterates that employers generally will be permitted to use the lookback/stability periods described in IRS Notices 2011-36 and 2012-17, and provides guidance with respect to the safe harbor method that employers may apply to specified newly-hired employees. The Notice amends previous guidance with respect to the safe harbor method that employers may apply to specified newly-hired employees to align these measurements with those used for ongoing employees, which provides for greater administrative efficiency. Additionally, the Notice enables employers to use an administrative period for ongoing and certain newly-hired employees to allow employers ample time to implement necessary administrative steps associated with determinations of employees’ status, notification, and enrollment.
While we strongly support these new and continued flexibilities, and appreciate the Agency’s outreach and engagement with stakeholders on developing the most efficient and effective proposals, we respectfully request that the IRS consider four comments, for the reasons discussed below. First, that the IRS clarify that employers are permitted to apply varied lengths of lookback and stability periods for newly hired variable hour and seasonal employees, as compared to the lengths of the lookback and stability periods provided to ongoing employees. While this appears to be the case, there is some language included in the Notice that we would seek additional clarification on. Second, that the IRS clarify that the requirement regarding the stability period for employees determined to not be full time during the initial measurement period not apply as long as the initial measurement period was of equal or shorter length than the ongoing measurement period. Third, we suggest that until the IRS engages in a rulemaking on the definition of “seasonal employee,” employers be permitted to use a good faith interpretation, as provided for in the Notice. Finally, we seek clarification on transition rules for employers with non-calendar plan years; specifically we would ask that this guidance is effective at the start of the plan year beginning on or after January 1, 2014.
Permitting Alternative Applications of Consistent Methodologies
With respect to the lookback/stability periods for new variable hour and seasonal employees, the Notice states that the stability period for such employees “must be the same length as the stability period for ongoing employees.” We believe that this statement could be interpreted to mean that the length of the stability period for new variable hour and seasonal employees must be established under the same requirements as apply to stability periods for ongoing employees (e.g., that the stability period must be at least as long as the measurement period). Alternatively, some may interpret this statement to mean that the stability periods for new hires and ongoing employees must be precisely the same length. The latter reading may result in the unintended consequence of constraining employers that have more generous initial measurement periods and processes. For example, a 6 month initial measurement period based off an employee’s hire date creates a variable initial stability period compared with a fixed standard stability period for ongoing employees when the plan year is used as the start and end of coverage.
A clarification indicating that employers shall use the same methodology for both ongoing and new variable hour/seasonal employees, but may apply different lengths of time for each category of employee, would ensure that employers are permitted to use a consistent methodology for both ongoing and new variable hour and seasonal employees, while also permitting employers the flexibility to base eligibility periods off of their business needs, strategies and turnover rate of their work force. We are concerned that without such clarification, in order to comply with the Notice, employers may be forced to either extend the initial measurement period - resulting in employees having to wait longer to be determined eligible for coverage - or to shorten the standard measurement period so that ongoing employees may be exposed to a “revolving door” of coverage.
Application of Stability Period for New Employees Determined to Not be Full Time
The Notice states that the stability period for employees determined to not be full time during the initial measurement period “must not be more than one month longer than the initial measurement period and, as explained below, must not exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends.” This provision has the potential to impact employers’ ability to properly incorporate newly hired employees into that standard measurement period.
Currently, some employers use the plan year as the ongoing stability period. This allows for consistent and clear messaging to employees on their coverage period and ensures accuracy with deductibles, copayments, and out-of-pocket maximums. However, an employer may wish to be more generous on their initial measurement period for new variable hour employees (e.g., offering a 6 month instead of 12 month initial measurement period). This approach can serve as a differentiator in recruitment and retention. However, this provision could make it harder for an employer to be better than the rule requires and may unintentionally create a disincentive for employers to give new variable hour employees an earlier opportunity to earn coverage.
In order to comply with this rule, however, employers would either have to hold multiple open enrollments during the year or an employer would have to offer coverage automatically, without measurement, to all employees at day 90 and then conduct ongoing measurement to re-evaluate fulltime status during the standard measurement period. We believe that both of these options are unintended consequences and would increase employee confusion, increase administrative burden, and create more of a “revolving door.”
Therefore, we would request that the IRS clarify the Notice to provide that this requirement - that the stability period for employees determined to not be full-time during the initial measurement period not be more than one month longer than the initial measurement period and not exceed the remainder of the standard measurement period in which the initial measurement period ends - would not apply as long as the initial measurement period was of equal or shorter length than the ongoing measurement period. As with the issue above, such a clarification would ensure that employers have the flexibility to create eligibility rules based on their industry needs and would continue to protect employees by ensuring that the mandate is an outer limit.
Seasonal Employees
Finally, the Notice solicits input on how the term “seasonal employee” should be defined under § 4980H, including the practicability of using different definitions for different purposes and whether other, existing legal definitions should be considered in defining a seasonal worker under § 4980H. We would suggest that the IRS should continue to permit employers to use a reasonable, good faith interpretation of the term “seasonal employee” until there has been a rulemaking on this issue. Any definition of “seasonal employee” should ultimately be consistent with current regulations and continue to follow the standard of evidence set forth. Again, we encourage the IRS to define “seasonal employee” with an eye towards consistency, clarity, and employer flexibility to ensure they are able to provide what is best for their entire workforce.
Conclusion
We appreciate the opportunity to provide comments on IRS Notice 2012-58. BRT strongly supports the availability of a more uniform standard across all categories of employees and again applauds the IRS, DOL, and HHS for their coordinated efforts towards providing consistency, flexibility, and certainty by ensuring employers can rely on this Notice, as well as Notice 2012-59, through 2014 - together, these Guidances ensure that employers are able to efficiently and effectively comply with the ACA and, as a result, ensure all employees have access to the most appropriate coverage for which they are eligible. We again ask that you consider our requests for clarification on both the use varied lengths of lookback/stability periods for ongoing employees versus new hires and the requirement regarding the stability period for employees determined to not be full time during the initial measurement period. Additionally, until the IRS engages in a rulemaking on the definition of “seasonal employee,” we request that the IRS permit employers to use a good faith interpretation, as provided for in the Notice. Finally, we ask that the IRS clarify transition rules for employers with non-calendar plan years such that this guidance would be effective at the start of the plan year beginning on or after January 1, 2014. We believe the additional clarification will allow employers the flexibility to create eligibility rules based on their industry needs while maintaining employees’ timely access to coverage. I am available at your convenience to discuss any of these matters further.
Sincerely,
Maria Ghazal
Vice President and Counsel
Business Roundtable