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More on PPACA: Multiemployer Plans and Shared Responsibility

Posted in Plan Administration, Welfare Plans

Earlier this month, Treasury and the IRS published a proposed rule regarding the shared responsibility penalty.  The proposed rule describes how the penalty will be applied and includes a number of safe-harbor methods that employers may use to determine whether an employee is a full-time employee for purposes of the employer shared responsibility penalty. (See my January 2, 2013 entry).  Within this proposed rule, there is a section dealing with employers that contribute to multiemployer plans.  It is a transitional rule, but at least it gives some guidance on whether contributions to a multiemployer plan will be sufficient to avoid the pay-or-play penalties.

As I have discussed before, the amount of the employer penalty will be based on whether the employer offers qualifying health coverage to full-time employees.  Employers have asked whether contributions to a multiemployer health plan will satisfy the obligation to offer coverage and allow them to avoid the penalties.  Under the proposed transitional rules, a large employer will not owe the penalty for a full-time employee if the following three things apply:

  1. The employer is required to contribute to a multiemployer plan with respect to that employee pursuant to a collective bargaining agreement or participation agreement,
  2. Coverage is offered under the multiemployer plan to the full-time employee (and the employee’s dependent children), and
  3. the coverage offered to the full-time employee is affordable and provides minimum value.

This brings into question whether the multiemployer plan to which an employer is contributing satisfies items 2 and 3.  An employer might have a bargaining agreement, but unless the plan offered dependent coverage and is affordable and provides minimum value, this transitional rule would not apply.  While most coverage provided by multiemployer plans satisfies number 3, employers should get a certification from the plan that it does.  More recently, number 2 can be an issue.  Plans that may have eliminated dependent coverage to control costs could create problems for employers who contribute to a multiemployer plan and then discover it does not satisfy the obligation to offer coverage.  In other words, an employer could be obligated to contribute to a plan and still face a penalty for not offering coverage.  Remember, the penalty is paid by the employer, not the plan.

So while this transitional rule seems to provide some relief by allowing that contributions to a multiemployer plan satisfy the obligation to offer coverage, it is not a rubber stamp.  Employers who contribute to a multiemployer plan should verify that the plan meets the requirements under this guidance or potentially face penalties.