Employer Tracking 101: Documenting Your Measurement Method


This blogpost is a supplement to our free webinar on employer reporting.  If you have more specific questions you can contact our presenter Alice Rhodes at arhodes@auiinfo.com.
Documenting Measurement methods
Pay or Play Penalty Disputes
The final regulations from the IRS do not require ALEs to document the measurement method they use for identifying full-time employee status and determining when employees are eligible for coverage. In addition, the Internal Revenue Code (Code) Section 6056 reporting requirement for ALEs does not require employers to report on the method used for determining full-time employee status.
However, it is a good idea to document your process as an employer.  Here are a few key points!

 Key Point!checkAlthough the IRS does not require employers to document their measurement method, maintaining a description of the selected measurement method and a record of the method’s outcomes for individual employees may help an ALE demonstrate its compliance with the employer shared responsibility rules and avoid a penalty.
For instance, if the IRS notifies an ALE of its potential liability for a penalty because an employee received a health insurance subsidy, the employer will want to have documentation showing that either the employee was offered health coverage that meets the ACA’s standards, or the ALE was not required to offer coverage because the employee did not have full-time status.

ERISA Compliance
Most employer-sponsored health plans are subject to ERISA, a broad federal law that sets minimum standards for employee benefit plans. Among other requirements, ERISA requires health plans to:

  • Be “established and maintained pursuant to a written instrument” that enables employees to determine their rights and obligations under the plan. In other words, ERISA requires health plans to have a plan document. For insured health plans, the plan document typically consists of the insurance policy or contract that describes the plan’s benefits and a “wrap” document that includes other ERISA-required information, such as the plan’s eligibility rules.
  • Provide participants with a summary plan description (SPD) that describes important plan information, including the plan’s eligibility rules. The SPD must be written in a manner calculated to be understood by the average plan participant.

Also, a summary of material modifications (SMM) is required any time there is a material change in the terms of the plan or any change in the information that is required to be included in the SPD.
Here is another key point employers should note!

 Key Point!checkTo comply with ERISA, the health plan’s plan document and SPD must describe the plan’s eligibility requirements. This description should include the measurement method the employer uses to determine employees’ full-time status. The SPD’s description of the measurement method should explain how an individual can determine if he or she is eligible under the plan in a way that is understandable to the average participant and not overly complex.
Also, if a plan changes its eligibility rules (for example, by adopting the look-back measurement method), the plan sponsor should distribute either an SMM or an updated SPD to explain the revised rules to participants.

The summary of benefits and coverage (SBC) is not required to include health plan eligibility information. Thus, the SBC does not need to include information about the plan’s measurement method for determining full-time employee status.
Action Steps For Your Organization
Once an ALE decides which measurement method it will use for determining employees’ full-time status, it should consider taking the following steps:

  • Document the selected method and how it will be implemented. For example, if an employer selects the look-back measurement method, employers should document the length of the measurement, stability and administrative periods for groups of employees. This documentation could be included in a separate policy.
  • Establish a method for keeping records on outcomes for individual employees (that is, whether an employee qualifies as a full-time employee who is eligible for coverage under the selected measurement method). For employers that use the look-back measurement method, this may be part of an employee tracking tool used by the employer.
  • Update the plan document and SPD to include information about the measurement method. A plan sponsor should either distribute an SMM or an updated SPD to explain the revised eligibility rules to participants.

At AUI, we have a wealth of knowledge and resources to help you understand how to track and report your employee hours.  If you are already an AUI client and would like more information or some additional resources, please contact your AUI agent.  If you are new to AUI and would like to meet with an expert, please contact us.

We do more than cover small businesses and individuals with the right insurance policies and benefit plans – what motivates our team is helping you save more so you can invest more in your team, family, and goals.

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