Employers Should Document Look Back Measurement Method

Employers Should Document Look Back Measurement Method

By:  Ryan Moulder

After attending several seminars hosted by brokers in recent weeks and performing a couple mock audits for clients, there is still vast confusion surrounding the look back measurement method among midsized employers. To try to clear some of the confusion, this publication addresses some of the very basics an employer should be doing to ensure Affordable Care Act (ACA) compliance and to prepare for the possibility of an audit.

First, an employer needs to make sure its plan document allows for a look back measurement method to be used. The simplest ERISA fiduciary duty requires a plan fiduciary to follow the terms of the documents and instruments governing the plan. If an employer’s plan defines the eligibility conditions for the employer (something we have encountered), the employer may have to amend its plan to allow for the look back measurement method to be utilized. We have also encountered plans that allow the employer to set the eligibility conditions. Either way, an employer should know its plan’s eligibility conditions and coordinate the eligibility conditions with the look back measurement method rules. Insurers are notorious for examining eligibility conditions once a participant has accrued large bills against the plan. If successful, an insurer claiming an employee was not eligible for the plan could leave an employer responsible for huge medical bills.

Assuming an employer’s plan allows for the look back measurement method to be used, the specific dates and measurement periods the employer is utilizing for its look back measurement method should be documented in an internal policy. The document should also discuss what factors an employer is using to classify its new employees (full-time, part-time, variable hour, or seasonal). An employer should have similar policies for the special unpaid leave rules and the rules related to classifying an employee who has previously accumulated hours of service for the employer (new employee/continuing employee). These policies can easily be turned into step-by-step guides on how to process new employees, employees taking a leave of absence, and rehired employees. An employer must understand how these various rules interact.

From the seminars I have attended, there appears to be reluctance in the midsized market to pay technology startups to track the look back measurement method information. While businesses being cost conscious is understandable, an employer will need to report this information on the 1094-C and 1095-C at the beginning of 2016 for the 2015 calendar year. Most of the technology startups are claiming to have this capability. The key is finding a credible provider who actually knows the specifics of the ACA and is not relying on secondary information. One of the frustrations business owners (and I) have with the ACA is there is so much bad information being provided by “entrepreneurs” in the field. However, paying an expert to review your policy will be a small price compared to the penalties associated with the ACA.

Remember even if an employer has taken no action, it is not too late to minimize the damage. The penalties under the ACA are assessed on a monthly basis. By further procrastinating, an employer is only exasperating its problems. The best way to prepare for an audit, which is inevitable for some employers, is to be well organized and have proper documentation of the employer’s policies and procedures.

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