This post was authored by Heather DeBlanc
Under the Affordable Care Act’s (ACA) large employer shared responsibility provisions, employers are required to offer minimum essential coverage that is both affordable and provides minimum value to substantially all full-time employees and their dependents, or face potential penalties. However, the California laws governing retired annuitants prohibit employers from offering retired annuitants health or other benefits without incurring serious consequences. The result is a potential Catch 22 – employers are prohibited from offering retired annuitant health benefits, but the ACA will penalize employers that fail to offer health benefits to full-time employees.
In light of the above, what happens if a retired annuitant is employed on average at least 30 hours of service per week (i.e. full-time under the ACA)? The retired annuitant could trigger potential penalties to the employer.
Therefore, employers should ensure that a retired annuitant does not become a full-time employee under the ACA. CalPERS has recommended that certain public employers develop policies prohibiting retired annuitants from working full-time to ensure that the employer will not be in jeopardy of federal penalties and will not inadvertently offer health benefits in violation of provisions in the California Government Code. In order for an employer to determine what kind of policy to adopt, the employer must know how it will identify full-time employees under the ACA.
The ACA has two potential methods an employer may use to determine full-time employees: (1) the monthly measurement method and (2) the look back measurement method safe harbor.
An employer using the monthly measurement method will need to limit hours of retired annuitants to less than 30 hours of service per week. The monthly measurement period does not allow an employer to plan ahead. If an employee’s hours of service hit 130 hours in a month (i.e. the ACA-defined equivalent to 30 hours of service per week), then the employee will be considered full time.
An employer using the look back measurement method safe harbor has a bit more flexibility. An employer using the look back measurement method safe harbor will need to limit a new retired annuitant who is reasonably expected to be full-time to no more than three consecutive months of service. A new retired annuitant is one who is rehired after a break in service of at least 13 consecutive weeks (26 consecutive weeks for an educational organization) or a break of at least 4 consecutive weeks but the break is longer than the preceding period of service. For a new retired annuitant, the employer must determine whether the retired annuitant is “reasonably expected” to be employed at least 30 hours of service per week. Under the ACA, the employer must look at the following factors to determine whether a retired annuitant is “reasonably expected” to be employed full-time (retired annuitants usually may not fill a vacant position, but must perform “extra help” assignments. The first four factors will be less useful here than in the ACA Analysis related to the non-retiree employees. However, where the appointment is by the governing body to fill a high level vacancy during active recruitment under Government Code section 21221(h) these factors will be more relevant):
- Is the retired annuitant replacing someone who was full-time?
- The extent to which employees in the same or comparable positions are full-time?
- Is the job advertised as full-time?
- Does the job description indicate the position is full-time?
- How is the job communicated to the retired annuitant?
If the retired annuitant will be performing work reasonably expected to be full-time, the employer must offer affordable coverage by the first day of the fourth month from their date of hire, or risk exposure to potential penalties. The regulations state that an employer must not take into account the fact that the employee may terminate shortly when making the “reasonable expectation” determination.
If the retired annuitant does not have the requisite break in service described above, then the prior hours of service will factor in to the full-time status of the retired annuitant.
In sum, we recommend the following for agencies who wish to hire retired annuitants:
- Agencies using the monthly measurement method:
- Limit a retired annuitant’s hours of service to less than 30 hours of service per week.
- Agencies using the look back measurement method safe harbor:
- Do not hire a retired annuitant until they have had a break in service of at least 13 consecutive weeks (26 consecutive weeks for an educational organization) or at least 4 consecutive weeks but the break is longer than the preceding period of service;
- If hiring a retired annuitant who is “reasonably expected” to be full-time, limit the term of employment to three months.