As employers begin to prepare for the Affordable Care Act’s (“ACA”) Employer Mandate scheduled to take effect January 1, 2015, two main questions arise relating to retired employees who return to work:
Can retired employees subject the employer to a penalty? – Yes!
Should employers offer health coverage to retired employees? – Probably not. Doing so would be in excess of post-retirement and CalPERS could reinstate the retiree to CalPERS membership. Instead, the employer should adopt the Look Back Measurement Method Safe Harbor.
The ACA does not carve out an exception for retirees who return to work. They are considered employees and, if they meet the definition of “full time” under the ACA’s employer mandate, they could potentially trigger a penalty to an employer. However, in order for a full-time employee to trigger a penalty, that employee must purchase coverage through Covered California and receive a government subsidy. If a retiree is eligible for Medicare, he or she will not qualify for a subsidy and therefore will not trigger a penalty.
To qualify for a subsidy through Covered California an individual must have an annual household income between 138% and 400% of the Federal Poverty Level, not be eligible for other public health coverage such as full-scope Medi-Cal, premium-free Medicare Part A, or military coverage, and must not have affordable access to health insurance through an employer. Therefore, any retiree over age 65 who returns to work will be eligible for Medicare and therefore will not typically trigger a penalty. Any individual receiving any retiree health benefits will also not trigger a penalty because they will already have health coverage through a source other than Covered California.
When a retiree age 65 or younger returns to work, a new dilemma arises for those employers who are CalPERS members. Under the CalPERS system, a retired person may serve without reinstatement from retirement and without loss of retirement benefits in limited circumstances, which we discussed on the following blog posts – “California Legislature Enacts Further Changes To Post-Retirement Employment For PERS Retirees” and “CalPERS Issues Circular Letter Clarifying Uncertainties Raised By AB 1028 On Post-Retirement Employment And Raising New Ones.” In order to avoid reinstatement, the employee must not receive any benefits or compensation in lieu of benefits. Also, the retiree must not work more than 960 hours in any fiscal year. The dilemma occurs when a retiree averages over 30 hours of service in a given month, thereby making him or her full-time for purposes of the ACA. If that employee is not offered affordable coverage, he or she could trigger a potential penalty by obtaining subsidized coverage through Covered California.
In order to mitigate potential penalties, employers are making sure to adopt the Look Back Measurement Method Safe Harbor. This safe harbor allows an agency to measure hours of service of an employee over a period of 12 months. If the employee averages 30 hours of service over 12 months (i.e. 1560 hours of service), then the employee will be deemed full-time during a period of time called the stability period which follows the 12 month measurement period. Because retirees are limited to 960 hours in a fiscal year, it is unlikely that a retiree who returns to work under this circumstance would ever reach the 1560 threshold. If the employer sets its measurement period to coincide with the fiscal year, then it can be certain that these employees will never hit 960 hours, let alone 1560 hours. Those employers who measure hours of service for 12 months starting in November, could have a scenario (however, unlikely) where an employee whose hours remain under 960 hours during the fiscal year, but reach 1560 hours during the measurement period. Nonetheless, by adopting the Look Back Safe Harbor, the employer can avoid having a retired employee trigger a penalty for a single month during which that employee averages 30 or more hours of service. This is one of many reasons an employer should adopt the Look Back Measurement Method Safe Harbor. For more information on the ACA’s Employer Mandate and the Look Back Measurement Method Safe Harbor, please see the following links:
“Your Questions Answered: The ACA’s Final Regulations on the Employer Mandate”
“ACA’s Final Regulations on the Employer Mandate”