Vol. XV, Issue 7

February 25, 2016

Health Care Reform Updates

Legislation1 passed in the final two weeks of 2015 provides new rules and clarification related to applicable large employers (ALEs) and other employers under the Affordable Care Act (ACA). Applicable large employers are subject to the Employer Shared Responsibility Rule (i.e., the ACA’s “employer mandate”) to provide health coverage that meets the ACA’s “affordable” and “minimum essential coverage” standards.

The legislation, signed into law December 18, 2015, includes provisions that impact health coverage, Controlled Group Rules, “Cadillac” Tax implementation and other guidelines affecting churches, annual conferences and other United Methodist-affiliated employers. Highlights are described below.

Controlled Group Rules for Church Plans

Importantly, the Church Plan Clarification Act (“CPCA”) provisions2 include Controlled Group Rules that clarify when churches and church-controlled organizations will be grouped together and treated as a single employer for purposes of certain laws, including the ACA. Church Plan Clarification Act highlights were described in the December 22, 2015 On Board Express.

Rule for Churches and “Qualified” Church-Controlled Organizations (General Rule)—Section 336 of the Act provides a General Rule for the application of Controlled Group provisions to church organizations. An organization that is eligible to participate in a church plan will generally not be treated as a single employer (i.e., a Controlled Group) with another such organization unless: (1) one of the organizations provides, directly or indirectly, at least 80% of the operating funds for the other organization; and (2) there is common management or supervision, such that the organization providing the operating funds is directly involved in the day-to-day operations of the other organization.

Because this General Rule is considered a clarification, it should be applied to historical questions as well as future events.

The rule provides greater clarity and guidance for churches and church-controlled organizations, which are generally eligible to participate in church plans. Thus, the two-part test above is applied to determine whether a church and a church-controlled organization are in the same Controlled Group.

Rule for Two or More Non-Qualified Church-Controlled Organizations (Exception)—For two or more non-qualified3 church-controlled organizations, the legislation offers a different test to determine Controlled Group (single employer) status. For one non-qualified church-controlled organization to be considered one employer with another such organization (or one that is not exempt from tax at all), at least 80% of the directors or trustees of the second organization must be either representatives of, or controlled by, the first organization.

It is possible, then, for two non-qualified church-controlled organizations to be treated as one employer4, even though the church that controls them is not aggregated with either of the two non-qualified church-controlled organizations.

Provisions that Provide Additional Flexibility to Churches—The new provisions also give churches more flexibility in some respects. While the General Rule may not require a church-controlled organization to be treated as one employer with the church, the church may elect to treat the organization as one employer with the church. Conversely, even if the church would be aggregated with one or more other organizations under the General Rule, an election is available for the church to be treated as a separate employer.

As a cautionary note: In cases where the IRS Commissioner determines that the structure of a church or positions taken by church-controlled organizations may have the effect of evading or avoiding any of the Controlled Group Rule provisions, the IRS may treat the church-affiliated entities as a Controlled Group/single employer.

The timing of this Act is helpful, since a number of churches are trying to decide whether they should be treated as a single employer with other church organizations for purposes of the ACA’s Employer Shared Responsibility Rule (i.e., employer mandate).

Read more about Controlled Groups for local churches and annual conferences and other church-affiliated employers.

Delay of Cadillac Tax

The Church Plan Clarification Act also delayed implementation of the Cadillac Tax for two years. This 40% tax on high-cost employer-sponsored plans—originally scheduled for 2018—is now delayed until 2020. More information on the Cadillac Tax was provided December 22, 2015 via On Board Express and HealthFlex Express.

Delayed Deadlines Approaching for Forms 1094-B, 1095-B, 1094-C and 1095-C

The postponed deadlines to send the forms required by Code Sections 6055 and 6056 to verify employer-provided coverage are quickly approaching:

More details about reporting are provided here for: Section 6055 reporting and for Section 6056 reporting. Information about new deadlines was provided in the February 4, 2016 HealthFlex Express.

Applicable Large Employer Calculator—Updated for 2015 Tax Year

Additionally, the General Board has updated its Applicable Large Employer Worksheet (Excel calculator) to help churches and other United Methodist employers determine if they are Applicable Large Employers under the ACA (and therefore subject to the Employer Shared Responsibility Rule (i.e., employer mandate).




1 The Consolidated Appropriations Act, 2016 (“Consolidated Act”).
2 The CPCA was originally proposed as a separate bill, but its provisions were included in Division Q of the Consolidated Act (Division Q is entitled the “Protecting Americans from Tax Hikes Act of 2015”).
3 A non-qualified church-controlled organization is one that offers goods or services to the public, and receives more than 25% of its support from governmental sources or from the sale of goods or services.
4 For example, this might occur if the 8 of the 10 directors of one organization are also directors of the other organization.


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