Some fiscal year plans may have extra time to comply with the play or pay mandate under either of two special transition rules for fiscal year plans (that is, plans with a plan year other than the calendar year).  There are two transition rules for fiscal year plans.  However, neither is a complete pass and both are highly specific, so employers with fiscal year plans should carefully consider the extent to which they may (or may not) qualify for the relief.

If the employer qualifies for the first transition rule, its compliance obligations will only be delayed for certain of its employees; other employees can trigger penalties.

If the employer qualifies for the second transition rule, transition relief has the potential to apply with respect to a broader spectrum of employees.  The rules are described below.

Relief is available on an entity-by-entity basis.  In other words,  each entity in your controlled group needs to qualify independently for relief.

First Fiscal Year Rule

With respect to any employee, regardless of when hired, an employer is not subject to a penalty if 

  • The employer maintained a fiscal year plan as of December 27, 2012; and
  • Under the eligibility terms of the plan in effect on December 27, 2012, the employee would be eligible for coverage; and
  • The employer offers that employee affordable, minimum value coverage as of the first day of its first fiscal plan year that begins in 2014;

In other words, if the employer offers affordable, minimum value coverage to that employee (who would have been eligible for the plan under its December 27, 2012 terms) that is effective no later than the first day of the 2014 fiscal plan year, the employer will not be assessed either of the two PPACA penalties under the employer mandate for the period of time before its 2014 fiscal plan year starts just because that same employee goes out and gets subsidized coverage on the Exchange.

However, penalties could still be triggered if an employee who was not eligible under the terms of the plan in effect December 27, 2012 (“outside the scope of transition relief”) gets subsidized coverage on the Exchange.

  • The large penalty ($2,000 x #FT employees less 30) could be triggered by employees who are outside the scope of transition relief who get subsidized coverage on the Exchange.  It appears that the number of FT employees used to calculate this penalty would exclude those who would have been eligible for coverage under the terms of the plan in effect December 27, 2012.
  • The smaller penalty ($3,000 x #FT employees who get subsidized Exchange coverage) could be assessed for each employee who is outside the scope of the transition relief and gets subsidized coverage on the Exchange

Second Fiscal Year Rule

If the employer can meet the requirements for this second fiscal year rule, transition relief has the potential to apply with respect to a broader spectrum of employees.  Under this rule, the employer will not be liable for any play or pay penalties for months before the first day of its 2014 plan year with respect to a full-time employee if ALL of the following apply:

  • The employer maintained a fiscal year plan as of December 27, 2012,
  • The employer did not also maintain a calendar year plan as of December 27, 2012 for which that employee would have been eligible
  • The employer offers that employee affordable, minimum value coverage that is effective no later than the first day of its first fiscal year plan that begins in 2014
  • At least 1/4 of its employees are covered under one of more fiscal year plans that have the same plan year as of December 27, 2012; OR the employer offered coverage under those plans to at least 1/3 of its employees during the most recent open enrollment period before December 27, 2012
  • The employer may determine the percentage of its employees covered under the fiscal year plan as of the end of the most recent open enrollment period or any date between October 31, 2012 and December 27, 2012

  • In calculating whether the 1/4 or 1/3 thresholds are met, it appears that the employer must consider all employees – not just full-time employees

If the employer does not maintain a calendar year plan for which that employee would be eligible, it could be excused from all penalties until the first day of the fiscal year plan year if it meets the above-stated requirements.

Note that with respect to  both transition rules,  if the employer does not offer its full-time employees affordable, minimum value coverage that is effective  as of the first day of the 2014 fiscal year (in other words, it decides to “pay” rather than “play”), it can still be subject to penalties for the months of 2014  that precede the first day of the 2014 fiscal year,  even if it meets the other criteria above.