With its ability to simplify complicated processes, such as the Affordable Care Act’s Information Reporting requirement, technology can be a wonderful thing. But in the months since February 9, 2015, when the IRS released final instructions for 2014 Information Reporting under the ACA,1 the limitations of using certain reporting technologies began hitting employers like a ton of bricks. As businesses began to gather data to complete the IRS forms, there has been a realization that fulfilling the Information Reporting mandate requires far more than technology. To do it right, employers need backup by ACA compliance and benefits administration experts.
I’m a technology guy. In 2015, my colleagues and I were involved in tens of dozens of ACA Information Reporting technology presentations, which included guidance on what employers had to do (comply with Information Reporting) and how they could get it done (with our technology and our internal compliance staff support). Many of our technology demos were for existing clients who elected to use our solution.
I shadowed several implementations of our Information Reporting technology and observed the platforms of other vendors. Much like the entire Healthcare Reform law, the devil is in the details when it comes to setting up a reporting platform. It became clear to me that there were several unforeseen situations that caught the industry—and many of those technology vendors—off-guard.
That’s because unlike some of the more pronounced provisions of the ACA, the Information Reporting requirement sort of slid under the radar. It wasn’t until that fateful day a year ago in February, when the IRS revealed its 1094 and 1095 forms, that the employee benefits world got turned on its head. On the surface, the employer shared responsibility for the mandate, also known as Pay or Play; the individual mandate requirements seemed straightforward. But employers quickly found that the reporting requirements are not easy to comprehend and even trickier to satisfy.
Whether or not an employer has a large variable-hour employee population, Information Reporting is a hassle. Businesses that employ variable-hour workers have to worry about data tracking as well as the complicated reporting requirements. Everyone else still has to figure out how to complete the reporting side of it. To add gasoline to the fire, the Trade Preferences Extension Act of 2015, signed into law on June 29th, significantly increases penalties for employers who fail to comply with Information Reporting requirements. The new penalties are, in some cases, more than double the previous penalties.
So there’s a lot at stake, and employers are determined to get it right. Some of these brave souls have chosen to gather and report information manually while many others have gone the technology route.
Interpreting and applying Information Reporting requirements posed the biggest challenge for many of the implementations I observed. Properly defining initial and standard measurement periods that best suits an employer’s situation was also challenging. The government’s Transition Relief, which I’ll discuss later, left many bewildered until they understood how to qualify and the ramifications. How to handle mid-year acquisitions and who is responsible for the reporting prior to the acquisition was also a huge question mark for employers.
While many vendors I observed possess outstanding knowledge of their systems’ capabilities, they were unable to offer employers guidance to ensure compliance and risk mitigation. This is what I meant earlier when I said that technology isn’t enough. From my bird’s eye view of several implementations, I saw that the addition of ACA expertise and benefits administration support resulted in a more seamless experience.
One huge eye-opener for the employers I observed: many technology solutions are marketed as “automatic” but still required keying of data into portals (with the employer managing much of their own set-up). Additionally, few vendors provided total integration; the ability to automate data feeds via SSH File Transfer Protocol (also known as SFTP) was a huge bonus. I also noticed challenges creating actual data feeds from existing payroll and benefits systems and coordinating data loads from third- party administrators. Certain technology vendors are so stringent on their data-import requirements that they won’t accept a file unless it is formatted exactly to their specifications. Others set poor expectations, leaving employers scrambling to fulfill requests that they weren’t aware existed when they purchased the technology.
Gathering historical information was also tough for many employers to execute. Since most implementations started in the third quarter of 2015, data had to be retroactively collected from January 2015. Depending on the plan year, some data was required from as far back as the fourth quarter of 2013. This data history ensures that filings due in early 2016 will be 100% complete and accurate.2 Yet many employers didn’t realize that not having all of this history loaded into their ACA Information Reporting tool would have large implications.
Earlier I mentioned Transition Relief, which plays a big role in Information Reporting. The employer-shared responsibility provisions were to apply in 2014. Then, the Treasury Department and IRS issued guidance (Notice 2013-45) delaying reporting requirements until 2015.3 Whether or not a business qualifies for Transition Relief determines the amount of history that must be provided to the IRS. Determining qualifications for Transition Relief is also an area requiring ACA proficiency on the part of the ACA reporting technology vendor.
I have come to understand that not all ACA Information Reporting technology tools are created equal. Automatic printing, distribution and electronic filing are not always included with many solutions, which make life hard for benefit administrators. It’s imperative for the employer to know in advance how their ACA reporting technology will function, and what their personal responsibilities include and don’t include. There are so many moving pieces that it is easy to get lost with who is doing what.
Transition and change aren’t always easy. Employers are experiencing the growing pains of implementing their ACA Information Reporting solution, whatever they chose to use. As I said earlier, technology is wonderful and eases many processes, but it isn’t always an instant fix. Like anything, surrounding yourself with the right expertise and resources is critical to meeting the goal of gathering accurate data, filling out those IRS forms, and submitting everything on time.
I hope it’s going well for you.
1 These February instructions were for the 2014 non-mandatory reporting year, but were not changed substantially for the 2015 reporting year, which was the first mandatory reporting year. On September 17, 2015, the final instructions for 2015 were released. See IRS Instructions for Forms 1094-C and 1095-C.
2 Employers must file Forms 1094-C and 1095-C by February 28 if filing on paper (or March 31 if filing electronically) of the year following the calendar year to which the return relates. For calendar year 2015, Forms 1094-C and 1095-C are required to be filed by February 29, 2016 (or March 31, 2016, if filing electronically).
3 Internal Revenue Service, Transition Relief
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