Notice 2012-17

Frequently-Asked-Questions
From Employers Regarding
Automatic Enrollment,
Employer Shared
Responsibility, and Waiting
Periods
Notice 2012–17
INTRODUCTION
Many provisions of the Patient Protection and Affordable Care Act (Affordable
Care Act) that become effective beginning
in 2014 are designed to expand access
to affordable health coverage. These include provisions for automatic enrollment
of full-time employees in an employer’s
health plan, shared responsibility of employers regarding health coverage, coverage to be offered through State-based
Affordable Insurance Exchanges (Exchanges), premium tax credits to assist individuals in purchasing coverage through
Exchanges, and other related provisions.
The Departments of Labor, Health and
Human Services, and the Treasury (the
Departments) are working together to develop regulations and other administrative
guidance that will respond to questions
and assist stakeholders with implementation.
This notice, which is being issued in
substantially identical form by the other
two Departments, provides information on
questions from employers and other stakeholders regarding the provisions of the Affordable Care Act governing automatic enrollment, employer shared responsibility,
and the 90-day limitation on waiting periods. Also outlined below are various
approaches that the Departments are considering proposing in future regulations or
other guidance. Comments and input are
welcome on all intended proposals below.
BACKGROUND
Automatic Enrollment
Section 18A of the Fair Labor Standards Act (FLSA), as added by section
1

Available at: www.dol.gov/ebsa/faqs/faq-aca5.html.

2

Available at: www.irs.gov/pub/irs-drop/n-11-36.pdf.

3

Available at: www.irs.gov/pub/irs-drop/n-11-73.pdf.

1511 of the Affordable Care Act, directs an
employer to which the FLSA applies, and
that has more than 200 full-time employees, to automatically enroll new full-time
employees in one of the employer’s health
benefits plans (subject to any waiting period authorized by law), and to continue
the enrollment of current employees in a
health benefits plan offered through the
employer. Section 18A further requires
adequate notice and the opportunity for an
employee to opt out of any coverage in
which the employee was automatically enrolled.
On December 22, 2010, the Departments issued frequently asked questions
(FAQ) on section 18A of the FLSA, which
noted that the statute provides that employer compliance with the automatic enrollment provisions of section 18A shall
be carried out “[i]n accordance with regulations promulgated by the Secretary [of
Labor].”1 That FAQ also stated that it is
the view of the Department of Labor that,
until such regulations are issued, employers are not required to comply with section
18A. Finally, the FAQ indicated that the
Department of Labor intends to complete
this rulemaking by 2014.
Employer Shared Responsibility
The employer shared responsibility
provisions, contained in section 4980H of
the Internal Revenue Code (Code), provide that an applicable large employer
(for this purpose, an employer with 50
or more full-time equivalent employees)
could be subject to an assessable payment
if any full-time employee is certified to
receive an applicable premium tax credit
or cost-sharing reduction payment. Generally, this may occur where either:
(1) The employer does not offer to
its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible
employer-sponsored plan; or
(2) The employer offers its full-time
employees (and their dependents) the opportunity to enroll in minimum essential
coverage under an eligible employer-sponsored plan that either is unaffordable rela-

tive to an employee’s household income or
does not provide minimum value.
For purposes of section 4980H, a “fulltime employee” is an employee who is employed on average at least 30 hours per
week.
The Treasury Department and the Internal Revenue Service (IRS) have requested
and received comments on a number of
issues and potential approaches to interpreting and applying the employer shared
responsibility provisions. In particular,
IRS Notice 2011–36, 2011–21 I.R.B.
7922, described and requested comments
on a possible approach that would use a
“look-back/stability period safe harbor”
method that employers might use in determining whether current employees (those
who are not newly-hired or transferred)
are full-time employees for purposes of
the employer shared responsibility provisions. Comments were also requested on
potential rules for determining full-time
status of new employees and employees
who move into full-time status mid-year.
In addition, Treasury and the IRS
have described (in IRS Notice 2011–73,
2011–40 I.R.B. 474)3, a safe harbor allowing employers, for purposes of determining whether they owe an assessable
payment under section 4980H(b), to use
an employee’s Form W–2 wages (as reported in Box 1) instead of household
income in determining whether coverage
offered is affordable. Treasury and the
IRS requested and received comments on
the safe harbor.
90-Day Limitation on Waiting Periods
Public Health Service (PHS) Act section 2708, as added by the Affordable Care
Act, provides that, in plan years beginning on or after January 1, 2014, a group
health plan or group health insurance issuer shall not apply any waiting period
that exceeds 90 days.4 PHS Act section
2704(b)(4), ERISA section 701(b)(4), and
Code section 9801(b)(4) define a waiting
period to be the period that must pass with
respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan. In previous regu-

4

The Affordable Care Act also added section 715(a)(1) to the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) to the Code to incorporate various provisions of the
PHS Act into the Code and ERISA, including the provisions of section 2708 of the PHS Act.

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430

2012–9 I.R.B.

lations, the Departments defined a waiting
period to mean the period that must pass
before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can
become effective.5 Unlike Code section
4980H, PHS Act section 2708 does not distinguish between full-time and part-time
employees.
In addition to requesting comments on
the employer shared responsibility provisions, IRS Notice 2011–36 requested
comments on behalf of the Departments
regarding the 90-day waiting period limitation under PHS Act section 2708,
including how rules relating to the potential look-back/stability period safe harbor
method for determining the number of
full-time employees under Code section
4980H should be coordinated with the
90-day waiting period limitation.
DISCUSSION
The following questions and answers
respond to inquiries the Departments are
receiving regarding automatic enrollment, employer shared responsibility, and
the 90-day limitation on waiting periods. As discussed above, the questions
and answers below provide information
and identify various approaches that the
Departments are considering proposing
in future regulations or other guidance.
Guidance that employers may rely upon
with respect to the issues addressed below
will be provided with sufficient lead time
for employers to comply. Comments are
requested on these approaches.
Q1. What is the current timeline for
issuing guidance on automatic enrollment under FLSA section 18A?
A1. The Department of Labor has been
working with stakeholders to ensure that it
has the necessary information and data to
develop regulations relating to automatic
enrollment, and is sensitive to stakeholder
concerns regarding the need for adequate
time to comply with any regulations that
are ultimately issued. In addition, the Department of Labor is aware of the need to
coordinate the work it will be undertaking to develop guidance relating to automatic enrollment with the guidance being
developed regarding other related Affordable Care Act provisions, including the
5

employer shared responsibility provision
and the 90-day limitation on waiting periods, described above.
In view of the need for coordinated
guidance and a smooth implementation
process, including an applicability date
that gives employers sufficient time to
comply, the Department of Labor has
concluded that its automatic enrollment
guidance will not be ready to take effect
by 2014. It remains the Department of
Labor’s view that, until final regulations
under FLSA section 18A are issued and
become applicable, employers are not required to comply with FLSA section 18A.
Q2. Do Treasury and the IRS intend
to issue proposed regulations or other
guidance permitting employers to use
an employee’s W–2 wages as a safe harbor in determining the affordability of
employer coverage, as outlined in IRS
Notice 2011–73?
A2. Yes. As described in Notice
2011–73, Treasury and the IRS intend
to issue proposed regulations or other
guidance permitting employers to use an
employee’s Form W–2 wages (as reported
in Box 1) as a safe harbor in determining
the affordability of employer coverage.
Q3. Do Treasury and the IRS intend
to issue proposed regulations or other
guidance addressing how the employer
shared responsibility provisions under
Code section 4980H and the 90-day
waiting period limitation under PHS
Act section 2708 are coordinated?
A3. Yes. Treasury and the IRS intend to
issue proposed regulations or other guidance under Code section 4980H (which
imposes shared responsibility on large employers with respect to coverage of fulltime employees). That guidance is expected to address the intersection of the
Code section 4980H rules and the PHS
Act section 2708 rules applicable to the
90-day waiting period limitation and will
be coordinated with upcoming tri-Department proposed rules under PHS Act section 2708 (discussed below). Treasury
and the IRS are mindful of employers’ requests for safe harbors and simplicity and
will seek to accommodate those requests to
the extent feasible and consistent with the
terms of the statute.
The upcoming guidance is expected to
provide that, at least for the first three

months following an employee’s date of
hire, an employer that sponsors a group
health plan will not, by reason of failing
to offer coverage to the employee under
its plan during that three-month period, be
subject to the employer responsibility payment under Code section 4980H.
Q4. For purposes of determining
whether an employee (other than a
newly-hired employee) is a full-time
employee for purposes of Code section
4980H, do Treasury and the IRS intend
to issue proposed regulations or other
guidance allowing employers to use a
look-back/stability period safe harbor,
based on the approach outlined in IRS
Notice 2011–36?
A4. Yes. Having reviewed the comments in response to IRS Notice 2011–36,
Treasury and the IRS intend to issue proposed regulations or other guidance that
would allow employers to use a “lookback/stability period safe harbor” method
based on the approach outlined in the notice for purposes of determining whether
an employee (other than a newly-hired employee) is a full-time employee. Accordingly, it is anticipated that the guidance
will allow look-back and stability periods
not exceeding 12 months.
For a description of anticipated guidance regarding newly-hired employees,
see Q&A–5.
Q5. For purposes of determining
whether a newly-hired employee is a
full-time employee, do Treasury and
the IRS intend to issue proposed regulations or other guidance under Code
section 4980H?
A5. Yes. Treasury and the IRS also intend to issue proposed regulations or other
guidance that will address how to determine whether a newly-hired employee is
a full-time employee for purposes of Code
section 4980H.
As stated in Q&A–3, the upcoming
guidance is expected to provide that, at
least for the first three months following
an employee’s date of hire, an employer
that sponsors a group health plan will
not, by reason of failing to offer coverage to the employee under its plan during
that three-month period, be subject to the
employer responsibility payment under
Code section 4980H. The guidance is also
expected to provide that, in certain cir-

26 CFR 54.9801–3(a)(3)(iii), 29 CFR 2590.701–3(a)(3)(iii), 45 CFR 146.111(a)(3)(iii).

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February 27, 2012

cumstances, employers have six months
to determine whether a newly-hired employee is a full-time employee for purposes of section 4980H and will not be
subject to a section 4980H payment during that six-month period with respect to
that employee. Treasury and the IRS intend to propose an approach under which
the period of time that an employer will
have to determine whether a newly-hired
employee is a full-time employee (within
the meaning of section 4980H) will depend upon whether, based on the facts
and circumstances, (a) the employee is
reasonably expected as of the time of hire
to work an average of 30 or more hours
per week on an annual basis and (b) the
employee’s first three months of employment are reasonably viewed, as of the end
of that period, as representative of the
average hours the employee is expected to
work on an annual basis.
Specifically, it is intended that the
upcoming proposed regulations or other
guidance would provide, for purposes of
section 4980H, that:

•

•

If a newly-hired employee is reasonably expected to work full-time on an
annual basis and does work full-time
during the first three months of employment, the employee must be offered coverage under the employer’s
group health plan as of the end of that
period in order to avoid the possibility
that the employer would be subject to
a section 4980H payment after the end
of that three-month period.
If, based on the facts and circumstances as of the time of hire, it cannot reasonably be determined that a
newly-hired employee is expected to
work full-time, the following rules
will apply for purposes of determining
whether the newly-hired employee is
considered a full-time employee in applying section 4980H with respect to
the employer’s group health plan:
• If the employee works full-time
during the first three months of
employment, and the employee’s
hours during that period are reasonably viewed, as of the end of
that period, as representative of the
average hours the employee is expected to work on an annual basis,
the employee will first be considered a full-time employee for pur-

February 27, 2012

•

poses of section 4980H as of the
end of that three-month period. (If
the employee works part-time during the first three months of employment, then no section 4980H
penalty applies during the first or
second three-month period.)
If the employee works full-time
during the first three months of
employment, but the employee’s
hours during that period are reasonably viewed, as of the end of
that period, as not representative
of the average hours the employee
is expected to work on an annual
basis, the plan is permitted an
additional three-month period to
determine the employee’s status,
and no section 4980H payment
would be required with respect
to that employee during the first
or second three-month periods.
(If the employee works part-time
during the second three months
of employment, then no section
4980H penalty applies during the
first, second, or third three-month
period.)

This policy describes the applicability
of a potential section 4980H payment with
respect to newly-hired employees. Forthcoming guidance is expected also to coordinate the rules for newly-hired employees
with those applicable to other employees
(including employees who are transferred
from one employment classification or status to another).
The following examples illustrate the
intended approach described above:
Example 1: Newly-hired employee
expected to work full time.
Facts: Employer D, an applicable large
employer (i.e., an employer with at least
50 full-time equivalent employees), hires
Employee X as a computer programmer
on December 1. Employee X is expected
to work full-time on an annual basis and
does work full-time for the months of December, January, and February. Employer
D offers health coverage to its full-time
workers (and their dependents).
Conclusion: Employee X must be
able to enroll in coverage beginning in
March or the employer potentially would
be subject to a section 4980H payment.
However, failure to offer coverage to Employee X during the first three months

432

(December–February) would not subject
Employer D to a potential section 4980H
payment.
Example 2: Newly-hired employee
who seasonally works full-time
Facts: Same as Example 1 except that
Employer D hires Employee Y as a salesperson who is expected to work full-time
during the holiday season and part-time the
rest of the year. Employee Y works an
average of 35 hours per week in December, January, and February and 20 hours
per week in March, April, and May.
Conclusion: If, based on the facts
and circumstances at the end of the period, the three-month period of December
through February is reasonably viewed
as not representative of the average hours
Employee Y is reasonably expected to
work on an annual basis, Employer D
may use a second three-month period
(March–May) as a look-back period. Failure to offer coverage under Employer D’s
group health plan to Employee Y during
the first (December-February) and the
second (March–May) three-month periods would not subject Employer D to a
potential section 4980H payment. (Failure to offer coverage to Employee Y for
June also would not subject Employer
D to a potential section 4980H payment
because Employee Y was determined
to be part-time during the March–May
look-back period.)
Q6. When PHS Act section 2708
(which imposes a 90-day limitation on
waiting periods) becomes effective in
2014, will it require an employer to
offer coverage to part-time employees
or to any other particular category of
employees?
A6. No. Many employers make distinctions in eligibility for coverage based
on full-time or part-time status, as defined by the employer’s group health plan
(which may differ from the standard under
Code section 4980H). PHS Act section
2708 does not require the employer to
offer coverage to any particular employee
or class of employees, including part-time
employees. PHS Act section 2708 merely
prohibits requiring an otherwise eligible
employee to wait more than 90 days before coverage is effective. Furthermore,
nothing in the Affordable Care Act penalizes small employers for choosing not to
offer coverage to any employee, or large
employers for choosing to limit their offer

2012–9 I.R.B.

of coverage to full-time employees, as defined in the employer shared responsibility
provisions.
Q7. How do the Departments intend
to address the application of the 90-day
waiting period limitation in PHS Act
section 2708 to an offer of coverage by
an employer?
A7. Having reviewed the comments in
response to IRS Notice 2011–36, the Departments intend to retain, for purposes of
PHS Act section 2708, the definition in existing regulations that the 90-day waiting
period begins when an employee is otherwise eligible for coverage under the terms
of the group health plan. This is the definition of waiting period used for purposes
of Title XXVII of the PHS Act, Part 7 of
ERISA, and chapter 100 of the Code.6 Under this approach, if a plan were to provide that full-time employees are eligible
for coverage without satisfying any other
condition, and an employee were hired as
a full-time employee, the waiting period
(if the employer were to choose to impose
one) for that employee would begin on the
date of hire and could not exceed 90 days.
Consistent with PHS Act section 2708, eligibility conditions that are based solely on
the lapse of a time period would be permissible for no more than 90 days.
Other conditions for eligibility under
the terms of a group health plan would generally be permissible under PHS Act section 2708, unless the condition is designed
to avoid compliance with the 90-day waiting period limitation. For example, eligibility conditions such as full-time status, a
bona fide job category, or receipt of a license would be permissible.
The upcoming guidance under section
2708 is also expected to address situations
in which, under the terms of an employer’s
plan, employees (or certain classes of employees) are eligible for coverage once
they complete a specified cumulative
number of hours of service within a specified period (such as 12 months). It is
anticipated that, under the upcoming guidance, such eligibility conditions will not

6

be treated as designed to avoid compliance
with the 90-day waiting period limitation
so long as the required cumulative hours
of service do not exceed a number of hours
to be specified in that guidance.
Comments are requested on how this
possible approach would apply to plans
that credit hours of service from multiple different employers and plans that use
hours banks.
Example 3: Employee ineligible under terms of plan by reason of job classification
Facts: Same as Example 1 except that
Employer D’s plan does not cover computer programmers.
Conclusion: Unlike Code section
4980H, in which the determination of
full-time status is governed by a statutory
standard (working an average of 30 hours
per week), the waiting period limitation
under PHS Act 2708 applies only to employees who are otherwise eligible under
the terms of the plan. Because Employee
X is excluded under the plan’s eligibility
criteria, and the plan’s terms are not designed to avoid compliance with PHS Act
section 2708, the plan’s eligibility provision does not violate PHS Act section
2708.
Example 4: Part-time employee,
hours of service requirement
Facts: Employer E hires Employee Z
to work 20 hours per week. Employer E’s
plan requires part-time employees to complete 750 hours of service in order to participate. Solely for purposes of illustration
in this example, it is assumed that upcoming guidance under PHS Act section 2708
permits plans to require part-time employees to complete up to, but no more than,
750 hours of service in order to participate.
Conclusion: Part-time employees who
work 20 hours per week will complete 750
hours of service in 371/2 weeks or just under 9 months. The waiting period under PHS Act section 2708 begins when
Employee Z satisfies the cumulative service requirement, thereby becoming eligible (but for the waiting period) for cover-

age under the plan. Employer E must provide coverage to Employee Z no later than
90 days after Employee Z completes 750
hours of service, which is about one year
after Employee Z is hired and begins working part-time. (No Code section 4980H
payment applies because Employee Z is
part-time.)
REQUEST FOR COMMENTS
Comments are requested by April 9,
2012. WARNING: Do not include any personally identifiable information (such as
name, address, or other contact information) or confidential business information
that you do not want publicly disclosed.
All comments are posted on the Internet as
received, and can be retrieved by most Internet search engines. Comments may be
submitted anonymously. Comments will
be shared by the Departments.
Comments may be sent electronically
to: [email protected]. Alternatively, comments may be sent via mail or
hand delivery to: Office of Health Plan
Standards and Compliance Assistance,
Employee Benefits Security Administration, Room N–5653, U.S. Department
of Labor, 200 Constitution Avenue, NW,
Washington, DC 20210.
FOR FURTHER INFORMATION
The Departments have coordinated on
the information contained in this notice
and are publishing substantively identical
issuances. Questions concerning the information contained herein may be directed
to the Department of Labor’s Office of
Health Plan Standards and Compliance
Assistance at 202–693–8335; the Internal
Revenue Service at 202–927–9639; or the
Department of Health and Human Services
at 410–786–1565 or [email protected].
Additional information for employers
regarding the Affordable Care Act is
available at www.healthcare.gov and
www.dol.gov/ebsa/healthreform.

26 CFR 54.9801–3(a)(3)(iii), 29 CFR 2590.701–3(a)(3)(iii), 45 CFR 146.111(a)(3)(iii).

2012–9 I.R.B.

433

February 27, 2012