By - June 8, 2018

A Message to CFO’s – the ACA isn’t just an HR Problem

ACA Employee Data Reporting

I recently returned from an industry conference for Financial Leadership, GFOA  http://gfoa.org/conference), and I was surprised to hear that most of these leaders felt ACA is an HR problem, and not a Finance concern. Why was I surprised? Keep reading…

Here’s what we know about ACA Fines

The ACA fines for tax year 2015 are being issued by the IRS (a large number dropped in late April). As we’ve seen and heard, these “rearview mirror”, month-by-month fines can be extremely onerous and financially painful for both organizations and companies as well as Government institutions (States, Counties, Cities, Universities, School Districts, etc.). As we’ve noted in some more recent blogs,  the IRS fines can have a large impact to the bottom line (we’ve seen in the range of per share levels at the pennies, nickels, or even a quarter or two per share.) For a Government entity, these ACA penalties can have a huge impact to the budget and potentially, taxpayers.
Below is a very simple table highlighting potential fines by the number of employees in an EIN:

As the chart illustrates, the CFO of an organization with 1,000 employees could see a fine for more than $193K for one month or over $2.3M for 12 months.   Just 50 FTE’s (Full Time Equivalents) and one person getting a PTC (Premium Tax Credit) and this organization will be below the 95% threshold and could be subject to over $2.3M in IRS fines.   This is a great example of why finance and HR leaders should be aligned on how ACA reporting is managed. Increase the company size to 10,000 employees and an organization could see fines from $1.9M to $23M.  Calculating how fines of this magnitude could impact earnings, a 12-month fine could produce an earnings loss of $0.05 to $0.50 per share.  Which further demonstrates why the two departments should be in lock step with regards to ACA compliance.

ACA penalty reserves

This begs the question, should Finance Departments set aside reserves for ACA penalties?  First from the IRS perspective, ACA “taxes” are set up in a rearview mirror type methodology.  This implies that a company will not know if they might be assessed a penalty until after the month is complete. You can’t go back and correct what has happened. 

All it takes is one ineligible person going to the marketplace for a premium tax credit in an EIN reporting below the 95% threshold to see the multipliers in the table above begin to take effect. This simple scenario should make the finance team seriously consider putting in at least one month of reserves. Of course, the multipliers increase if you consider the cadence in which data is being reviewed – quarterly? Annually? At some point it makes sense to either review data more frequently or be prepared to set aside a full year of reserves to cover what could become a 12-month fine.

As evidenced above, these ACA “taxes” could impact:

  • Financial statements—may need to make significant material adjustments
  • Shareholder earnings and result in special disclosures to investors
  • SOX compliance and corresponding corporate governance disclosures to investors
  • Internal audit procedures and external analyst forecasts which could ultimately impact overall corporate stock prices.

Tips to help avoid ACA penalties

There are several things you can do to help mitigate the risk of ACA penalties.  

If you are on the Finance side of the house…

  • Set up time with the HR team to understand the current ACA reporting process in place for your organization.
  • If it’s not already happening, we recommend the Financial Auditors begin to build special checks for ACA compliance into quarterly or annual financial audits.
  • Be sure you understand the ACA review period, benefits offered business model and the risk associated with any employee who receives a Premium Tax Credit (PTC). Being knowledgeable in these areas can significantly help keep you above the 95% IRS threshold each month.

As an HR Team member…

  • Perform monthly checks to understand who is offered benefits within your organization.
  • Be sure you are well versed in the ACA rules for calculating an FTE – these rules can be complex but understanding and implementing them correctly can save you from costly penalties

Tango Health is an expert in ACA compliance and reporting and offers fully-outsourced software and service solutions backed by tough security standards. We help solve ACA compliance challenges year-round with expertise and guidance throughout the process from monthly data aggregation and cleaning of your data, to calculations and reporting, to printing and filing and then assisting with penalties and audits as needed—at no extra charge. Complex businesses such as government, higher education, healthcare systems and companies with union or part-time employees is where our data engineers and powerful software really shine. Also, we have successfully filed on-time for 100% of our ACA Compliance and Reporting customers for three consecutive years.

If you’d like more information about Tango Health’s ACA Compliance and Reporting Solution, email us at gotango@tangohealth.com

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