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ERISA Section 510 Violations

Cutting back on employees' hours to reduce exposure under the Affordable Care Act's "play or pay" mandate in 2014 could result in penalties under Section 510 of the Employee Retirement Income Security Act ("ERISA").

Who Will Be Affected:

Employers that meet the definition of "applicable large employer." Section 4980H(c)(2) of proposed regulations defines an applicable large employer with respect to a calendar year as an organization that employed an average of at least 50 full-time employees on business days during the preceding calendar year. The Affordable Care Act ("ACA") defines "full-time" to be any employee who works an average of 30 or more hours per week.

What the Affordable Care Act says:

Applicable large employers must either offer healthcare coverage that's deemed "affordable," or pay penalties of up to $3,000 per employee (minus the first 30 employees in their workforce).

What the Employee Retirement Income Security Act says:

Section 510 of the Employee Retirement Income Security Act prohibits organizations from making employment decisions specifically to prevent an employee from obtaining or keeping benefits coverage. This, of course, includes healthcare coverage.

What a Section 510 Violation Can Look Like:

Situations in which an employee who had regularly worked 40 hours a week, but has been reduced to 29 hours or less per week, can prove the reduction was made to avoid ACA requirements and penalties.

Rule Of Thumb:

Avoid reducing hours for employees who are currently enrolled in an employer-provided health plan, as this represents the greatest Section 510-related risk. Instead, limit hour caps to new and future hires.

Whistleblower Statute:

An ACA whistleblower statute prevents employers from taking action against employees who obtain subsidized coverage via a government healthcare exchange. The "pay" provision of the ACA is triggered when employees qualify for such coverage. Penalties for violations can be severe, while allowing a victorious plaintiff to collect damages for pain and suffering.

Consult With Counsel:

Penalties from Section 510 violations can be severe. Seek the counsel of a benefits attorney before making any decisions to cut back on employees' hours to reduce exposure under the Affordable Care Act's "play or pay" mandate.