April 24, 2014

IRS Provides Clarity on Whether Professional Employer Organizations Can Offer Eligible Employer-Sponsored Plans

The Internal Revenue Service (IRS) has released final regulations on the requirement that individuals maintain health insurance that meets the minimum essential coverage standard (the “individual mandate”).  These regulations give clarity to Professional Employer Organizations (PEOs) offering group health plan coverage to employees on behalf of an employer.  An individual can satisfy the minimum essential coverage requirement by maintaining coverage under an eligible employer-sponsored plan.  The final regulations provide that an eligible employer-sponsored plan includes coverage offered by a PEO on behalf of an employer.  Specifically, the definition of eligible employer-sponsored plan in the final regulations (Section 1.5000A-2(c)) provides that an eligible employer-sponsored plan includes, in addition to coverage offered by an employer, (i) group health insurance coverage offered on behalf of an employer to an employee and (ii) a self-insured group health plan under which coverage is offered by, or on behalf of, an employer to the employee.  In addition, the preamble to the final regulations explicitly states that organizations such as PEOs can offer coverage under an eligible employer-sponsored plan on behalf of an employer, yet not be viewed as the employer by reason of offering such coverage (“commentators asked whether a plan offered to an employer’s employees by a third party, such as a professional employer organization or leasing company, is an eligible employer-sponsored plan for the employees eligible to participate in the plan. The final regulations are revised to provide that a plan offered by an employer to an employee includes a plan offered to an employee on behalf of an employer. No inference is intended from this treatment that the third party is the employer for this or any other provision of the Code or related laws.”).

The final regulations are expected to be published in the Federal Register on August 30, 2013.

© 2014 McDermott Will & Emery

About the Author


Joanna C. Kerpen is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Washington, D.C. office. She focuses her practice on a variety of employee benefits tax and ERISA matters related to 401(k) plans, pension plans, health and welfare plans, and executive compensation plans, including designing, amending and administering such plans. She has extensive experience with the Patient Protection and Affordable Care Act, and has advised clients on compliance with that Act as well as with HIPAA and various other federal and state laws relevant to health and...


About the Author


David E. Rogers is a partner in the law firm of McDermott Will & Emery LLP. As head of the Firm’s Employee Benefits, Compensation, Labor & Employment Practice Group, David’s practice is concentrated in the area of employee benefits matters, including all areas of qualified and nonqualified retirement plans, health and welfare plans and executive compensation and executive employment agreements. He has also served as co-partner-in-charge of the Firm’s Washington, D.C. office.


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