The Affordable Care Act—Countdown To Compliance For Employers, Week 31: ERISA Section 510 And Limiting Employee Hours

Article by Alden J. Bianchi and Edward A. Lenz

In last week's post, we examined the appropriateness of capping the annual hours of new "variable hour employees" as a way to limit exposure under the Affordable Care Act's employer shared responsibility rules. (These rules are codified at Internal Revenue Code § 4980H and implemented in final regulations issued in February of this year. The IRS has also published a helpful set of Frequently Asked Questions on the subject.) We asserted that the strategy does not work in the case of new employees during the initial measurement period. This week's post examines its application to "ongoing employees."

Background

As we explained previously,

"Whenever Congress draws a line in the sand—such as with exposure for assessable payments under the Affordable Care Act's employer shared responsibility rules—entities subject to regulation (here, applicable large employers) will inevitably seek ways to avoid having to comply."

Nowhere has this rule been discussed more publicly than in connection with efforts on the part of employers to cap hours of (almost exclusively rank-and-file) employees at or under 30 hours per week so as to avoid having to make any offer of minimum essential coverage. Discussions of these and other avoidance strategies inevitably invoke the specter of § 510 of the Employee Retirement Income Security Act (ERISA). In our experience, much of this analysis misses the mark.

ERISA § 510 makes it unlawful for any person to discriminate against a plan participant or beneficiary for exercising rights provided by an employee benefit plan. This provision has generally, though not exclusively, been invoked in cases involving pension benefits. Some commentators have predicted a flood of cases under ERISA § 510 aimed at employers that seek to cap hours in order to avoid Code § 4980H exposure, but these claims often overlook that ERISA § 510 confers rights only on plan participants and not on employees generally. And nothing in ERISA or any other Federal law requires employers to offer group health plan coverage. (The issue of "participant" vs. "employee" is treated at length in a recent blog post by Ann Caresani of Porter, Wright, Morris & Arthur LLP, Cleveland, Ohio.)

It would be a serious mistake, however, to think that the participant/employee distinction ends the matter, and that an employer has nothing to fear under ERISA § 510 if it uses an hours cap strategy to prevent employees from achieving...