Notice 2011-36

Part III. Administrative, Procedural, and Miscellaneous
Request for Comments on
Shared Responsibility for
Employers Regarding Health
Coverage (Section 4980H)
Notice 2011–36
Many provisions of the Patient Protection and Affordable Care Act (Affordable
Care Act) that are designed to promote
expanded, affordable health coverage become effective beginning in 2014. These
include provisions for shared responsibility for employers regarding health
coverage, coverage to be offered by State
Exchanges, premium tax credits to assist individuals in purchasing coverage
through State Exchanges, and related provisions. As part of the process of planning
for implementation of these provisions,
the Department of the Treasury (Treasury), the Department of Labor (DOL)
and the Department of Health and Human
Services (HHS) (collectively, the three
Departments) are working in concert to develop regulations and other administrative
guidance that will respond to questions
and assist stakeholders with implementation.
I. PURPOSE
This request for comments is intended
to initiate and inform the process of developing regulatory guidance regarding the
shared employer responsibility provisions
in § 4980H of the Internal Revenue Code
(Code). Those provisions, which apply
for months beginning after December 31,
2013, refer to certain standards relating to
the offering of health coverage by employers to their full-time employees. Under
§ 4980H, an “applicable large employer”
that does not meet those standards may
be liable for an “assessable payment” if at
least one of its full-time employees is certified as having enrolled in health insurance
through a State Exchange with respect to

which a premium tax credit under § 36B
of the Code, a cost-sharing reduction under
§ 1402 of the Affordable Care Act, or an
advance payment of such credit or reduction under § 1412 of the Affordable Care
Act is allowed or paid.
This notice does not constitute guidance. Instead, it describes potential approaches, which could be incorporated
in future proposed regulations, to certain
discrete issues under § 4980H, particularly
the issue of who is a full-time employee,
and invites comments on these approaches.
Treasury and the Internal Revenue Service
(IRS) intend to publish such proposed
regulations both on the § 4980H issues
addressed in this notice and on a broader
set of issues under § 4980H. This notice
also invites comments on the interpretation of the 90-day limitation on waiting
periods for group health plans and health
insurance issuers offering group health
insurance coverage under § 2708 of the
Public Health Service (PHS) Act, and on
how the interpretations of that section and
of § 4980H should be coordinated. The
three Departments are coordinating their
efforts in developing the regulations and
other guidance on the shared employer
responsibility provisions (Treasury/IRS
guidance), the 90-day limitation on waiting periods (three Department guidance),
automatic enrollment for employees of
large employers (DOL guidance),1 and
other Affordable Care Act provisions.
II. BACKGROUND
Section 4980H was added to the Code
by § 1513 of the Affordable Care Act
enacted March 23, 2010, Pub. L. No.
111–148, and amended by § 1003 of the
Health Care and Education Reconciliation
Act of 2010, enacted March 30, 2010,
Pub. L. No. 111–152. Section 4980H
is effective for months beginning after
December 31, 2013.
Generally, § 4980H provides that an
applicable large employer is liable for an

assessable payment if any full-time employee is certified to receive an applicable
premium tax credit or cost-sharing reduction and either (1) the employer fails to
offer to its full-time employees (and their
dependents) the opportunity to enroll in
minimum essential coverage (MEC) under an eligible employer-sponsored plan
(§ 4980H(a) liability)2; or (2) the employer offers its full-time employees (and
their dependents) the opportunity to enroll
in MEC under an eligible employer-sponsored plan that, with respect to a full-time
employee who has been certified for the
advance payment of an applicable premium tax credit or cost-sharing reduction,
either is unaffordable within the meaning
of § 36(B)(c)(2)(C)(i) or does not provide
minimum value within the meaning of
§ 36(B)(c)(2)(C)(ii) (§ 4980H(b) liability).
The definition of full-time employee is key
in determining whether and, if so, to what
extent, an employer may incur § 4980H(a)
liability or § 4980H(b) liability. The annual assessable payment under § 4980H(a)
is based on all (excluding the first 30)
full-time employees, while the annual
assessable payment under § 4980H(b) is
based on the number of full-time employees who are certified to receive an advance
payment of an applicable premium tax
credit or cost-sharing reduction.
Section 4980H(c)(4) provides that a
full-time employee with respect to any
month is an employee who is employed
on average at least 30 hours of service
per week. An applicable large employer
with respect to a calendar year is defined
in section 4980H(c)(2) as an employer
who employed an average of at least 50
full-time employees on business days during the preceding calendar year.3 For purposes of determining whether an employer
is an applicable large employer, full-time
equivalent employees (FTEs), which are
determined based on the hours of service
of employees who are not full-time, are
taken into account.

1

Section 18A of the Fair Labor Standards Act (FLSA), as added by § 1511 of the Affordable Care Act, requires employers subject to the FLSA that have more than 200 full-time employees
and that offer enrollment in one or more health benefit plans to automatically enroll new full-time employees in one of the plans offered (subject to any waiting period authorized by law), and
to continue the enrollment of current employees in the employer’s plan. Under FLSA § 18A, which is enforced by the DOL, any automatic enrollment program must include adequate notice
and the opportunity to opt out of any coverage in which the individual was automatically enrolled. Treasury/IRS and the DOL are coordinating the development of their respective guidance
on the definitions of full-time employee for purposes of § 4980H and FLSA § 18A.

2

MEC is defined in § 5000A(f) of the Code. The definition of “eligible employer-sponsored plan” in § 5000A(f)(2) applies for purposes of § 4980H.

3

Section 4980H is effective for months beginning after December 31, 2013. For 2014, the first calendar year in which an employer could be an applicable large employer, the preceding
calendar year is 2013.

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792

May 23, 2011

This notice invites comments on a
number of possible rules, definitions and
approaches for interpreting and applying
§ 4980H. Section III of the notice addresses potential definitions of employer,
employee and hours of service. Section IV
describes a possible method for determining whether an employer is an applicable
large employer for a calendar year, and
thereby subject to § 4980H. Section V outlines possible rules that could be used to
determine an employee’s full-time status
for purposes of calculating an employer’s
assessable payment under § 4980H. Section VI contains a more general request for
comments, including comments on the interaction of the rules under § 4980H with
certain other provisions of the Affordable
Care Act.
III. DEFINITION OF EMPLOYER,
EMPLOYEE, HOURS OF SERVICE
In the interests of simplicity and consistency, it is contemplated that the definitions of employer, employee and hours
of service and the rules for calculating
hours of service (as outlined below) would
generally conform, to the extent consistent with the provisions and purposes
of § 4980H, to well-established regulatory definitions and rules applicable to
employer-provided health and pension
benefits. Comments are invited on the
following possible approaches to defining
those terms.
A. How “Employer” Would Be Defined
For purposes of § 4980H, as under
Code provisions generally, “employer”
would mean the entity that is the employer
of an employee under the common-law
test. In addition, § 4980H provides that all
entities treated as a single employer under
§ 414(b), (c), (m), or (o) are treated as a
single employer for purposes of § 4980H.
Section 4980H(c)(2)(C)(i).
Thus, all
employees of a controlled group under
§ 414(b) or (c), or an affiliated service
group under § 414(m), are to be taken
into account in determining whether any
member of the controlled group or affiliated service group is an applicable large
employer. Section 4980H also provides
that an employer includes a predecessor

4

employer (§ 4980H(c)(2)(C)(iii)) and that
an employer not in existence during an
entire preceding calendar year will be an
applicable large employer for the current
calendar year if it is reasonably expected to
employ an average of at least 50 full-time
employees (taking into account FTEs) on
business days during the current calendar
year. Section 4980H(c)(2)(C)(ii). (Section
IV.C describes how FTEs are calculated
for purposes of determining whether an
employer is an applicable large employer.)

or entitled to payment but performed no
duties). The potential rules for determining hours of service in this Section III.C
and section III.D, which are based on prior
guidance under other provisions of the Affordable Care Act, would apply in determining an employee’s status as full-time
or not full-time and in calculating an employer’s FTEs.

B. How “Employee” Would Be Defined

1. Calculation of hours for service for
hourly employees

For purposes of § 4980H, as under Code
provisions generally, “employee” would
mean a worker who is an employee under
the common-law test. (See Section IV.D
for a special rule regarding seasonal employees described in § 4980H(c)(2)(B).)
Section 414(n), which treats “leased employees”, as defined in § 414(n)(2), as
employees of the service recipient for various purposes, does not cross-reference
§ 4980H and accordingly would not apply
to § 4980H.
C. Definition of “Hours of Service”
In general, § 4980H treats, with respect
to a month, an employee who has an average of at least 30 hours of service per
week as a full-time employee. It is contemplated that, for this purpose, proposed
regulations would provide that 130 hours
of service in a calendar month would be
treated as the monthly equivalent of at least
30 hours of service per week.4 As under
existing Labor Regulations, an employee’s
hours of service would include the following: (1) each hour for which an employee
is paid, or entitled to payment, for the performance of duties for the employer; and
(2) each hour for which an employee is
paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to
vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence (29 C.F.R.
§ 2530.200b–2(a)) (except that it is contemplated that no more than 160 hours of
service would be counted for an employee
on account of any single continuous period during which the employee was paid

D. How Hours of Service Would Be
Calculated

For employees paid on an hourly basis
(hourly employees), the employer would
be required to calculate actual hours of
service from records of hours worked and
hours for which payment is made or due
(payment is made or due for vacation, holiday, illness, incapacity, etc., as described
above).
2. Calculation of hours for service for
non-hourly employees
For employees not paid on an hourly basis (non-hourly employees), the employer
would be permitted to calculate the number of hours of service under any of the
following three methods: (1) counting actual hours of service from records of hours
worked and hours for which payment is
made or due for vacation, holiday, illness,
incapacity, etc., as described above; (2)
using a days-worked equivalency method
whereby the employee is credited with
eight hours of service for each day for
which the employee would be required to
be credited with at least one hour of service under the rule in Section III.C above;
or (3) using a weeks-worked equivalency
of 40 hours of service per week for each
week for which the employee would be
required to be credited with at least one
hour of service under the rule in Section III.C above. These equivalents are
based on Labor regulations at 29 C.F.R.
§ 2530.200b–2(a), modified as under prior
guidance under other provisions of the
Affordable Care Act.
Although an employer would be required to use one of these three methods for counting hours of service for

This possible proposed standard of 130 hours of service per calendar month would take into account that the average month consists of more than four weeks (52x30/12=130).

May 23, 2011

793

2011–21 I.R.B.

all non-hourly employees, an employer
need not use the same method for all
non-hourly employees, but may apply
different methods for different classifications of non-hourly employees, if the
classifications are reasonable and consistently applied. In addition, an employer
may change the method of calculating
non-hourly employees’ hours of service
for each calendar year. For example, for
all non-hourly employees, an employer
may use the actual hours worked method
for the calendar year 2014, but may use
the days-worked equivalency method for
counting hours of service for the calendar
year 2015.
The number of hours of service calculated using the days-worked or weeksworked equivalency method would be required to reflect generally the hours actually worked and the hours for which payment is made or due. An employer would
not be permitted to use the days-worked or
weeks-worked equivalency method if the
result would be to substantially understate
an employee’s hours of service in a manner that would cause that employee not to
be treated as full-time.
IV. DETERMINATION OF WHETHER
AN EMPLOYER IS AN APPLICABLE
LARGE EMPLOYER
This section of the notice describes the
process for determining whether an employer is an applicable large employer in
accordance with § 4980H. Comments are
welcome.
A. Applicable Large Employer Status
Determined Based upon Sum of Full-Time
Employees and FTEs
Under § 4980H, an employer would not
be subject to an assessable payment unless the employer is an applicable large
employer. As noted above, § 4980H defines an applicable large employer, with respect to a calendar year, as an employer
that employed an average of at least 50
FT employees on business days during the
preceding calendar year. For purposes of
this Section IV, the term “FT employees”
means the sum of the employer’s full-time
employees and FTEs.

2011–21 I.R.B.

B. Full-Time Employees for Determining
Applicable Large Employer Status
Section 4980H provides that full-time
employee status is determined on a
monthly basis. Under § 4980H, a full-time
employee with respect to any month is an
employee (including a seasonal employee)
who is employed, on average, at least 30
hours of service per week (or, under the
rules contemplated to be included in proposed regulations, at least 130 hours of
service in the calendar month). An employee who is not a full-time employee
under this standard (including a seasonal
employee) for a given month is taken into
account in the FTE calculation. Section
4980H(c)(2)(E).
C. Full-Time Equivalents for Determining
Applicable Large Employer Status
In determining whether an employer is
an applicable large employer for the current calendar year, § 4980H provides that
the employer is required to calculate the
number of FTEs it employed during the
preceding calendar year and count each
such FTE as one FT employee for that
year. All employees (including seasonal
employees) who were not full-time employees for any month in the preceding
calendar year are included in calculating
the employer’s FTEs for that month. The
number of FTEs for each calendar month
in the preceding calendar year would be
determined using the following steps:
(1) Calculate the aggregate number
of hours of service (but not more than
120 hours of service for any employee)
for all employees who were not full-time
employees for that month.
(2) Divide the total hours of service in
step (1) by 120. This is the number of
FTEs for the calendar month.
In determining the number of FTEs for
each calendar month, fractions would be
taken into account. For example, if in a
calendar month employees who are not
full-time employees work 1,260 hours,
there would be 10.5 FTEs for that month.
However, after adding the 12 monthly
full-time employee and FTE totals, and
dividing by 12 (the amount in Section
IV.E, step (4) below), all fractions would
be disregarded. For example, 49.9 FT
employees for the preceding calendar year
would be rounded down to 49 FT employ-

794

ees (and thus the employer would not be
an applicable large employer in the current
calendar year).
D. Seasonal Employees
Section 4980H provides that seasonal
employees are employees who perform
labor or services on a seasonal basis as
defined by the Secretary of Labor, including seasonal workers covered by
29 C.F.R. § 500.20(s)(1) and retail workers
employed exclusively during holiday
seasons. Section 4980H(c)(2)(B)(ii). If
an employer’s workforce exceeds 50 FT
employees for 120 days or fewer during
a calendar year, and the employees in
excess of 50 who were employed during
that period of no more than 120 days were
seasonal employees, the employer would
not be an applicable large employer. It is
contemplated that, for this purpose only,
four calendar months would be treated as
the equivalent of 120 days.
E. Calculating the Number of FT
Employees
The steps in calculating the number of
FT employees in the preceding calendar
year, and thus whether the employer is an
applicable large employer for the current
calendar year, would be as follows:
(1) Calculate the number of full-time
employees (including seasonal employees) for each calendar month in the preceding calendar year.
(2) Calculate the number of FTEs (including seasonal employees) for each calendar month in the preceding calendar year
(as described in Section IV.C above).
(3) Add the number of full-time employees and FTEs calculated in steps (1)
and (2) for each of the 12 months in the
preceding calendar year.
(4) Add up the 12 monthly numbers in
step (3) and divide the sum by 12. This is
the average number of the employer’s FT
employees for the preceding calendar year.
See Section IV.C above for rule regarding
fractions and rounding.
(5) If the number of FT employees in
step (4) is less than 50, the employer is
not an applicable large employer for the
current calendar year.
(6) If the number of FT employees in
step (4) is 50 or more, determine whether
the seasonal employee exception, as described in Section IV.D above, applies. If

May 23, 2011

the seasonal employee exception applies,
the employer is not an applicable large employer for the current calendar year. If the
seasonal exception does not apply, the employer is an applicable large employer for
the current calendar year.
Examples. In all of the examples in
this notice, employees are common law
employees of the employer, and hours of
service are computed following the rules
in Section III.D above.
Example 1 — Hourly-paid employees. (i) Employer K’s taxable year is the calendar year. Employer K’s payroll records indicate that Employee
A was an hourly employee who worked 173 hours
per month for January through November of 2014,
worked 93 hours in December of 2014 and was paid
for 80 hours of annual leave in December of 2014 (for
a total of 173 hours for December of 2014).
(ii) Employee A had more than 130 hours of service in each month in calendar year 2014.
(iii) Employee A was a full-time employee of Employer K for each month during calendar year 2014.
Example 2 — Non-hourly employee: daysworked equivalency. (i) Same facts as Example 1,
except that in calendar year 2014, Employee B is
a non-hourly employee who worked for Employer
K five days per week for 50 weeks, and was paid
80 hours of vacation leave for two weeks (40 hours
per week). Employer K applies the days-worked
equivalency for Employee B.
(ii) Employee B is credited with 40 hours of service for each week in the 2014 calendar year (50
weeks worked and 2 weeks for which payment was
made).
(iii) Employee B averaged at least 30 hours of
service per week during each month in calendar year
2014.
(iv) Employee B is a full-time employee of Employer K in each month in calendar year 2014.
Example 3 — Applicable large employer. (i) In
each month in calendar year 2014, Employer L has
20 full-time employees, 30 FTEs, and no seasonal
employees.
(ii) Because Employer L has 50 FT employees (20
full-time employees + 30 FTEs) during each month of
2014 and the seasonal employee exception is not applicable, Employer L is an applicable large employer
for calendar year 2015.
Example 4 — Seasonal employees. (i) In calendar
year 2014, Employer N has 40 full-time employees
for January through December none of whom are seasonal employees. In addition, Employer N also has
80 seasonal full-time employees that work for Employer N from September through December. Employer N has no FTEs.
(ii) Before applying the seasonal employee exemption, Employer N has 40 full-time employees
during each of eight calendar months of 2014, and
120 full-time employees during each of four calendar months of 2014, resulting in an average of
66.5 employees for the year (rounded down to 66
full-time employees), an average greater than the
average of at least 50 full-time employees required
for applicable large employer status. However, in
this example, Employer N’s workforce exceeded 50
full-time employees (counting seasonal employees)

May 23, 2011

for no more than four calendar months (treated as the
equivalent of 120 days) in calendar year 2014, and
the employees in excess of 50 during those months
were seasonal workers.
(iii) Accordingly, because of the seasonal employee exemption, Employer N is not an applicable
large employer for calendar year 2015.
Example 5 — Seasonal and other FTEs. (i) Same
facts as in Example 4, except that Employer N has 20
FTEs in August, some of whom are seasonal employees.
(ii) The seasonal employee exemption is not
available if the number of an employer’s FT employees (including seasonal employees) exceeds 50
employees for more than 120 days during the calendar year. Employer N has at least 50 FT employees
for a period greater than four calendar months
(treated as the equivalent of 120 days) in calendar
year 2014. Therefore, Employer N is not eligible
for the seasonal employee exception. As a result,
Employer N averages 68 FT employees in 2014: [(40
x 7) + (60 x 1) + (120 x 4)] ÷ 12 = 68.33, rounded
down to 68.

(iii) Accordingly, Employer N is an applicable large employer for calendar year
2015.
V. POTENTIAL METHODS FOR
DETERMINING FULL-TIME
EMPLOYEES UNDER § 4980H
An applicable large employer’s potential § 4980H(a) liability is determined by
reference to the number of full-time employees employed for a given month, and
an applicable large employer’s potential
§ 4980H(b) liability is determined by reference to the number of full-time employees
with respect to whom an applicable premium tax credit or cost-sharing reduction
is allowed or paid for a given month. Under a month-to-month method for determining an applicable large employer’s potential § 4980H liability, each employee’s
full-time status would be determined on a
monthly basis (i.e., an employee would be
considered full-time for a month if the employee averaged at least 30 hours of service per week for the month (or, under the
rules contemplated to be included in proposed regulations, had at least 130 hours
of service for the month)).
A determination of full-time employee
status on a monthly basis for purposes
of calculating an employer’s potential
§ 4980H liability may cause practical difficulties for employers, employees, and
the State Exchanges. These difficulties
include uncertainty and inability to predictably identify which employees are
considered full-time and, consequently,
inability to forecast or avoid potential

795

§ 4980H liability. This issue is particularly
acute in circumstances in which employees have varying hours or employment
schedules (e.g., employees whose hours
vary from month to month or who are
employed for a limited period). If employer-sponsored coverage were limited
to employees who satisfied the definition
of full-time employee during a month,
employees might move in and out of employer coverage as frequently as monthly,
which would be undesirable from both the
employee’s and the employer’s perspective, and could also create administrative
challenges for the State Exchanges.
In order to address these concerns for
employees and employers, and to give plan
sponsors flexible and workable options as
well as greater predictability, Treasury and
the IRS are considering proposing possible alternatives to a month-by-month determination of full-time employee status
for purposes of calculating an applicable
large employer’s potential assessable payment. One possible alternative would permit applicable large employers, at their option, to use a look-back/stability period
safe harbor that would provide certainty
as to which employees would be considered full-time for a particular coverage period. Such an approach also would be designed to give effect to the statutory provisions while accommodating a wide variety of current eligibility and enrollment
practices in group health plans. Accordingly, this notice requests comments on
the look-back/stability period safe harbor
method described below, which Treasury
and the IRS believe represents a reasonable interpretation of the statute.
Under the possible look-back/stability period safe harbor method, an employer would determine each employee’s
full-time status by looking back at a defined period of not less than three but
not more than twelve consecutive calendar months, as chosen by the employer
(the measurement period), to determine
whether the employee averaged at least
30 hours of service per week (or, under
the rules contemplated to be included in
proposed regulations, at least 130 hours
of service per calendar month) during the
measurement period. If the employee were
determined to be a full-time employee
during the measurement period, then the
employee would be treated as a full-time
employee during a subsequent “stability

2011–21 I.R.B.

period”, regardless of the number of the
employee’s hours of service during the
stability period, so long as he or she remained an employee. For an employee
who was determined to be a full-time employee during the measurement period,
the stability period would be a period of at
least six consecutive calendar months that
follows the measurement period and is no
shorter in duration than the measurement
period. If the employee was determined
not to be a full-time employee during the
measurement period, the employer would
be permitted to treat the employee as not
a full-time employee during a stability
period that followed the measurement
period, but the stability period could not
exceed the measurement period.
Example 6 — Measurement period/stability period. (i) Employer M, an applicable large employer,
did not hire any new employees in calendar year
2014. Employer M elects to use a 6-month measurement period and a 6-month stability period for
purposes of determining its full-time employees. The
first measurement period runs from January 1, 2014
through June 30, 2014 and the associated stability
period runs from July 1, 2014 through December 31,
2014.
(ii) Employer M determines each employee’s fulltime status by looking back to determine whether the
employee averaged at least 30 hours of service per
week from January 1, 2014 through June 30, 2014
by totaling each employee’s hours of service during
that measurement period and dividing that total by the
number of weeks in that measurement period.
(iii) The employees determined to be full-time
based on their hours of service during the first measurement period are considered to be full-time for
each month in the stability period from July 1, 2014
through December 31, 2014 for purposes of calculating Employer M’s potential assessable payment under § 4980H for those months.

Treasury and IRS also request comments on other possible alternative methods of determining full-time employee
status for purposes of calculating an applicable large employer’s potential assessable
payment.
For new employees who might not have
been employed by the employer during the
entire measurement period, or employees
who move into full-time status during the
year, it is currently anticipated that this
safe harbor may apply only in a limited
form. Comments are requested on potential rules for determining the full-time status of such employees. See also Section
VI, below, which requests comments regarding the 90-day waiting period and its
application to newly eligible employees.
In addition, comments are invited on
the following possible provisions:

2011–21 I.R.B.

•

•

•

•

To allow reasonable administrative
time to perform the look-back calculation, notify employees of their
eligibility, and enroll them in coverage, the stability period might not be
required to commence immediately
following the end of the measurement
period. Instead, plans might be given
the option of taking an administrative interval (for example, up to one
month) between the end of the measurement period and the beginning of
the stability period.
Employers who select a measurement
period of less than a year but select a
stability period that is designed to provide coverage to employees on a plan
year basis might be permitted to provide different stability periods for different groups of employees depending
on the point during the plan year in
which the employee is determined to
be full-time. For example, employers
using a three-month measurement period might be permitted to use a stability period of at least six consecutive
months or, if greater, the number of
calendar months remaining in the plan
year.
Employers might be given the option of starting the first measurement
period for an employee on the employee’s date of hire rather than on the
first day of a calendar month, provided
that the duration of the measurement
period was uniform for all employees.
To minimize opportunities for manipulation, employers might be limited in
the frequency with which they could
change their measurement and stability period.

If employers could use different measurement and stability periods for different
portions of their work force, the potential
for manipulation could be greater, and the
resources required for the IRS to review
and confirm employer compliance would
be materially increased. The use of a
single measurement period and a single
stability period for all of an employer’s
employees would minimize these concerns. Accordingly, commenters are requested to take these issues into account in
commenting on whether applicable large
employers should generally be required to
use the same measurement and stability
periods for all employees. Comments are

796

requested on whether there are circumstances (such as corporate transactions
bringing new entities into the applicable
large employer’s controlled group or the
use of different payroll systems for different groups of employees) in which it
may be appropriate for the employer to
apply different measurement and stability
periods for different classifications of employees or for different entities within its
controlled group.
VI. REQUEST FOR COMMENTS
A. General Request for Comments
As noted, the IRS and Treasury intend
to issue proposed regulations on the employer shared responsibility provisions
under § 4980H. To help inform those proposed regulations, comments are invited
on the issues addressed in this notice. In
addition, employers and other stakeholders have requested clarification of how
the § 4980H(a) assessable payment provisions will be interpreted and applied,
and how they should work together with
the § 4980H(b) assessable payment provisions. As noted earlier, § 4980H(a)
provides that the assessable payment under
§ 4980H(a) may apply to an employer that
“fails to offer its full-time employees (and
their dependents) the opportunity to enroll
in minimum essential coverage under an
employer-sponsored plan.” It is contemplated that the proposed regulations would
make clear that an employer offering coverage to all, or substantially all, of its
full-time employees would not be subject
to the § 4980H(a) assessable payment provisions. Comments are requested on the
challenges employers may face in being
able to offer coverage to certain categories
of employees even after implementation of
the changes made by the Affordable Care
Act to the group insurance market, and on
other situations where application of the
§ 4980H(a) assessable payment may not
be appropriate. Comments are requested
on whether there are appropriate exceptions that should be provided for under the
employer responsibility provisions (for
example, an exception to permit employers not to offer coverage to nonresident
alien employees, who not are required to
have coverage under the Affordable Care
Act, or not to offer coverage to certain seasonal employees) and how any proposed

May 23, 2011

exceptions would be consistent with the
structure and purpose of the § 4980H(a)
assessable payment provisions.
B. Request for Comments on the 90-Day
Waiting Period Limitation
Section 1201 of the Affordable Care
Act added a new § 2708 of the PHS Act,
which provides that a group health plan
and health insurance issuer offering group
health insurance coverage shall not apply
any waiting period that exceeds 90 days.5
PHS Act § 2708 (42 U.S.C. § 300gg–7)
is incorporated by reference into the Employee Retirement Income Security Act of
1974 (ERISA) under § 715 and into the
Code under § 9815, enacted by § 1563 of
the Affordable Care Act. Accordingly, the
interpretation and application of § 2708 of
the PHS Act is subject to the shared jurisdiction of the three Departments. Violations by group health plans are subject to
the excise tax under § 4980D of the Code,
as well as other civil enforcement remedies
under ERISA and the PHS Act.
For purposes of § 2708 of the PHS
Act, “waiting period” is defined under
§ 2704(b)(4) of the PHS Act to mean
“with respect to a group health plan and
an individual who is a potential participant
or beneficiary in the plan, 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.” Identical definitions of “waiting period” appear in the Code and ERISA. See
Code § 9801(b)(4); ERISA § 701(b)(4).6
Joint final regulations under these three
identical statutory provisions (which were
added by HIPAA) define the term “waiting period” as “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 [emphasis added].” See
Treas. Reg. § 54.9801–3(a)(3)(iii); DOL
Reg. 29 CFR 701–3(a)(3)(iii); HHS Reg.
45 CFR 146.111(a)(3)(iii).
The Departments request comments
on the 90-day limitation on any waiting
period under PHS Act § 2708, including
comments on which employees are subject
to the limitation, when a waiting period
5

may apply consistent with the limitation,
and how the 90-day limitation should be
calculated. Comments are also requested
on the application of the 90-day waiting
period under PHS Act § 2708 to common employer eligibility and enrollment
practices and the interaction between the
interpretation of the Code § 4980H employer responsibility provisions and the
calculation of the maximum permissible
waiting period under PHS Act § 2708,
including the following:
1.

On April 8, 2011, the DOL held an
open forum on issues relating to implementation of the automatic enrollment provisions of § 18A of the Fair
Labor Standards Act. At that open
forum and in other contexts, stakeholders have described arrangements
or practices currently used by some
group health plans to determine when
an employee is eligible to enroll in
the plan and when enrollment occurs.
Comments are requested on how the
90-day waiting period under PHS Act
§ 2708 should be applied in the following situations (including appropriate modifications, if any, that should
be made to an employer group health
plan’s eligibility and enrollment practices):
a. Employees become eligible to
enroll in the employer’s group
health plan when they are determined to have worked an average
of a specified number of hours
(e.g., 30 hours per week) during
a look-back measurement period
(e.g., a quarterly look-back measurement period) and are therefore considered to satisfy the
plan’s eligibility requirements.
Once an employee is determined
to be eligible to enroll in the
group health plan, he or she is
enrolled at the end of a 90-day
waiting period during which the
employer and the plan or issuer,
as applicable, complete the enrollment process.
b. Employees who are hired to work
a full-time schedule become eligible to enroll in the employer’s

c.

d.

e.

group health plan, subject to a
90-day service requirement, calculated from the date of hire. The
plan or issuer does not permit
mid-month enrollment but permits employees to enroll on the
first day of the month (or the first
day of a quarter) after completing
90 days of service.
Employees covered by a collective bargaining agreement become eligible for coverage under
a multiemployer health plan for a
period (such as a calendar quarter) if they completed a specified
number of hours during an earlier period (such as the previous
calendar quarter, or the calendar
quarter that began six months before the coverage quarter). The
multiemployer health plan collects such an employee’s hours
worked from different employers
that contribute to the plan. Under
the terms of the multiemployer
plan, excess hours may or may
not be “banked” and available
to maintain coverage for future
quarters in which the employee
does not meet the hours requirement.
Employees become eligible to
enroll in the employer’s group
health plan after completing a
service-based “probationary” period of, for example, three to six
months. The plan enrolls employees 90 days after the completion of the probationary period.
Employees hired as seasonal
workers or into certain other
temporary or variable-hour categories of employment are not eligible to enroll in the employer’s
group health plan, even if such
an employee works a sufficient
number of hours to satisfy the
plan’s eligibility requirement for
non-seasonal employees. To the
extent that the status of this employee changes to one that is
eligible to enroll in the plan, the
employee is permitted to enroll
90 days after the change in sta-

PHS Act § 2708 is effective for plan years beginning on or after January 1, 2014 and applies to both grandfathered and non-grandfathered plans.

6

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) added the definition of waiting period to the PHS Act, ERISA and the Code as part of the portability provisions.
Under the HIPAA portability provisions, a waiting period is not taken into account in determining whether an individual has had a significant break in coverage (i.e., a break of 63 or more
days) that would nullify prior creditable coverage that would otherwise reduce the length of an allowed preexisting condition exclusion period.

May 23, 2011

797

2011–21 I.R.B.

tus. In some instances, the same
seasonal or temporary employees
may be rehired annually.
f. Part-time employees are offered
coverage, but only after having
worked for longer than a 90-day
period.
2. What, if any, other service-based eligibility conditions do employers,
plans, or issuers currently impose that
could raise compliance issues under
PHS Act § 2708? Are there any clarifications or interpretations that would
be helpful to facilitate compliance?
Should the 90-day waiting period
provision be interpreted to require
aggregation of discrete periods of service or should plans be permitted to
require continuous service to satisfy
the waiting period?
3. How should § 4980H be coordinated
with the 90-day waiting period provision?
Comments
must
be
submitted by June 17, 2011.
Comments
should include a reference to Notice
2011–36.
Send submissions to
CC:PA:LPD:PR
(Notice
2011–36),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered Monday
through Friday between the hours of
8 a.m. and 4 p.m. to CC:PA:LPD:PR
(Notice 2011–36), Courier’s Desk,
Internal
Revenue
Service,
1111
Constitution Avenue, NW, Washington,
DC 20044, or sent electronically,
via the following e-mail address:
Notice.comments@irscounsel.treas.gov.
Please include “Notice 2011–36” in
the subject line of any electronic
communication. All material submitted

For Plan Years
Beginning in

will be available for public inspection and
copying.

§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.

NO INFERENCE

CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE

No inference should be drawn from any
provision of this notice concerning any
other provision of § 4980H or any other
section of the Affordable Care Act.
DRAFTING INFORMATION
The principal author of this notice is
Mireille Khoury of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Ms. Khoury at (202) 622–6080 (not a
toll-free call).

Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2011–41
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in effect for plan years beginning before 2008.
It also provides guidance on the corporate bond monthly yield curve (and
the corresponding spot segment rates),
and the 24-month average segment rates
under § 430(h)(2). In addition, this notice provides guidance as to the interest
rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under

Month

Year

Corporate
Bond Weighted
Average

May

2011

6.03

YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,

2011–21 I.R.B.

105, and 106 of PPA), § 430 of the Code
specifies the minimum funding requirements that apply to single employer plans
pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used

798

Sections
412(b)(5)(B)(ii)
and
412(l)(7)(C)(i), as amended by the Pension Funding Equity Act of 2004 and by
the Pension Protection Act of 2006 (PPA),
provide that the interest rates used to calculate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the rates
of interest on amounts invested conservatively in long term investment grade
corporate bonds during the 4-year period
ending on the last day before the beginning
of the plan year.
Notice 2004–34, 2004–1 C.B. 848, provides guidelines for determining the corporate bond weighted average interest rate
and the resulting permissible range of interest rates used to calculate current liability. That notice establishes that the corporate bond weighted average is based on the
monthly composite corporate bond rate derived from designated corporate bond indices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
April 2011 is 5.58 percent. Pursuant to Notice 2004–34, the Service has determined
this rate as the average of the monthly
yields for the included corporate bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.

Permissible Range
90%
5.43

to

100%
6.03

to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined using three 24-month average interest rates
(“segment rates”), each of which applies

May 23, 2011