The Internal Revenue Service (IRS) recently released new guidelines on the percentage to be used to determine an employer’s group plan “affordability” under the Affordable Care Act (ACA) for plan years beginning in 2017. The affordability of a group plan is used to determine if penalties are applied to the employer and if an individual employee is eligible for a premium tax credit. Therefore, it is important that employers keep these rules in mind when planning employee contribution strategy for the upcoming plan year.

For plan years beginning in 2017, employer-sponsored plans will be considered “affordable” if the employee’s required contribution for self-only coverage does not exceed 9.69% of an employee’s household income for the year. This increased slightly from 9.66% in 2016. The percentage applies to the self-only rates, and does not include additional costs for dependents.

If an employee is required to pay more than 9.69% of income in 2017, that employee is eligible for the premium tax credit through the Marketplace. This could also result in penalties for employers. If an employer offers more than one medical plan, the affordability test applies only to the lowest-cost option, as long as that low-cost option also meets the ACA minimum value of coverage.

When considering employee contributions, using the lowest paid employee’s income for the calculation ensures that all employees meet the 9.69% guideline. Your benefits consultant can assist with the process of determining the best contribution scenario for your credit union. They can help you decide how to meet your financial goals, as well as the credit union’s social goals, through employee contribution strategy discussions.