2. 2
Gallagher Nonprofit Practice
Insurance Brokerage | Benefits and Retirement Consulting | ERM | Claims Administration and Advocacy | Investment Advisory and Fiduciary Services
Unemployment Insurance | Alternative Risk Financing | Risk Management | International Mission and Travel | Nonprofit Compensation
Serving more than 24,000 charities around the world.
Nonprofit Employers
Under PPACA
Phil Bushnell, Managing Director,
Nonprofit Practice
phil_bushnell@ajg.com
314.800.2241
This article highlights the most significant
concerns of the Patient Protection and
Affordable Care Act (PPACA) encountered by
nonprofits that provide employer-sponsored
healthcare coverage.
SIGNIFICANT ISSUES INTRODUCED BY PPACA
In general, PPACA creates challenges for nonprofit employers due to their
governing values, infrastructure and their special status under federal law.
Issues may arise as nonprofit employers work towards complying with
the Employer Shared Responsibility mandate because many employees
of these organizations are not highly compensated, and often nonprofit
organizations rely upon volunteers, including volunteer hours from their
own employees. These issues are further complicated if the employer is part
of a controlled group. These topics are examined below.
Nonprofit employers must address potential employer shared
responsibility penalties within a “controlled group.” When determining
employer size for purposes of the Employer Shared Responsibility
mandate, all employees of all members of a controlled group are included
in the determination. Although all nonprofit organizations may not be
“owned,” regulations issued under the internal revenue code specifically
address how the controlled group rules apply to tax-exempt organizations.
Those rules substitute the “right to control” for ownership, which includes
an assessment of who has the right to elect or appoint the tax-exempt
organization’s trustees or directors. Thus, under certain circumstances, even
nonprofit organizations may be part of a controlled group.
Frequently, members within a group participating in a health plan across
a diocese or a convention will have different eligibility requirements and
sometimes even different contributions rates. These issues may make
it difficult for each member of a controlled group to meet the offer of
coverage requirements and may trigger nondiscrimination issues. Care
should be taken by a nonprofit employer controlled group to analyze
whether each member of the group will meet the requirements to offer
coverage.
Careful consideration must be taken when determining employee
classification. Workers in the nonprofit environment are sometimes
incorrectly classified as independent contractors when they are actually
common law employees. Under the PPACA, employers must refer to the
common law standard when determining who is an employee and thus
who may be a full-time employee for purposes of the employer mandate
and IRS reporting. An employer who has inadvertently misclassified
common law employees as independent contractors may need to offer
coverage to workers it had previously considered ineligible for medical
benefits to avoid penalties.
Nonprofit volunteers do not impact an organization’s responsibility
under the employer mandate. Nonprofit organizations often depend
upon the work and dedication of volunteers. As long as those volunteers
meet the definition of a volunteer, they will not impact an organization’s
potential liability under the employer mandate. Specifically, the final
Employer Shared Responsibility regulations state “the hours worked
by a volunteer who does not receive (and is not entitled to receive)
compensation in exchange for the performance of services are not treated
as hours of service for purposes of section 4980H.” True volunteers
are individuals who: (1) work toward objectives related to public
service, religious or humanitarian purposes; (2) do not expect or receive
compensation for their services; and (3) do not displace any employees.
If employee-volunteers do not meet these requirements, they should be
viewed as employees, and their hours of services should be tracked for
purposes of the PPACA (as well as Fair Labor Standards Act purposes).
There should also be mindfulness of nonexempt employees who
“volunteer” after hours. These individuals may actually be working in their
employment capacity and thus should have their hours of service tracked
for purposes of determining if they are full-time employees under the
PPACA.
Nonprofit employers may be eligible for accommodation from the
contraceptive mandate. Non-grandfathered plans must provide coverage
for preventive services without cost sharing. This includes all FDA
approved contraceptives and contraceptive devices for women. Although
religious employers are exempt from this requirement, religious-affiliated
nonprofit employers are not. However, certain nonprofit religious-affiliated
employers (called “eligible organizations” under recent guidance) may
obtain an “accommodation” from the requirement whereby their plans will
not directly pay for, nor provide contraception, for plan years beginning on
or after January 1, 2014.
Nonprofit employers should carefully evaluate the impact of loss of
grandfather status. Upon loss of grandfather status, employer-sponsored
plans must cover FDA-approve clinical trials for plan years beginning on
or after January 1, 2014. Approved clinical trials include phase I, phase II,
phase III or phase IV clinical trials that are conducted in connection with
the prevention, detection or treatment of cancer or other life-threatening
disease or condition and is federally funded through a variety of entities or
departments of the federal government.
This means that non-grandfathered group health plans may not: (1)
deny coverage for participation in an approved clinical trial; (2) deny,
3. 3
Gallagher Nonprofit Practice
Insurance Brokerage | Benefits and Retirement Consulting | ERM | Claims Administration and Advocacy | Investment Advisory and Fiduciary Services
Unemployment Insurance | Alternative Risk Financing | Risk Management | International Mission and Travel | Nonprofit Compensation
Serving more than 24,000 charities around the world.
limit or impose additional conditions on coverage for routine patient
costs for items and services furnished in connection with a clinical trial;
or (3) discriminate against individual because of participation in a trial.
Furthermore, the plan must provide coverage for “routine patient costs.”
Routine patient costs include items and services typically provided under
the plan for a plan participant not enrolled in a clinical trial. However,
the plan is not required to cover items and services that include (a) the
investigational item, device or service itself; (b) items and services not
included in the direct clinical management of the patient, but instead
provided in connection with data collection and analysis; or (c) a service
clearly not consistent with widely accepted and established standards of
care for the particular diagnosis.
Some of the approved clinical trials may clash with a nonprofit employer’s
religious beliefs.
ACTION STEPS
Determine whether each entity within controlled group
will meet the standards to avoid employer shared
responsibility penalties once the employer mandate is
applicable.
Examine whether workers are correctly classified as either
an independent contractor or an employee in order to
avoid potential employer shared responsibility penalties or
errors in IRS reporting.
Establish whether volunteers fall within the exception to
rules for counting hours of service and thus potential
status as a full-time employee under the employer
mandate.
Determine whether the organization will seek an
accommodation from the “contraceptive mandate” if the
organization’s plan has lost grandfathered status.
Explore whether clinical trial coverage would conflict with
a religious-affiliated nonprofit employer’s religious beliefs.
Contact your Gallagher advisor for more information and
assistance.
Saving to Serve More
Matt Dietz, Nonprofit Practice, Analyst
matt_dietz@ajg.com
630.634.4573
Does your nonprofit pay state unemployment
tax? As a 501(c)(3) organization, a nonprofit
may opt out of this tax, potentially saving your
organization thousands of dollars every year.
Since the 1930s, employers have paid state
unemployment taxes. These taxes are used to fund administrative costs and
the costs of unemployment insurance at state unemployment agencies.
This tax money is also to build a fund balance it can draw on when
unemployment spikes.
Nonprofits that qualify as a 501(c)(3) organization are exempt from
federal unemployment taxes but are responsible for reimbursing the state
unemployment pool for any unemployment claims paid out for former
employees’ claims. A nonprofit has three options to choose from to
reimburse the state for paying unemployment claims:
1. Pay state unemployment taxes – This option is usually the most
expensive as these taxes help pay for the unemployment claims of all
employers of the state. The tax rate depends on the loss experience of
your state’s unemployment pool’s loss experience and the size of the
debt load of your state government.
2. Opt out of state unemployment taxes and self-fund reimbursement of
the state unemployment pool – This option has a high risk/reward ratio.
The dollar amount of unemployment claims paid by the state on behalf
of your organization is the amount that will be paid out of pocket (self-
fund) by your nonprofit to reimburse the state for paying these
unemployment claims if your organization decides to opt out of paying
state unemployment taxes.
Examples
• If your organization has no unemployment claims for a calendar, it will
pay $0 in taxes and in unemployment claims.
• If your nonprofit has $75,000 in unemployment claims during a
calendar year, your organization will have not paid any unemployment
taxes but will owe the state unemployment agency $75,000 for the
unemployment claims the state paid on your organization’s behalf.
PROBLEMS WITH THE SELF-FUNDING OPTION
• Unemployment claims can be volatile.
• Is not a clear budget item.
• There is no insurance against excessive claims which creates
unprotected liabilities.
• There is a 12% overpayment rate when staff untrained in state
unemployment insurance law settles your organization’s unemployment
claims as opposed to trained TPAs.
4. 4
Gallagher Nonprofit Practice
Insurance Brokerage | Benefits and Retirement Consulting | ERM | Claims Administration and Advocacy | Investment Advisory and Fiduciary Services
Unemployment Insurance | Alternative Risk Financing | Risk Management | International Mission and Travel | Nonprofit Compensation
Serving more than 24,000 charities around the world.
3. Private Unemployment Insurance – Several insurance carriers such First
Nonprofit/AmTrust, 501(c)(3) Trust/Great American and Valley Forge
have products that will help your organization save at least 20% on your
organization’s unemployment insurance costs by insuring the
reimbursements to the state for paying unemployment to your former
employees.
ADVANTAGES
• Guaranteed savings of at least 15% and up to 75% (Gallagher saved
one nonprofit client $75,000) when compared to paying state
unemployment taxes;
• Four quarterly payments as opposed to one lump sum payment when
paying state unemployment taxes;
• TPA services that provide proven professionals trained in state
unemployment insurance law to settle your organization’s
unemployment claims;
• Rates of private unemployment insurance are based on just your
organization’s unemployment claims experience as opposed to the state
unemployment system rates which are based on the financial health of
your state government and the unemployment experience of all
employers of your state; and
• Private SUI reimbursement insurance is a fixed budget item.
ORGANIZATIONS THAT QUALIFY
• Social service organizations
• Educational service organizations
»» Charter and private schools
»» Colleges and universities
• Charitable foundations
• Healthcare agencies and hospitals
• Mental health and behavioral services
• Religious charities and service organizations
• Governmental sector entities
Most states have a deadline of November 30 to opt out of paying state
unemployment taxes for the following year, except for the following states:
• Illinois, New Hampshire, New York and Wisconsin – December 31
• Oklahoma, Oregon and Utah – January 31
• New Jersey – February 1
• Tennessee – May 31
• California and Minnesota – Nonprofits can opt out on the last day of
any quarter
Getting Started with
Risk Management
Alyson Pepperill, CFIRM ACII, Client Projects
Director, UK Charities
alyson_pepperill@ajg.com
Cell +44 (0)7824.492665
Many nonprofits struggle with how to get
started with risk management. In the United
Kingdom, depending on income level, charities
need to comply with Statement of Recommended Practice (SORP) in
one of its guises. Statements need to be made about key risks and risk
management within the charity.
The IRM Charities SIG took “getting started with risk management” as
our main theme for 2015 and created a very practical, step by step suite of
media that is easily accessible to any charity anywhere in the world.
This includes:
• A three-leaf step-by-step guide that tells you in one page how to do risk
management;
• A supplementary eight-page guide that adds some explanations around
the three-leaf document; and
• A set of five “bite-sized chunk” YouTube-accessed PowerPoint slide
narrations that take you through each step in straightforward language
and examples of what has worked for others.
We also publish quarterly newsletters where hot topics are discussed.
So how do you get started with risk management? We advocate
the ISO31000 approach that works anywhere in the world, for the
organization as a whole, specific projects under review, and for individual
departments and directorates.
This simple process is all about thinking about the context; i.e.,
understanding your objectives against which you want to manage the
uncertainties of the environment you operate in, assessing what risks could
stop you achieving the objectives, how you could reduce the risks, keep
track of changes and most importantly of all how you communicate what
you are doing on risk management to the myriad of stakeholders you have.
MAIN PROBLEMS OR CHALLENGES RAISED BY THE
SECTOR AT A ROUNDTABLE EVENT HOSTED BY
ARTHUR J. GALLAGHER & CO.
• Difficulties in gaining engagement with senior management and board;
• There tended to be a tick box mentality in operation;
• Risk was viewed as a negative – “halting” opportunities style function; and
• Not much linkage between the corporate risk register and the
objectives of the organization.
5. 5
Gallagher Nonprofit Practice
Insurance Brokerage | Benefits and Retirement Consulting | ERM | Claims Administration and Advocacy | Investment Advisory and Fiduciary Services
Unemployment Insurance | Alternative Risk Financing | Risk Management | International Mission and Travel | Nonprofit Compensation
Serving more than 24,000 charities around the world.
These issues emphasize the need to start thinking about and engaging with
the organization about risk when you start your planning and budgeting
cycles. If you can show how the process works and that using it helps with
informed decision making, it will be much easier to win over the directors
and board trustees.
This can then cascade down throughout the organization so those that are
on the front line and “feel” the burden of operational risk in particular
know that those above are engaged, listening and know how to speak up
and be heard. Escalation of how risks change as the world changes, as
well as new risks that come along through new activities, legislation and
regulation is a very important part of the risk management continuous
cycle as displayed in the ISO 31000 model.
Let’s get evangelical and spread the word about how to get started on risk
management and the real benefits that this brings in terms of creating a
sustainable charity sector that is thoughtful and reflective about the risks it
faces.
In the United Kingdom at the moment we are at a tipping point.
Throughout 2015 there have been events that have sadly eroded public
trust in the sector.
The key ones have been a death that our media sought to link to
telemarketing by charities (often using third party private companies)
that focuses on the elderly and vulnerable; this on the back of continuous
abuse allegations by celebrities into which charities have been drawn by
connection; continued press activity slating high paid charity directors; and
the failure of a number of charities in suspicious circumstances.
How better to bounce back than to be able to demonstrate to the world
what your charity is all about, how it will achieve its objectives and how it
is managing the risks that could stop you achieving your objectives?
Risk management is the answer.
Establish context
Risk treatment
Communicationandconsultation
Monitoringandreview
Risk assessment
Risk identification
Risk analysis
Risk evaluation
RISK MANAGEMENT PARADIGM
