Covering Summer Interns Under Your Employee Benefit Plans – You Can’t Just Forget About Them
June 10, 2019
It is prime time of the year for hiring “interns.” They usually are high school, college or even graduate students looking for work experience. Certain interns may be unpaid (the analysis of whether interns must be paid is an important issue but beyond the scope of this blog post). However, many companies provide paid internships. If the interns are paid employees, you may have to cover them under your employee benefit plans. At a minimum, you can’t just think “oh, those are interns, not real employees; I don’t need to worry about them for benefits.” Think again.
Group Health/Other Insurance Plan. The place to start in considering whether your interns are eligible for your group health plan or other insurance plan is the plan document (including written plan, insurance policy and application). The typical group insurance plan covers “employees regularly scheduled to work 30 or more hours each week.” Let’s assume the plan does not list any exclusions or other eligibility conditions. With that plan design, how do we analyze the situation of interns under the health plan? First, is the intern an employee? Yes. Is the intern in an excluded group of employees, per the terms of the plan? No. Is the intern scheduled to work 30+ hours each week? Yes. The result is that the intern is an employee eligible for the group health plan.
Starting when? Starting under the usual plan rules – beginning of the next month, after 60 days, etc. If the intern terminates employment before the start date for plan coverage, then you don’t have to worry about enrolling the intern. Be on the lookout if the intern is rehired during the school year; application of the re-hire rules can be tricky. But, if the intern is working for you on the coverage start date, he or she has to be offered coverage, even if employment is expected to end just a few weeks later. Many interns already have coverage under another plan, e.g., a parent’s plan or coverage through a student program, and will decline coverage. Don’t forget about insurance benefits that are “automatic,” such as life and disability coverage. The intern will be eligible for that coverage, just like any other full-time employee.
A group insurance plan may exclude interns. Exclusions under group insurance plans tend to be fewer because the group insurance “plan document” typically is not a “check the box” format (as often is the case with a 401(k) plan) where common exclusions are listed. With a group insurance plan, the employer often has to consciously consider and write down the exclusion. This may come in the simplest form of a few more lines on the group insurance application, e.g., “all employees regularly scheduled to work 30 or more hours each week, except interns, seasonal employees and temporary employees, as shown on the employer’s human resources or payroll records” or something similar. If the group insurance plan has this exclusion, then you do not need to offer coverage to the intern.
If the group insurance plan has this exclusion, then you don’t have to offer coverage to the intern. But if the intern is a full-time employee who is excluded from health plan coverage, you might think this will hurt your compliance under the Affordable Care Act’s (ACA) shared responsibility rules, which trigger a penalty if an employer doesn’t offer coverage to enough of its full-time employees. It’s likely there won’t be any ACA problem. That’s because, even if the intern is working full-time hours, it is possible that an intern may be characterized as a “seasonal” or “variable hour” employee under the ACA. Seasonal and variable hour employees generally don’t have to be evaluated for full-time status under the ACA until after nearly a year of work (assuming the employer uses a 12-month measurement period under the ACA). If the intern no longer is employed at that time, there will be no concern with having excluded the intern from the group health insurance plan. Even if the intern is employed after a year and is considered a full-time employee who was excluded from coverage, if your company has only a few interns who are not offered coverage under the group insurance plan that generally covers all other full-time employees, it’s likely you will not suffer any ACA penalties. That’s because the ACA has a 5% “buffer,” in that an employer is required to offer coverage to only 95% of its full-time employees.
401(k) Plan. In recent years, many 401(k) plans have shortened their waiting periods for coverage. Sometimes coverage is immediate or the first day of the month after date of hire. Often, the 401(k) plan does not exclude any groups of employees except for the typical “check the box” exclusions for union employees and non-resident alien employees.
The analysis about 401(k) plan coverage for interns is similar to that described above for insurance coverage. First, is the intern an employee? Yes. Is the intern excluded from coverage under the plan? No. The result is that the intern is an employee eligible for the 401(k) plan under the usual plan rules If the intern terminates employment before effective date for enrollment in the plan, then you don’t have to worry about enrolling him or her. Be aware that, if the intern is rehired during the school year, the periods of summer and school year service usually have to be combined for plan purposes. If the intern is working for you on the coverage start date, he or she has to be enrolled for plan coverage, even if only for a short time before employment ends. “Enrollment” includes automatic enrollment, if your plan has that feature, or inviting the employee to take affirmative steps to contribute to the plan. You treat the intern like any other employee eligible for the 401(k) plan.
How can you avoid the administrative effort and compliance burden of enrolling the intern when he/she will be employed for a short period and doesn’t really want his/her paycheck reduced by an automatic contribution? You make sure the 401(k) Plan has an exclusion from eligibility for this type of employee. This may be by specific category – “interns” – or perhaps under a category of “temporary” or “seasonal” employee. The latter two categories can have their own complications, but generally speaking, they can be applied to exclude the summer intern from the plan. If you need to amend the plan specifically to exclude interns, it is better to use the specific category of “intern.”
Detailed discussions of the ACA’s shared responsibility rules and 401(k) coverage provisions are beyond the scope of this post. The main takeaway here is to not assume that you don’t have to offer employee benefit plan coverage to your interns. Know your plans’ eligibility rules and handle interns per plan terms.