Understanding Full-Time Equivalents (FTEs) Under the Affordable Care Act (ACA): A Guide for Employers

What is a Full-Time Equivalent (FTE)?

A Full-Time Equivalent (FTE) is a unit of measurement that represents the workload of an employee in a way that makes workloads comparable across various employment structures.

Who Needs to Calculate FTEs?

Employers across various industries use FTE calculations for multiple purposes. The purpose focus here today is companies subject to the Affordable Care Act (ACA): To determine if they qualify as an applicable large employer (ALE), requiring them to offer health insurance to full-time employees.

FTEs and the Affordable Care Act (ACA)

Under the ACA, employers must determine if they qualify as an Applicable Large Employer (ALE). This includes assessing common ownership across multiple employers. An ALE is an employer with an average of 50 or more FTEs in the previous calendar year. ALEs are required to offer affordable health coverage to full-time employees or face potential penalties.

How Does the ACA Define Full-Time and FTE Employees?

• Full-time employee: Works at least 30 hours per week or 130 hours per month.

• Part-time employee: Their hours are combined to determine the number of FTEs.

How to Calculate FTEs for ACA Compliance

To calculate FTEs for ACA compliance, follow these steps:

Step 1. Define Full-Time Hours: The ACA defines full-time employees as those working at least 30 hours per week or 130 hours per month.

Step 2. Identify Employee Hours Worked: Collect the total number of hours worked by all employees, including full-time, part-time, and seasonal employees.

Step 3. Apply the ACA FTE formula: FTE is calculated as FTE= Total Hours worked by part time employes divided by 30; plus total number of full time employees.

FTE Calculation Template

Final Thoughts

Calculating FTEs is crucial for determining ALE status under the ACA. If your company has 50 or more FTEs, you must comply with ACA employer mandate rules to provide health insurance coverage. Keeping accurate FTE records ensures compliance and helps avoid penalties.

Would you like help setting up an FTE calculator for ACA compliance? Contact your Rose Street Advisors Team today! If you are not a current client of Rose Street Advisors, please feel free to contact us at 269-552-3200 or contact@rosestreetadvisors.com to speak to someone.

Justine Dickens

EMPLOYEE BENEFITS ADVISOR

Justine is a devoted and meticulous team member with a passion to educate and support business partners and their employees. Since 2013, Justine’s commitment to her clients has allowed her to instill confidence and stability in the benefits packages offered to their employees. Her strengths allow her to communicate efficiently, focus on customization and understand the complexities of an ever changing industry. She is a Dale Carnegie Graduate and has her NAHU Self-Funded Certification.

When she is not working, Justine is busy running her son and daughter to their practices and games and volunteering in the community. She enjoys playing golf, hiking and spending time with her family and friends.

Understanding the Affordable Care Act: What Employers Need to Know when Moving Above or Below 50 FTEs

The Affordable Care Act (ACA) has specific regulations that impact employers based on the size of their workforce. One of the most critical thresholds is 50 full-time equivalent (FTE) employees. Crossing this line, whether moving above or below, triggers changes in employer obligations, particularly concerning health coverage requirements, reporting duties, and compliance with additional labor laws such as the Family and Medical Leave Act (FMLA). Employers need to be proactive in understanding these obligations to avoid penalties and ensure compliance.

Understanding the 50 FTE Threshold

The ACA distinguishes between small and large employers based on whether they have 50 or more FTEs. Here's what employers should consider:

Employers with Fewer Than 50 FTEs

To qualify for an HSA, you must:

• Not Subject to the Employer Mandate: Businesses with fewer than 50 FTEs are not required to provide health insurance to their employees.

• Mental Level Tiers: Coverage is offered in canned plans rated from Platinum to Bronze.

• Pediatric Dental & Pediatric Vision: These employers are subject to specific plan details for Pediatric members and their dental and vision services.

• Exemption from ACA Reporting Requirements: Unlike larger employers, small businesses do not need to comply with the ACA’s employer mandate reporting requirements.

Employers with 50 or More FTEs

• Subject to the Employer Mandate: Large employers must offer health insurance to at least 95% of their full-time employees (and their dependents) that meets minimum value and affordability standards.

• Reporting Requirements: Employers must file Forms 1094-C and 1095-C with the IRS to report coverage information. Generally, Forms 1094-C and 1095-C must be filed by February 28^th if filing on paper (or March 31^st if filing electronically).

• Potential Penalties: Failure to offer coverage or providing coverage that does not meet affordability standards can result in significant penalties under the Employer Shared Responsibility Provisions (ESRP).

Impact on the Family and Medical Leave Act (FMLA)

• Applicability: The FMLA applies to employers with 50 or more employees within a 75-mile radius.

• Employee Eligibility: Employees must have worked at least 1,250 hours over the past 12 months.

• Requirement: Employers must provide up to 12 weeks of unpaid, job-protected leave for qualified medical and family reasons.

Steps for Employers Moving Above or Below 50 FTEs

1. Monitor Workforce Size: Use the ACA’s FTE calculation to determine whether your business is approaching the 50-employee threshold. This includes assessing Common Ownership rules.

2. Plan for Compliance: If expanding above 50 FTEs, prepare for employer mandate requirements, reporting obligations, and possible FMLA coverage.

3. Assess Health Plan Offerings: Ensure any provided insurance includes the 10 essential health benefits and meets affordability standards.

4. Stay Updated on ACA Changes: Regulations evolve, and staying informed helps avoid penalties and ensure legal compliance.

5. Consult Experts: Work with HR professionals, legal advisors, and benefits consultants to navigate ACA compliance effectively.

Conclusion

Crossing the 50 FTE threshold under the ACA is a critical transition for employers. Whether moving above or below this benchmark, businesses must understand their obligations related to health insurance, reporting requirements, and employee benefits. Staying proactive in compliance efforts can help employers avoid costly penalties while providing quality benefits to their workforce. For businesses approaching this threshold, now is the time to review policies, consult experts, and develop a strategic plan to ensure a smooth transition under ACA regulations. Contact your Rose Street Advisors team if you have additional questions. If you are not a current client of Rose Street Advisors, please feel free to contact us at 269-552-3200 or contact@rosestreetadvisors.com to speak to someone.

Justine Dickens

EMPLOYEE BENEFITS ADVISOR

What is a Collective Investment Trust (CIT)? And How it Differs from a Mutual Fund

As a retirement plan sponsor or committee member, you're probably familiar with mutual funds as the go-to investment option in most 401(k) and 403(b) plans. But you may have also come across Collective Investment Trusts, or CITs, and wondered: How are theses different? Are they better? Should we consider them for our plan?

Let's take a closer look at CITs, how they compare to mutual funds, and what you need to know when evaluating them for your retirement plan lineup.

What is a Collective Investment Trust (CIT)?

A Collective Investment Trust (CIT) is a pooled investment vehicle, similar to a mutual fund, that's sponsored by a bank or trust company. but unlike mutual funds, CITs are only available to qualified retirement plans (like 401(k)s, 403(b)s, and certain 457 plans) and not sold to the general public.

Because of this, CITs are regulated by banking authorities, such as the Office of the Comptroller of the Currency (OCC), rather than the SEC.

CITs vs. Mutual Funds: What's the Difference?

Here's a quick side-by-side comparison to help clarify the key differences:

Feature	Mutual Funds	CITs
Who Can Invest?	Anyone (individuals or institutions)	Only qualified retirement plans
Regulated By	SEC	OCC or state banking regulators
Disclosure	Prospectus and public figures	Trust documents and fact sheets (not public)
Ticker Symbol?	Yes – Searchable	Usually no
Pricing	Daily Net Asset Value (NAV)	Also uses daily NAV
Fees	May include SEC and marketing expenses	Typically lower- no 12b-1 or distribution costs
Customization	Limited	Often customized by plan size or ivestment strategy

Why are more plans using CITs?

One word: Cost.

Because CITs aren't required to register with the SEC or engage in public marketing, they often carry lower expense ratios than comparable mutual funds. In fact, it's common for CITs to be managed by the same portfolio managers using the same strategies as a mutual fund, just with reduced overhead.

Real-World Example:

A small-sized 401(k) plan with $5 million in assets was using a target-date mutual fund with an average expense ratio of 0.45%. By switching to the CIT version of the same strategy, they secured a 0.30% expense ratio, savings 15 basis points annually. Over time, those savings can significantly boost participant account balances.

How Do CITs Work Operationally?

While the structure behind the scenes is different, the participation experience is nearly identical to a mutual fund:

• Daily Pricing: CITs are priced once a day, just like mutual funds.

• Statements: CITs appear on participant statements and online portals with clear naming and balances.

• Trading: Transactions (buy/sell) typically follow the same trade cycle as mutual funds.

To most plan participants, CITs look and feel just like mutual funds.

Things to Keep in Mind

CITs have plenty of upside—but also a few nuances you’ll want to consider:

• Transparency: No public prospectus or ticker symbol means you’ll need to rely on provider fact sheets and trust documents for info.

• Education: Because they’re less familiar, you may need to explain to participants what a CIT is and why it’s in the plan.

• Access: Not all recordkeepers or custodians support CITs, and some CITs may have investment minimums.

• Documentation: Be sure to review and retain the participation agreement and declaration of trust for any CITs you offer.

Your Fiduciary Role

As a fiduciary, your responsibility is to select, monitor, and document plan investments in the best interest of participants. While CITs can be a great low-cost option, they still require the same level of due diligence:

• Review performance and fees regularly

• Understand the underlying strategy and manager

• Benchmark against peers

• Maintain written records of your evaluations

Bottom Line

CITs are becoming more common in retirement plan lineups for a reason—they offer cost savings, flexibility, and institutional-quality strategies. If your plan has the size and structure to support them, it’s worth exploring CITs as part of your investment menu.

Want help evaluating whether CITs make sense for your plan? Let’s talk—we can walk through the pros, cons, and how to make an informed decision that supports your fiduciary duties.

Scott Higgins | AIF ®, CFP®, CPFA®, NSSA®

Financial Advisor

Since 2012 at Rose Street, Scott has been responsible for helping the firm’s individual wealth management clients with income strategies for retirement and consulting with employers with their employee retirement plans. In free time, he enjoys golf, biking, skiing, cooking, and traveling. Fun Fact, Scott has a hobby of filling growlers with coins!

Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Adviser, Member FINRA/SIPC. Rose Street Advisors is independently owned and operated. #4520110

Tracking Variable Hour Employees: Understanding Measurement and Administrative Periods

Employers with variable hour employees face unique challenges when it comes to tracking hours and determining health insurance eligibility. Under the Affordable Care Act (ACA), businesses must use specific methods to measure employee hours and ensure compliance with health coverage requirements. Understanding the look-back measurement period, administrative periods, and stability period is crucial for staying compliant and avoiding penalties.

Please note, only employers with 50 or more full-time equivalent (FTE) employees are required to offer health insurance.

The Look-Back Measurement Period

The look-back measurement period is used to determine whether a variable hour employee qualifies as a full-time employee (30 or more hours per week) under the ACA. Employers can select a measurement period between 3 and 12 months to track an employee's hours worked. If the employee averages at least 30 hours per week over this period, they are considered full-time and must be offered health insurance coverage.

The Administrative Period

The administrative period allows employers time to review hours, determine eligibility, and complete the necessary steps to offer coverage. This period cannot exceed 90 days and typically follows the look-back measurement period. it is important to note that the administrative period should not create a gap in coverage if an employee is determined to be eligible.

The Stability Period

Once an employee is deemed full-time, they must be offered health insurance for a stability period, which must be at least as long as the measurement period but no shorter than six months. Even if the employee's hours drop below full-time during the stability period, they remain eligible for coverage until the end of this period.

Who is Eligible for Health Insurance?

An employee is eligible for employer-sponsored health insurance if they work an average of 30 or more hours per week during the look-back measurement period. Full-time employees (those with a consistent schedule of 30+ hours per week) are generally eligible immediately, while variable hour employees must first complete a measurement period.

How Long Are Employees Eligible?

Once an employee qualifies for health insurance, they remain eligible throughout the stability period, regardless of any fluctuations in their work hours. If they continue to meet full-time criteria in subsequent measurement periods, their eligibility continues. If their average hours fall below 30 during a measurement period, they may lose eligibility once the stability period ends.

Key Takeaways for Employers

1. Chose a Measurement Period: Employers must select a look-back measurement period (3-12 months) to assess variable hour employees' eligibility

2. Account for Administrative Processing: The administrative period allows time to determine eligibility and offer coverage but cannot delay or shorten an eligible employee's access to benefits.

3. Maintain Stability Period Compliance: Employees determined to be full-time must receive coverage for the entre stability period, even if their hours decrease.

4. Avoid Penalties: Failure to properly track and offer coverage to eligible employees can result in significant ACA penalties.

Properly tracking variable hour employees and adhering to ACA guidelines ensures compliance and provides employees with the benefits they are required to be offered. Employers should review their policies regularly and leverage technology to streamline the tracking process. Have additional questions? Contact your Rose Street Advisors team today! If you are not a current client of Rose Street Advisors, please feel free to contact us at 260-552-3200 or contact@rosestreetadvisors.com to speak to someone.

Justine Dickens

EMPLOYEE BENEFITS ADVISOR

Health Savings Account (HSA) FAQs: Everything You Need to Know

A Health Savings Account (HSA) is a powerful tool that helps individuals save for medical expenses while enjoying tax advantages. If you're considering opening an HSA or want to maximize its benefits, here are some of the most frequently asked questions to guide you.

1. What is an HSA?

An HSA is a tax-advantaged savings account designed for individuals with a high-deductible health plan (HDHP). The funds in the account can be used for qualified medical expenses, and contributions, earnings and withdrawals for medical purposed are tax-free.

2. Who is eligible to open an HSA?

To qualify for an HSA, you must:

• Be enrolled in an HDHP

• Not be covered by any other non-HDHP insurance (except certain exceptions like dental and vision plans)

• Not be enrolled in Medicare

• Not be claimed as a dependent on someone else's tax return

3. What are the contribution limits for an HSA?

• Individuals: $4,300

• Families: $8,550

• Catch-up contribution (for those 55 and older): An additional $1,000

4. What expenses are covered under an HSA?

• Doctor visits and hospital stays

• Prescription medications

• Dental and vision care

• Medical equipment

• Mental health services

5. What happens if I use HSA funds for non-medical expenses?

If you withdraw HSA funds for non-qualified expenses before age 65, you'll incur a 20% penalty plus income tax. After age 65, non-medical withdrawals are subject to income tax but no penalty.

6. Can HSA funds be invested?

Yes, many HSA providers allow you to invest your funds in stocks, bonds, or mutual funds to grow your savings tax-free.

7. What happens to my HSA if I switch jobs or retire?

HSAs are portable, meaning they stay with you even if you change jobs or retire. Once you turn 65, you can use HSA funds for any purpose without penalties, through non-medical expenses will be taxed as regular income.

8. Can I have both an HSA and an FSA?

Typically, you cannot contribute to both a Health Savings Account (HSA) and a Flexible Spending Account (FSA) simultaneously, except for a limited-purpose FSA (used for dental and vision expenses only). Of course, because Dependent Care FSAs aren't connected to medical expenses, they are not impacted by HSA contributions.

9. Do HSA funds expire?

No, HSA funds roll over year to year. Unlike FSAs, there is no "use it or lose it" rule, so your savings can grow over time.

10. How do I open an HSA?

You can open an HSA through a bank, credit union, insurance company, or other financial institutions. Many employers also offer HSAs as part of their benefits packages.

Final Thoughts

An HSA can be an excellent way to save for medical expenses while benefiting from tax advantages. Understanding the eligibility requirements, contribution limits, and investment options can help you make the most of your HSA.

Still have questions? Contact your Rose Street Advisors team to see if an HSA is right for you! If you are not a current client of Rose Street Advisors, please feel free to contact us at 269-552-3200 or contact@rosestreetadvisors.com to speak to someone