{ Holmes Murphy & Associates } We’re for you. Upper Midwest/Great Lakes/Southwest KFC Franchisee Association Affordable Care Act Updates Pete Walsh Holmes Murphy & Associates

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Neither Holmes Murphy nor the Holmes Murphy Compliance Team engages in the practice of law, meaning we provide neither legal advice nor legal opinions. While Holmes Murphy strives to help our clients maintain compliance with all laws relating to employee benefits, the information contained in this presentation is not and should not be construed to constitute legal advice. 2

Public Still Divided On ACA As you may know, a health reform bill was signed into law in Given what you know about the health reform law, do you have a generally favorable or generally unfavorable opinion of it? Source: Kaiser Family Foundation Health Tracking Polls Don’t know/RefusedUnfavorableFavorable ACA signed into law on March 23, Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis 3

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Questions to Consider What should I be prepared for in 2013 and 2014? What are the penalties? Am I a large employer? How do I know who should be on the plan? Can I exit the health insurance market? How important is the 2018 Cadillac tax? What are some strategic opportunities? 4

Copyright © 2012 by Holmes Murphy & Associates Health Care Reform Timeline 5 Guidance continues to be released revising interpretation of legislation. Future legislation may change/add/delete requirements listed above. Reinsurance fee begins

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Snapshot of Law Penalties, Penalties, Penalties W2 Reporting Summary of Benefits Comparative Effectiveness Essential Benefits Women’s Preventative Care Exchanges Auto-enroll Wellness Cadillac Tax Industry taxes 6

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Definitions An employer is defined as an employer under the Tax Code. Employers meeting the common control test would be considered as single employers, even if they have different tax numbers. 22 Pages A full-time employee is defined as an employee with an average of at least 30 hours of service per week. 18 Pages – 130 hours of service in a calendar month: Notice – An employee out on paid leave would have no more than 160 hours counted in any single continuous period. A variable hour employee is defined as one for who it cannot be determined that the employee is reasonably be expected to work on average at least 30 hours/week. – (Example: retail worker hired at more than 30 hours/week for the holiday season and then retained following that season but not expected to work at least 30 hours/week for the portion of the initial measurement period remaining after the holiday season.) A seasonal employee is through at least 2014, Notice states employers are permitted to use a reasonable good faith interpretation of “seasonal”. 7

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Are you a large Employer? Applies to Large Employer – Employing at least 50 full-time employees Includes full-time equivalent employees Counts up to 120 hours per employee per month – Divide by 120 hours to get FTE – On business days during the preceding calendar year Fails to offer full-time employees – AND their dependents – Minimum Essential Coverage (60% or Bronze Plan) – And a full-time employee gets an exchange subsidy Who do we pay a penalty on? – ALL full time employees – 30 or more hours per week – Use 130 hours per month to determine 30 hours per week – Determined monthly (penalty 1/12 of $2000 per month) 8

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Penalties for Not Offering Coverage Or Failing to Provide Affordable Coverage For employers found to have more than 50 full-time equivalents and not offering coverage (MEC) – The penalty is a monthly penalty of $2,000 divided by 12, multiplied by the number of full-time employees (not FTEs) employed during that month, minus the first 30 employees. – 4980H(a) For employers found to be providing unaffordable coverage (9.5% of W2 earnings) – The penalty is equal to $3,000 divided by 12, for each full- time employee receiving subsidized coverage through an Exchange. – The penalty will not be greater than the monthly penalty that would apply if the employer offered no coverage at all. – Only full-time employees (not FTEs) are counted for the purposes of calculating a penalty. After 2014, the penalty may be indexed. – 4980H(b) 9

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis 10 Employer Penalty Summary ( EEs – 30) x $2000 Free Choice Voucher $3,000

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Fast Forward to Today We are concerning ourselves with employees who work 30+ hours along with Variable Hours employees who, at present, are not covered under your plan. Are you an employer attempting to minimize participation in your health plan? Setting your measurement, administrative, and stability periods 11

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Are You a Large Employer? If your number of full time employees plus an average of all variable hour employees (Avg. of 120 hours per month) exceeds 50, you are a large employer. How do I determine large employer status?  Example: you have 100 total employees. 30 of them are full time. The other 70 are variable hourly employees who work an average of 29 hours per week.  To determine if you have over 50 employees:  29 hours X 52 weeks = 1,508 hours  1,508 hours/12 months = hours per month You are a large employer and subject to the ACA! 12

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Kicking Off Your Strategy New employee vs. Ongoing employee Measurement Period – For Current EE’s = Standard Measurement Period – New employees after commencement of Measurement Period = Initial Measurement Period Four Permissible Classifications allowed for measurement periods to vary in length and start – Collectively bargained and non-collectively bargained – Salaried and Hourly – Different business entities – Different States Comment Period through September 30,

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Who Should be Measured For Coverage 1.Full time employees working 30+ hours 2.For employees deemed “variable hourly employees”:  Individually, they must average 130 hours per month  You must define: o Initial Measurement Period o Initial Stability (insuring) Period  Example: o 30 hours per week x 52 = 1,560 hours o 1,560 hours / 12 = 130 hours per week o This individual would be eligible for coverage 14

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Full Time Employees 30 hour (Play or Pay) Measurement Period – Used to determine 30 hour per week average – Minimum Period three months – Maximum Period 12 months Stability Period (insuring period) – Eligibility can’t change during stability period – Eligibility determined during measurement period – Must last at least 6 months if employee is eligible Longer only if the length of measurement period – Same length as measurement period if ineligible – Must be same for new and ongoing employees 15

Copyright © 2012 by Holmes Murphy & Associates 30 hours - How to Measure 16 Source: ADP

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Setting Your Measuring Periods Current Full time and Variable Hourly Employees – 12 months Initial Measuring Period (10/1/2012 – 9/30/2013) Initial Administrative Period (10/1/ /31/2013 Initial Stabilization Period (1/1/ /31/2014) 17

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis New Employees Variable Hour and Seasonal Employees Variable Hour – Based on facts and circumstances – Can’t determine if employee will work >30 hours Seasonal Employee – Use reasonable, good faith determination Use “Initial Measurement Period” – Between 3 and 12 months Stability period for employees working 30 or more hours – Must be same length as for ongoing employees – During stability period hours worked don’t matter – Begins after Initial Measurement Period and any Administrative Period 18

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Tracking Variable Hour Employees ( After Initial Measurement/Stability Period) Example:  Beginning 1/1/2014, you have elected to use a 12 month measurement and stability period strategy (meaning you’ve actually been measuring since October 2012)  You hire John (a variable hour employee) on 6/10/2014. o John’s measurement period begins on 7/1/2014 and ends 6/30/2015 o Administrative Period (up to 90 days): 6/10/2014-6/30/2014 and 7/1/2015-7/31/2015 – 50 days o If between 7/1/2014 and 6/30/2015 John averages 130 hours per month, he would be eligible for coverage 8/1/2015 o Once determined to be full time, he would be included in the employer’s standard measuring and stability periods. 19

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis What to do next? Determine Large employer status? Begin Workforce Planning – Evaluate the full time and part time status of your workforce – Identify areas of concern – Work with operations to develop staffing strategy Evaluate tracking systems – Payroll – Time keeping – Eligibility Develop an 2014 Health Insurance Strategy Stay tuned for additional updates and clarifications 20

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Strategic Opportunities Wellness  Creating a Wellness Fund  Up to 30% premium differential for employee participation  Last wall of defense for 2018 Cadillac Tax – a 40% excise tax for health benefit costs that exceed $10,200 per individual or $27,500 for family A complete review of contribution strategies Qualified High Deductible Plans (i.e. Health Savings Accounts) Voluntary Benefits – enhancing traditional, employer paid coverage Internet, call centers, mobile apps, decision support trees 21

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Workforce Management Notices sent to managers as employees approach 30+ Hours Ability for managers to readily see reports on hours worked Active management of hours assigned can reduce exposure to additional healthcare costs/Federal penalties 22

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Database of Records Payroll system tracks actual hours worked Payroll system sends an automated trigger to benefits administration system when an employee exceeds 130 hours per month 23

3001 Westown Parkway | West Des Moines, IA | | holmesmurphy.com Des Moines | Cedar Rapids | Dallas | Davenport | Kansas City| Madison Oklahoma City | Omaha | Peoria | Scottsdale | Sioux Falls | St. Louis Benefits Administration Employee eligibility calculation is triggered Consistent and appropriate look-back and coverage rules are properly applied Employee is notified of benefit eligibility Calculation of premium as a percent of W-2  Report showing employee for whom contributions are greater than 9.5% of W-2  Enables management to estimate potential liability  More easily reconcilable with government data if penalties are assessed 24