LSB

I think there is an argument that the failure to engage in significant services is a vesting requirement for the additional payment, and, therefore, that portion of the payment is covered under the short term deferral rule. I would absolutely suggest that it have the normal "separate identified payment" language to preserve this argument.

Guidance released today (IRS Notice 2021-46) directly addresses the application to MEWAs

Be careful with that. Although they may not initially look back, they've explicitly stated a formal position that ACA penalties have no statute of limitations, so they may surprise the client later on. I know you said there isn't an issue that the penalty wasn't calculated correctly, but it's still worth reviewing whether anything can be done to reduce the penalty...the variable hour rules sometimes provide a lot of relief. The IRS, to its credit, recognizes that their information gathering is imperfect, and agents I have worked with have been very reasonable in recalculating the penalty.

I agree with everything said here, although I'll note that the EBSA does sometimes establish national projects involving orphaned plans where they specifically target them regardless of participant complaints. Anecdote: I had an IRS agent tell me that my client (a former officer of a defunct company) should just sign off on everything. As long as there was a determination letter for the plan, there was absolutely no chance of any liability or any additional expense. Alas, he declined to provide that to me in writing.

In my experience, this happens sometimes when there is a self correction, and both parties are trying to prevent the application of 502(l).

The regs refer to "the person to whom premiums are payable", generally differentiating between insurers, multiemployer plans, and single employer plans, however they don't appear to directly address MEWAs. I would think that it depends on whether the MEWA is the plan, or whether multiple plans participate in the MEWA to determine how the subsidy operates. However, under Q&A15 of Notice 2021-31, the 20 employee minimum is directly related to COBRA coverage. Presumably, the MEWA has already analyzed how COBRA applies generally, so the subsidy should apply in the same manner.