Sunday, April 12, 2009
New COBRA Notices
New COBRA Notices-Send Now to Avoid Fines
Reprint - Opelika & Auburn News, Sunday, April 12.
The IRS and DOL (Department of Labor) have recently issued guidance relating to section 3001 of the American Recovery and Reinvestment Act of 2009 (ARRA), enacted February 17, 2009, relating to premium assistance for COBRA continuation coverage. ARRA provides for a 65 percent reduction in the premium otherwise payable by certain involuntarily terminated individuals and their families who elect COBRA continuation health coverage. New notices must be postmarked no later than April 17, 2009 to avoid substantial fines of $110 a day and attorney fee claims. Examine all your employee terminations since beginning Sept 1, 2008 and determine if you are need to take action today.
DOL Guidance: http://www.dol.gov/ebsa/faqs/faq-cobra-premiumreductionER.html
IRS Guidance: http://op.bna.com/hrlw.nsf/id/tbue-7qntdv/$File/IRS_Notice_2009-27_PremAsstCOBRABenes033109.pdf
Under the new provision, an assistance eligible individual is generally an individual (1) who is a qualified beneficiary as the result of an involuntary termination during the period from September 1, 2008, through December 31, 2009, (2) who is eligible for COBRA continuation coverage at any time during that period, and (3) who elects the coverage. Group health plans must generally treat assistance eligible individuals who pay 35 percent of the premium otherwise payable for COBRA continuation coverage as having paid the full amount of the premium. The employer is reimbursed for the other 65 percent of the premium that is not paid by the assistance eligible individual through a credit against its federal payroll taxes. I have received a number of client questions for which this IRS 58 Q&A topical guidance was most helpful. A sample is as follows:
IRS INVOLUNTARY TERMINATION GUIDANCE
Q-1. What circumstances constitute an involuntary termination for purposes of the definition of an assistance eligible individual?
A-1. An involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee's implicit or explicit request, where the employee was willing and able to continue performing services. An involuntary termination may include the employer's failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services. In addition, an employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee. Involuntary termination is the involuntary termination of employment, not the involuntary termination of health coverage. *** The determination of whether a termination is involuntary is based on all the facts and circumstances. For example, if a termination is designated as voluntary or as a resignation, but the facts and circumstances indicate that, absent such voluntary termination, the employer would have terminated the employee's services, and that the employee had knowledge that the employee would be terminated, the termination is involuntary.
Q-2. Does an involuntary termination include a lay-off period with a right of recall or a temporary furlough period?
A-2. Yes. An involuntary reduction to zero hours, such as a lay-off, furlough, or other suspension of employment, resulting in a loss of health coverage is an involuntary termination for purposes of the premium reduction.
Q-4. Does involuntary termination include an employer's action to end an individual's employment while the individual is absent from work due to illness or disability?
A-4. Yes. Involuntary termination occurs when the employer takes action to end the individual's employment status (but mere absence from work due to illness or disability before the employer has taken action to end the individual's employment status is not an involuntary termination).
Q-5. Does involuntary termination include involuntary termination for cause?
A-5. Yes. However, for purposes of Federal COBRA, if the termination of employment is due to gross misconduct of the employee, the termination is not a qualifying event and the employee and other family members losing health coverage by reason of the employee's termination of employment are not eligible for COBRA continuation coverage. (This is a very dangerous issue that must be documented correctly)
Q-6. Does an involuntary termination include a resignation as the result of a
material change in the geographic location of employment for the employee?
DOL Guidance Sample Q&A of 27 topics:
Q7: Has the DOL developed model notices?
A7. Yes. The Department of Labor has developed model notices that are available. http://www.dol.gov/ebsa/COBRAmodelnotice.html
Practical Counsel: All DOL model notices and forms must be modified for use with your group health plan by inserting specific information and deleting inapplicable provisions. ARRA is highly complicated as this DOL and IRS guidance shows. Doing nothing, or guessing wrong, can be expensive.
Tommy Eden is a Lee County native, an attorney with the local office of Constangy, Brooks & Smith, LLP and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at firstname.lastname@example.org or 334-246-2901. Blog at www.alabamaatwork.com