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Involuntary Termination under COBRA - ARRA, Anyone?
Posted: 13 March 2009 10:35 AM   [ Ignore ]
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Numerous clients have now asked me whether an involuntary reduction in hours, as a result of a RIF or otherwise, which causes an employee to lose his or her health benefits, constitutes an involuntary termination under the ARRA in order to qualify the employee as an Assistance Eligible Individual (AEI) for the subsidy.

According to the local Employee Benefits Security Administration representative that I spoke with this afternoon, employees that accepted Per Diem positions as the result of a RIF are ineligible for the subsidized COBRA premium assistance program because they have not actually “lost their job” and are not “between jobs”.

As an attorney, I am dissatisfied because I can’t find anything in writing, or in the law, that would confirm that individuals whose job status is changed or cut back involuntarily are ineligible for the subsidy.  We all know that a reduction in hours is a qualifying event under COBRA, however, it is not mentioned in the ARRA.  That said, if it were me, I would probably rather be fired and get the 35% subsidy than have my hours reduced and have to pay the full premium.

Does anyone know anything concrete?

Jonathan F. Cohen, Esq.
APRUZZESE, McDERMOTT,
MASTRO & MURPHY,P.C.
Somerset Hills Corporate Center
25 Independence Boulevard
P.O. Box 112
Liberty Corner, NJ 07938
Tele: (908) 580-1776
Fax: (908) 647-1492
email:  .(JavaScript must be enabled to view this email address)

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Posted: 13 March 2009 10:54 AM   [ Ignore ]   [ # 1 ]
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This is not 100% on point, but guidance from an employment law firm suggests the IRS will probably define involuntary termination. Presumably they would cover reduction in hours, also.


What is an Involuntary Termination?

In the past, the Service has been reluctant to provide specific rules regarding involuntary terminations due to the inherently factual nature of the determination, which for the most part relies on characterizations established by the parties. However, we understand that the Service is currently contemplating a change to this approach with respect to the subsidy. Until future guidance is issued by the Service, employers will need to make reasonable determinations on a uniform basis based on the particular facts and circumstances of each termination.

In addition, even though it may be clear that an involuntary termination has occurred, there are certain situations where the precise date may be unclear. For example, for purposes of severance some employers continue to treat an individual as an employee during the severance period. In the past, if an employer consistently treated an individual as an employee during the severance period, such as for benefits and other employment conditions, and treated the last day of the severance period as the termination of employment date, the last day of the severance period should be recognized by the Service as the date an involuntary termination occurred. However, the Service may change this result in upcoming subsidy guidance. Therefore, employers will need to review their policies with respect to extended leaves, such as during disability, temporary layoffs and severance periods, as well as the terms of their severance agreements, to determine when the employment relationship terminates.

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Posted: 13 March 2009 11:07 AM   [ Ignore ]   [ # 2 ]
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Jonathan, one of my clients faced this dilemma when he had to cut the hours of his staff.  Those employees who had medical benefits fell into the category having to go to COBRA.  He partially “solved” their dilemma by subsidizing the COBRA payments out of company funds so the employees were paying the same for COBRA as they had been for regular coverage.  He committed to doing this for 90 days with the hope that business would recover enough by then so their increased hours could re-qualify them for regular coverage.

Such a scheme probably would not work for a large organization with large numbers of employees in that situation, but it worked for his organization and everyone was happy.  We’ll see what happens on June 1…

But with that said, I agree with you that it seems the intent of the law was (or at least should be) to make COBRA affordable for those WHO LOST COVERAGE due to the economic slowdown.

[ Edited: 13 March 2009 11:15 AM by Bob Brown ]
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Posted: 13 March 2009 11:09 AM   [ Ignore ]   [ # 3 ]
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The DOL website “COBRA:Answers for Employers”  states that An assistance-eligible individual can be any COBRA qualified beneficiary associated with the related covered employee, such as a dependent child of an employee, who is covered immediately prior to the qualifying event.  The qualifying event for purposes of eligibility for the subsidy is INVOLUNTARY TERMINATION OF THE COVERED EMPLOYEE’S EMPLOYMENT THAT OCCURS DURING THE PERIOD BEGINNING SEPTEMBER 1, 2008, AND ENDING DECEMBER 31, 2009.  THE INDIVIDUAL MUST ALSO BE ELIGIBLE FOR COBRA COVERAGE OR SIMILAR STATE COVERAGE, DURING THIS PERIOD.  THE CREDIT APPLIES ONLY TO INVOLUNTARILY TERMINATED EMPLOYEES AND THEIR FAMILIES WHO ARE QUALIFIED BENEFICIARIES.  Knowing this, it certainly appears that those with a reduction in hours or status change or ineligible for the subsidy.

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Posted: 13 March 2009 11:31 AM   [ Ignore ]   [ # 4 ]
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Corinne, do you have a link?

Here’s the best thing I’ve found: COBRA Health Insurance Continuation Premium Subsidy, from the IRS website:

The American Recovery and Reinvestment Act of 2009 establishes an employer-provided subsidy for employees who involuntarily lose their jobs. The IRS issued a news release Feb. 26 outlining information for employers. Individuals who qualify for the COBRA subsidy premium should see below for more information.

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Patrick Della Valle
Employment Law Information Network
P.O. Box 45
Chinchilla, PA 18411

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Posted: 13 March 2009 11:37 AM   [ Ignore ]   [ # 5 ]
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The same question occurred to me and when I called the DOL and spoke to someone at the Employee Benefits Security Administration, he confirmed that a reduction in hours does not qualify an employee for premium subsidy. Also, he opined, if the employee quit because of the reduction in hours, this would not be an involuntary termination, so again, no premium subsidy.

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Christopher W. Olmsted
Barker Olmsted & Barnier APLC
San Diego, CA

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Posted: 13 March 2009 11:41 AM   [ Ignore ]   [ # 6 ]
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Will an involuntary reduction in hours, as a result of a RIF or otherwise, which causes an employee to lose his or her health benefits, constitutes an involuntary termination under the ARRA in order to qualify the employee as an Assistance Eligible Individual (AEI) for the subsidy?

YES….....THE FOLLOWING IS AN EXCERPT FROM THE DOL WEBSITE: The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.

I interpret the language as written, a reduction in hours that causes the loss of health care benefits makes an affected employee and eligible dependants - eligible for CCOBRA. The guiding point and spirit of the reinvestment act as it relates to COBRA provides a safety net for employees and eligible dependants the avenue to maintain their health care.

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Posted: 13 March 2009 11:41 AM   [ Ignore ]   [ # 7 ]
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I appreciate everyone’s responses.  I wish that these Employee Benefits Security representatives would put their statements in writing.

With regard to the post above, I think that it is significant that the ARRA implicitly excludes qualifying events such as divorce, retirement, etc., from triggering eligibility for the subsidy.  Reduction in hours may similarly be treated as a qualifying event for COBRA that is not an “involuntary termination” pursuant to the ARRA.

Does anyone think that the subsidy eligibility determination would be different if the employees were told that they were being terminated as the result of a RIF, but, that in lieu of a layoff, the employee could accept a different but similar job title at reduced hours and without benefits?

Jonathan F. Cohen, Esq.
APRUZZESE, McDERMOTT,
MASTRO & MURPHY,P.C.
Somerset Hills Corporate Center
25 Independence Boulevard
P.O. Box 112
Liberty Corner, NJ 07938
Tele: (908) 580-1776
Fax: (908) 647-1492
email:  .(JavaScript must be enabled to view this email address)

[ Edited: 13 March 2009 11:49 AM by Jonathan F. Cohen ]
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Posted: 13 March 2009 11:51 AM   [ Ignore ]   [ # 8 ]
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If a reduction in hours doesn’t qualify for the subsidy, I would imagine that the employer would have to go through the termination and re-hire process.

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Patrick Della Valle
Employment Law Information Network
P.O. Box 45
Chinchilla, PA 18411

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Posted: 13 March 2009 12:17 PM   [ Ignore ]   [ # 9 ]
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I am attempting to get something from the ESBA soon. I have been working with an agent in our area and I can can get an opinion in writing or a reference to something written I will share it with all of you .

Shirley McAllister
Aim International, Inc.
Human Resources
Nampa, Idaho

I am also on LinkedIn

Update:

The ESBA says that the IRS is going to be the agency that sets the criteria of who or who will not be eligible for the subsidy. The ESBA at this point is taking the stance that any layoff is a voluntary termination and eligible. I was told to check the IRS site and something wil be there in the next few days.

Shirley

[ Edited: 16 March 2009 09:53 AM by Shirley McAllister, CPP, PHR ]
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Posted: 20 March 2009 09:18 AM   [ Ignore ]   [ # 10 ]
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http://www.dol.gov/ebsa/COBRA.html

At the EBSA website you can register for a free webcast on the new American Recovery and Reinvestment Act of 2009.

You will have a chance to ask questions of the EBSA during that webcast.

It is open to all on March 24 ,2009 at 11:30 Eastern time.  You just have to go to the site and register.

Thought someone might be interested in attending, I am registered.

Shirley

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Posted: 20 March 2009 09:21 AM   [ Ignore ]   [ # 11 ]
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Thanks Shirley!  Here’s the direct link to the Webcast.

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Patrick Della Valle
Employment Law Information Network
P.O. Box 45
Chinchilla, PA 18411

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Posted: 01 April 2009 09:42 AM   [ Ignore ]   [ # 12 ]
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An attorney at my firm brought to my attention the following blurb from the Wolters Kluwer Law & Business website, which relates to the definition of an involuntary termination under the ARRA:

“Resignation/retirement in lieu of layoff is ‘involuntary termination’ for new COBRA subsidy, IRS says.  Individuals who accept an employer’s offer to retire or resign to avoid broader layoffs will be eligible for the new COBRA subsidy under the American Recovery and Reinvestment Act (P.L. 111-5) (2009 Recovery Act), IRS officials said on March 24. Declining to relocate after an office or plant closure may also be treated as an involuntary termination.”

Link: http://hr.cch.com/netnews/pension/current.asp (located midway down the page)

If anyone is a member of this website, or otherwise has information pursuant to this alleged advisory statement by the IRS, I would be grateful if such a person would be willing to share relevant information.  Needless to say, I was unable to find anything on the IRS website that would corroborate the above quote.

Jonathan F. Cohen, Esq.
APRUZZESE, McDERMOTT,
MASTRO & MURPHY,P.C.
Somerset Hills Corporate Center
25 Independence Boulevard
P.O. Box 112
Liberty Corner, NJ 07938
Tele: (908) 580-1776
Fax: (908) 647-1492
email:  .(JavaScript must be enabled to view this email address)

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Posted: 01 April 2009 10:15 AM   [ Ignore ]   [ # 13 ]
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I couldn’t find anything either, but I put a call into the CCH reporter who wrote the piece.  Waiting to hear back….

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Patrick Della Valle
Employment Law Information Network
P.O. Box 45
Chinchilla, PA 18411

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Posted: 01 April 2009 10:16 AM   [ Ignore ]   [ # 14 ]
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The DOL did say in their seminar that declining to relocate if an office is closing is eligible for the subsidy, but I have heard nothing on the early retirement from either the IRS or the DOL.

Shirley

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Posted: 01 April 2009 10:41 AM   [ Ignore ]   [ # 15 ]
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Remember, eligibility for your medical is determined by you, the employer.  there is nothing that prevents you from changing your eligibility requirements to include part-time employees so if you have a reduction in work hours, your employees can still be covered. If your goal is reduce you payroll cost by reducing hours then why make your employees lose medical insurance as well.  From the employees point of view, you reduced their hours so you did not have to pay thier medical. You now have pissed off employees. If you change the eligbility for the medical and reduce the hours so that employees can still keep their medical, your employees will have a better understanding of what you are doing and that it shows that the move is more of a temporary move.  it is one thing for your employees to lose a few hours, but to lose medical insurance is something most employees will revolt and bolt for. What the govt wants to prevent is companies reducing employees hours so that employee are no longer eligible for medical therefore they must go on COBRA and the Govt having to pick up that 65% of the cost.  Most companies would be stupid not to reduce everyones hours and put them on cobra.  Most companies pay 70 to 80% of the cost of employee insurance, by forcing everyone on to COBRA, the govt would now pay 65%, employees pay 35% and companies would not pay a dime. I think it great that somebody actually figured that out and created the law so companies could not abuse it.

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