New COBRA Guidelines
On March 31, the IRS issued Notice-2009-27, a much-anticipated and comprehensive guidance about the COBRA premium reduction under the American Recovery and Reinvestment Act (ARRA). For the first time, the IRS has provided insight into what constitutes an involuntary termination. Notice 2009-27 provides new guidance, which is summarized below. On April 2, the Department of Labor (DOL) also expanded its “FAQs for Employers About COBRA Premium Reduction Under ARRA,” which includes detailed guidance about use of the model notices.
WHAT THIS MEANS TO YOU AS AN EMPLOYER
Involuntary Termination
Notice-2009-27 defines an involuntary termination for purposes of the COBRA premium reduction as a “severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employee, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” Situations qualifying as involuntary termination may be summarized as follows:
Involuntary Termination |
Not an Involuntary Termination |
| Employee-initiated termination if termination is due to the employer’s action that causes a material negative change in the employment relationship |
Death of employee |
| Employer’s failure to renew employee’s contract upon expiration if employee is willing to continue in employment |
Absence from work due to illness or disability (unless employer takes action to terminate employment) |
| Employee’s voluntary resignation or retirement, if facts and circumstances indicate that absent such resignation or retirement the employee knew that he or she would otherwise be terminated by the employer |
Reduction in hours (except where hours are reduced to zero) |
| Layoff with right to recall or furlough or other suspension of employment |
Retirement (except when retirement is in lieu of termination/layoff) |
| Employee’s voluntary termination in response to employer-initiated reduction in hours if it’s a material negative change in the employment relationship |
Termination due to gross misconduct |
| Employer’s action to end employee’s employment while employee is absent due to disability |
Work stoppage as a result of strike initiated by employees or union |
| Termination of employment for cause (except in cases of gross misconduct) |
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| Employee’s resignation due to material change in employment geographic location |
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| Employer-initiated lockout |
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| Voluntary acceptance of severance programs (buy-out) if employer has indicated that additional terminations are likely after the buy-out election period ends |
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WHAT SHOULD I DO NEXT?
Familiarize yourself with this new guidance, review the complete copy of Notice-2009-27 by visiting our website by clicking here. In addition you will find a copy of an updated version of the FAQ from the recent "Thought-Leadership” Webinar "Understanding how the American Recovery and Reinvestment Act (ARRA) of 2009 affects you". If you have any additional questions regarding the information within this eCommunication, please call Corporate Synergies at 1.866.CSG.1719 or click here to contact us today.
This alert is a legislative update designed to help you administer your employee benefits program and is not legal counsel. Please consult with an attorney for legal advice.
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