April 2009 Archives

April 29, 2009

Employment Law-Employers Should Be Prepared For The Swine Flu

With the outbreak of swine flu in various parts of the United States, Mexico and elsewhere, and the World Health Organization saying that the worldwide outbreak is close to becoming a pandemic, it is important for a U.S. employer to be prepared for any impact that the disease may have on its own employees and business. Both the Centers for Disease Control and Prevention (the "CDC") and the Occupational Safety and Health Administration ("OSHA") have provided information on the swine flu, and how employers should prepare for it, on their own websites (here and here).

At a minimum, an employer should do the following:

-- Select a coordinator, or appoint a committee, to develop and oversee procedures and communications, described below, pertaining to any outbreak or potential outbreak of the disease.

--Identify essential employees, and identify critical services and supplies, and create a contingency plan for any of those employees being unable to work, or any of those services or supplies being interrupted, due to the disease.

--Set up an emergency phone number or email address and train supervisors and human resources for dealing with an emergency stemming from the disease.

-- Develop communications to employees pertaining to the disease. The communications should describe the disease, including the symptoms and how the disease is transmitted, and cover at least the following matters:

  • Employees should be assured that the employer is following developments and is taking all steps needed to ensure their health and safety.
  • Any symptoms of the disease-at home or at work-should be reported to the employee's supervisor or human resources.
  • Employees should be encouraged to stay home if they have symptoms of the disease or if they believe that they have been exposed to the disease.
  • If an ill employee must go to work, he or she should avoid close contract with other people to the extent possible.
  • Employees must be reminded to practice hygiene, such as respiratory and cough etiquette, and thorough hand washing (the employer must make available adequate washing facilities and/or waterless hand sanitizers).

--Revise policies for leave of absence (e.g., medical leave or sick leave), and for working at home, as needed to accommodate employees who incur or develop symptoms of the disease or who may need time off to care for family members who have the disease.

--Develop a procedure for travel restrictions, to avoid areas where an outbreak has occurred.

--Review the health plan and underlying insurance policies to ensure coverage for the disease and any medical problems which the disease may cause.

--Take any steps needed to ensure that the workplace-e.g., desks, eating places, washrooms and ventilation system-is properly cleaned and, in the case of the restrooms, sanitized.

--Monitor applicable websites-e.g., the CDC, OSHA and the local health department-for updates and notices on the disease.

April 28, 2009

Employee Benefits-IRS Provides Helpful Explanation of HSAs

Health Savings Accounts, or "HSAs" , were created in 2003. Subject to statutory limits and restrictions, the account owner can make deductible contributions to his or her HSA. The HSA is tax-exempt, so the contributions can grow tax-free inside the HSA. The HSA balance may be withdrawn, tax-free, to pay the account owner's medical expenses. Thus, the account owner can use the HSA to accumulate a tax-free source of funds to pay future health care costs. The HSA is intended to work in conjuction with a high deductible health care plan which covers the account owner at work.

The IRS has just released a brochure which provides a simple, easy to read explanantion of HSAs. The IRS also maintains, on its website, additional information on HSAs. The brochure is here, and the additional information is here

April 25, 2009

ERISA- Congressmen Andrews and Miller Introduce Legislation To Require Improved Fee Disclosure To 401(k) Plan Participants

Congressman Andrews is not sitting still (see my previous post). According to a press release from the Committee on Education and Labor, on April 21, 2009, Congressman Andrews, along with Congressman Miller, introduced The 401(k) Fair Disclosure for Retirement Security Act of 2009 (H.R. 1984) (the "Act"). The Act would:

  • Ensure that workers receive basic investment information, including information on risk, return, complete fees, and investment objectives before signing-up for a plan;
  • Require that all fees - in one number - that are charged against a workers account to be included in the account holder's quarterly statement;
  • Require service firms to tell employers the fees workers' are charged on all investment options into four categories: administrative fees, investment management fees, transaction fees, and other fees;
  • Require plan administrators to offer at least one low-cost index fund to plan participants in order to receive protection against liability for participants' investment losses;
  • Require service providers to disclose financial relationships so companies that sponsor 401(k) plans can make sure there are no conflicts of interest; and
  • Give the U.S. Department of Labor the authority to enforce new disclosure rules and fine service providers who violate them.

The text of the Act is here. Additional information on the Act is here. Note that, on July 23, 2008, the Department of Labor published its own proposed rules on fee disclosures. The proposed rules are here.

April 24, 2009

ERISA-Congressman Andrews Introduces Legislation To Prevent Giving Conflicted Investment Advice To Plan Participants

The Pension Protection Act of 2006 contains provisions under which a fiduciary advisor may, for a fee, provide investment advice to a participant in a defined contribution plan who may direct the investment of his or her own plan accounts. On January 21, 2009, the Department of Labor (the "DOL") issued final regulations to implement these provisions. The regulations were to become effective as of March 23, 2009. However, encouraged by the Obama administration, a number of members of Congress, various consumer advocacy groups and several financial industry insiders, the DOL proposed, then officially decided, to postpone the effective date of these regulations until May 22, 2009 for further consideration (the official notice of postponement is here). One major concern is that the regulations allow a fiduciary advisor to recommend investments in which the fiduciary advisor itself had an interest-because the advisor issued the investment or would manage it in the participant's plan accounts- giving rise to so called "conflicted investment advice".

In response to this concern, and apparently believing that this concern would not be properly taken care of in the regulations, Congressman Robert Andrews introduced, on April 22, 2009, the Conflicted Investment Advice Prohibition Act of 2009 (H.R. 1988)("CIAPA"). The CIAPA would amend ERISA, so that, in the case of a defined contribution plan under which the participants may direct the investment of their own plan accounts, an employer cannot hire any person to provide financial advice to participants, unless that person is an "independent investment advisor", and the rules allowing a person to furnish investment advice to a participant for a fee will be satisfied only if that person is an independent investment advisor.

Under CIAPA, a person is an "independent investment advisor" if:

-- that person is a fiduciary by reason of providing investment advice, and provides the advice pursuant to a written arrangement with the plan in question that meets various statutory requirements;

--that person is either (1) registered as an investment adviser, (2) a bank or similar financial entity, or a savings association, which furnishes advice through a trust department that is subject to examination by Federal or State banking authorities, or (3) a registered representative as defined in the statute;

--that person (or any affiliate of that person) does not provide or manage any of the assets in which the plan account in question has invested; and

--the fees or other compensation received by that person (or any of its affiliates) either (1) are not paid by any other person (or by an affiliate of any other person) who markets, sells, manages or provides any of the assets in which the plan account in question has invested, or (2) do not vary depending on the basis of any investment option selected by the participant receiving the advice and are calculated on a flat-dollar basis, a flat percentage of total plan assets or a per-participant basis.

A person can also qualify as an independent investment advisor under CIAPA by providing advice pursuant to a computer model which meets various statutory rules.

It is not clear whether or to what extent Congress will actually enact CIAPA. However, it is clear that the controversy over the investment advice regulations-including the need for the investment advisor to be independent-will continue. The text of CIAPA is here.

April 23, 2009

Employee Benefits-New York State Controller Bans Involvement Of Placement Agents And Others In Connection With Investments Made By The New York State Common Retirement Fund (CRF)

For some time now, the government has been investigating the practices of the firms which manage the assets of the New York State Common Retirement Fund ("CRF"). The problems stem from fees paid by these firms to certain middlemen, called "placement agents", to gain the right to manage the assets. The fees themselves are not illegal. However, allegations have been made that, with the firms' knowledge, a portion of the fees have been illegally used to benefit certain officials so this right can be obtained.

In connection with this investigation, according to an April 22, 2009 press release, State Comptroller Thomas P. DiNapoli has banned the involvement of placement agents, paid intermediaries and registered lobbyists in investments with CRF. The ban includes entities "compensated on a flat fee, a contingent fee or any other basis."

The press release is here.

April 22, 2009

Employment-IRS Announces Changes to 2009 Publication 15 (circular E), Employer Tax Guide, Which Refer To New Tax Withholding Tables

The IRS has announced that it has made revisions to 2009 Publication 15 (circular E) to, among other things, refer to its new tables for income tax withholding and advance earned income credit (EIC) payments which reflect the American Recovery and Reinvestment Act of 2009 (ARRA). The new tables themselves can be found in Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through December 2009). The IRS announcement is here. The revised 2009 Publication 15 (circular E) is here. The Publication 15-T is here.

April 19, 2009

Is It Becoming Easier To Find that Retiree Health Benefits Have Vested?

It is a well-established principal of ERISA that health benefits, as opposed to pension benefits, are not required to vest. In the absence of vesting, an employer is normally free, under ERISA, to adopt, modify or terminate health benefits, for any reason and at any time. Thus, an employer could, at any time, require employees or retirees to pay a larger share of the cost of health care coverage. However, health benefits will vest if the employer, or in the case of a union, the parties choose to do so. Historically, the courts have held that vesting obtains if the plan under which the health benefits are offered contains language indicating that the employer or the parties intend that the health benefits vest. For example, language appearing in the plan such as "the retiree health benefits will be provided for life" indicates that the employer is promising to never take the benefits away, and will often lead the court to conclude that the benefits are vested. To find that vesting obtains, relying on a statement by the U.S. Supreme Court in Inter-Modal Rail Employees Ass'n v. Atchison, Topeka, & Santa Fe Ry. Co. 520 U.S. 510 (1997), the courts have required that the plan document have a "clear and express statement" that the benefits vest.

It appears that the Sixth Circuit Court of Appeals may be a little lenient as to what is required for health benefits to vest. In Tackett V. M & G Polymers, USA, LLC, No. 07-4515/4516 (6th Cir. 2009), the court found that the following language in a collective bargaining agreement-which the court treated as being the plan-contained sufficient evidence of the parties' intention to vest certain retiree health benefits to survive a motion to dismiss the retirees' claim of vesting:

"Employees who retire on or after January 1, 1996 and who are eligible for and receiving a monthly pension under the 1993 Pension Plan . . .whose full years of attained age and full years of attained continuous service . . . at the time of retirement equals 95 or more points will receive a full Company contribution towards the cost of [health-care] benefits. . . . Employees who have less than 95 points at the time of retirement will receive a reduced Company contribution. The Company contribution will be reduced by 2% for every point less than 95. Employees will be required to pay the balance of the health care contribution, as estimated by the Company annually in advance, for the [health care] benefits . . . . Failure to pay the required medical contribution will result in cancellation of coverage."

The court analyzed the above language based on its well discussed case, UAW v. Yard-Man, 716 F.2d 1476, 1479 (6th Cir. 1983). In determining the sufficiency of the language, the court said, first, that the mention of a "full Company contribution" suggests that the parties intended the employer to cover the full cost of health-care benefits for those employees meeting the age and term-of-service requirements. The court found find it unlikely that the union would agree to language that ensures its members a "full Company contribution," if the employer could unilaterally change the level of contribution. Otherwise, the employer could lower the contribution to zero without violating this language, thereby making the promise of a contribution illusory. Second, the court noted that the limiting language, "[e]mployees will be required to pay the balance of the health care contribution," follows the provision requiring contributions by those retirees who had not attained the requisite seniority points. From the placement of this language, the court inferred that the limiting language did not apply to all retirees, but only to those retirees who had not attained the requisite seniority points. Finally, the court noted that the collective bargaining agreement tied eligibility for the health benefits to pension benefits, which indicates that the parties intended the health benefits to vest upon retirement.

Admittedly, this case only denied a motion to dismiss a claim of vesting, as opposed to providing a final resolution to the issue. The case was remanded back to District Court to resolve the issue. Still, to infer that the parties' intended the retiree health benefits to vest from the above language, which did not have words such as "for life", coupled with the fact that on remand the District Court will be able to use extrinsic evidence to determine the parties' intentions, indicates a lenient approach to determining whether the retiree health benefits have vested. Any ultimate determination that the above language shows a "clear and express" intent to vest the benefits would be very generous.

The Tackett case is here.

April 16, 2009

ERISA-Next Up: Annual Funding Notice Due April 30!

As we are putting this April 15 behind us, next up on the calendar are the defined benefit plan annual funding notices. The Pension Protection Act of 2006 amended ERISA to require the plan administrator of any defined benefit pension plan, which is subject to Title IV of ERISA, to provide an annual funding notice to:

-- the Pension Benefit Guaranty Corporation (the "PBGC");

--each plan participant and beneficiary;

-- each labor organization representing such participants and beneficiaries; and

-- in the case of a multiemployer plan, each employer which has an obligation to contribute to the plan.

The notice must include, among other things, the plan's funding percentage, a statement of the value of the plan's assets and liabilities, a description of how the plan's assets are invested as of specific dates, and a description of the benefits under the plan which may be guaranteed by the PBGC.

The new annual funding notice requirements apply to plan years beginning after January 2007. The funding notice for a plan year is due within 120 days after the close of that plan year. Thus, for a plan with a calendar plan year, the first funding notice is due by April 30, 2009.

As an exception to the above, in the case of a small plan, the funding notice for a plan year must be provided by the due date (including extensions), or if earlier the actual filing date, of the plan's Form 5500 for that plan year. Generally, a "small plan" is any plan-whether a single-employer plan or a multi-employer plan-which does not have more than 100 participants on any day during the plan year preceding the year to which the funding notice in question relates. Also, in the case of a single-employer plan, a funding notice need not be provided to the PBGC, if the plan's liabilities do not exceed it's assets by more than $50 million.

The Department of Labor has issued Field Assistance Bulletin No. 2009-01, which provides guidance on the annual funding notice requirements and includes model notices which may be used to help meet these requirements. The Bulletin indicates that, pending further guidance, the Department will treat a plan administrator as satisfying the annual funding notice requirements if the plan administrator has complied with the guidance contained in the Bulletin, and has acted in accordance with a good faith, reasonable interpretation of those requirements as to matters not specifically addressed in the Bulletin. Importantly, properly completing the applicable model notice will satisfy any content requirements as to the funding notice.

April 15, 2009

Employee Benefits-News on 403(b) Plans: Compliance With Written Plan Requirement

In July of 2007, the IRS published comprehensive, revised regulations under Section 403(b) of the Internal Revenue Code.  These regulations are generally effective January 1, 2009. Among other matters, they require employers offering 403(b) plans to maintain the plans in writing. However, in Notice 2009-3, the IRS postponed the written plan requirement until December 31, 2009, and requires that, during 2009, employers operate their 403(b) plans in accordance with a reasonable interpretation of the Code, taking into account the revised regulations.

In Announcement 2009-34, issued April 14, 2009, the IRS said that it intends to establish a determination letter program for individually designed 403(b) plans, and an opinion letter program for prototype 403(b) plans. Receipt of a determination letter or opinion letter would generally mean that the plan or prototype satisfies the written plan requirements of the revised regulations. A "prototype", in this case, is a plan which is created by a vendor (the " prototype sponsor") for adoption by an employer, and which consists of : a basic (unalterable) document which contains most of the plan's provisions, and an adoption agreement which the employer completes to select certain optional rules. The Announcement included a draft revenue procedure containing the IRS's proposed rules for issuing opinion letters for prototype 403(b) plans, and a statement that the IRS is posting draft sample plan language on its website for use in writing the prototypes. The Announcement requests comments from the public on these procedures and sample plan language. The Announcement does not affect the December 31 effective date of the written plan requirements or anything in Notice 2009-3. Also, the Announcement does not affect anything in Revenue Procedure 2007-71, which also has some model language for 403(b) plans.

So what does the Announcement mean for employers and prototype sponsors of 403(b) plans? It appears that an employer or prototype sponsor need not be concerned with incorporating the new sample plan language, referred to in the Announcement, into its plan or prototype, or for that matter have its plan or prototype covered by a determination or opinion letter, until the IRS finalizes this plan language and its determination/opinion letter procedures. Presumably, this sample plan language will be finalized prior to the December 31 effective date for the written plan requirement, affording employers and prototype sponsors sufficient opportunity to review and utilize the sample plan language. However, during the remainder of 2009, an employer should operate its plan under the reasonable interpretation standard of Notice 2009-3, taking into account the requirements of the revised 403(b) regulations. These requirements include the "universal availability" requirement, nondiscrimination requirements as to contributions, timing deadlines for remitting contributions, and rules for contract exchanges and plan-to-plan benefit transfers.

One curiosity. In the Announcement, the IRS requests that any entity which expects to file one or more opinion letter applications for a 403(b) prototype plan, either as a prototype plan sponsor or a mass submitter (each as defined, for this purpose, in section 7 of the draft revenue procedure), notify the IRS of the expected applications in writing, by June 1, 2009, at the address indicated in the Announcement. This notice should be provided separately from any comments the entity may have on the procedures or sample plan language contained in or referred to in the Announcement. A mass submitter should provide an estimate of how many opinion letter applications it will submit. It is not clear that any penalty attaches to the failure to notify the IRS of the expected filings, but potential opinion letter applicants should nevertheless consider complying with this request.

The IRS discusses Announcement 2009-34, and the proposed procedures for issuing opinion letters, in Employee Plans News, Special Edition, Spring 2009. See it here.

April 14, 2009

Employee Benefits-IRS Cautions Against Tax Scams Using Retirement Plans

The IRS has issued its 2009 "dirty dozen" list of tax scams, including those involving retirement plans. The IRS said that it continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited.

April 13, 2009

Employee Benefits-Reminder On New Rules For Reporting Distribution of Excess Contributions/Excess Aggregate Contributions

The IRS's Employee Plans News (Volume 9/Spring 2009) reminds us that the rules for reporting the distribution of excess contributions or excess aggregate contributions by a 401(k) plan have changed. Generally, an "excess contribution" is a highly compensated employee's elective deferrals which exceed the amount allowed by the 401(k) plan's actual deferral percentage (ADP) test, and an "excess aggregate contribution" is a highly compensated employee's matching contributions and/or after-tax employee contributions which exceed the amount allowed by the 401(k) plan's actual contribution percentage (ACP) test. The plan can make corrective distributions to rectify either type of excess.

According the Employee Plans News, beginning in 2009, if a 401(k) plan distributes any excess contributions or excess aggregate contributions, along with earnings thereon, the distribution must be reported on Form 1099-R as taxable to the recipient in the year of distribution. The 2009 Form 1099-R (for distributions made in 2009) must be provided to recipients by February 1, 2010 (since January 31, 2010 is a Sunday).

The payer of the distribution of excess contributions or excess aggregate contributions should complete Form 1099-R by:

  • stating the amount of the distribution in Box 1;
  • reporting the taxable amount of the distribution in Box 2a; and
  • classifying it as taxable in the year distributed by using Code 8 in Box 7.

Note that a separate Form 1099-R must be used for a distribution from a designated Roth account.

The presence of IRS material in this blog does not constitute or imply the endorsement, recommendation, or favoring by the IRS of any opinions, products, or services offered by the author.

April 10, 2009

IRA Contributions For 2008-Its Not Too Late!

April 15 is approaching fast! The IRS reminds us that it is not too late to contribute to a traditional IRA for 2008. Below are ten last minute tips from the IRS on IRA contributions.

  1. You may be able to deduct some or all of your contributions to your IRA and you also may be eligible for a tax credit equal to a percentage of your contribution.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2008 must be made by April 15, 2009.
  3. The amount of funds in your IRA are generally not taxed until you receive distributions from that IRA.
  4. To figure your deduction for IRA contributions, use the worksheets in the instructions for the form you are filing.
  5. For 2008, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,000 or the amount of your taxable compensation for the year. Taxpayers who are 50 or older can contribute up to $6,000.
  6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit.
  7. You cannot deduct an IRA contribution or claim the Credit for Qualified Retirement Saving Contributions on Form 1040EZ; you must use either Form 1040A or Form 1040.
  8. To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year.
  9. You must have taxable compensation, such as wages, salaries, commissions and tips. If you file a joint return, only one of you needs to have compensation.
  10. Refer to IRS Publication 590, Individual Retirement Arrangements, for information on the amounts you will be eligible to contribute to your IRA account.

Note that both Form 8880 and Publication 590 can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

April 5, 2009

Reminder For All Employers-New Form I-9 Must Be Used On And After April 3

On and after April 3, 2009, employers must use the Department of Homeland Security's new Form I-9. This new Form has a revision date of 02/02/09 (the revision date is printed on the lower right-hand corner of the form). A handbook is available which explains how to use the new Form.

According to the Department of Homeland Security's website, all U.S. employers must complete and retain a Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens. An employer should not file Form I-9 with the Department of Homeland Security or any other government agency. Rather, the Form must be kept by the employer either for three years after the date of hire or for one year after employment is terminated, whichever is later. The Form must be available for inspection by authorized U.S. Government officials (e.g., Department of Homeland Security, Department of Labor, Office of Special Counsel).

April 4, 2009

Employee Benefits-DOL Updates Its Guidance on Model Notices for New COBRA Subsidy

The American Economic Recovery and Reinvestment Act of 2009 ("ARRA") provides a 65% subsidy for COBRA premiums, for individuals who become eligible for COBRA coverage due to an involuntary termination of employment (other than for gross misconduct) occurring from September 1, 2008 through December 31, 2009. The subsidy is provided for 9 months, starting March, 2009. ARRA requires employers and insurers to provide certain notices pertaining to the subsidy, some of them by the upcoming April 18. To make the subsidy available, any individual who is eligible for the subsidy, but who on February 17, 2009 is not receiving COBRA coverage, must now be given a new opportunity to elect to receive COBRA coverage and thus take advantage of the subsidy. The period during which this election may be made is referred to as the "Extended Election Period".

Pursuant to ARRA, the Department of Labor earlier issued the following 4 model notices, which employers and insurers may adopt or use in meeting these notice requirements:

  1. General Notice (Full Version)-intended to be used by plans subject to the Federal COBRA provisions, and to be provided to all qualified beneficiaries, not just those eligible for the subsidy, who experienced a qualifying event at any time from September 1, 2008 through December 31, 2009, and who either have not yet been sent a COBRA election notice or were sent a COBRA election notice on or after February 17, 2009 that did not include information required by ARRA pertaining to the subsidy.
  2. General Notice (Abbreviated version)-intended to be used by the same plans and to include the same information as the full version, but does not include any information on COBRA coverage elections. It may be sent in lieu of the full version to individuals who experienced a qualifying event on or after September 1, 2008, have already elected COBRA coverage, and still have it.
  3. Alternative Notice- intended to be used by insurers that provide group health insurance coverage, and to be sent to individuals who became eligible for continuation coverage under a State law.
  4. Notice in Connection with Extended Election Periods-intended to be used by plans subject to the Federal COBRA provisions, and to be sent to any individual who:
    1. had a qualifying event that was an involuntary termination of employment at any time from September 1, 2008 through February 16, 2009; and
    2. either (as of February 17, 2009) had not elected COBRA continuation coverage, or had elected it but subsequently discontinued COBRA.

The Department of Labor has put "Premium Reduction FAQs" on its website which provide guidance on the COBRA subsidy, and has updated these FAQs on April 2 to provide additional guidance on the use of the model notices. Note that, in some case, more than one of the notices must be provided to an individual. See FAQs #23 and 24.

April 1, 2009

IRS Issues Guidance on COBRA Premium Subsidy

The IRS has issued Notice 2009-27, which provides guidance on some of the issues which have arisen in connection with the new COBRA premium subsidy provided under the American Recovery and Reinvestment Act of 2009 ("ARRA"), enacted on February 17, 2009 (the "Enactment Date"). Under ARRA, individuals who become eligible for COBRA coverage due to an involuntary termination of employment (other than for gross misconduct) occurring from September 1, 2008 through December 31, 2009 may pay a reduced premium for COBRA coverage for up to 9 months, starting March 1, 2009. Such individuals include the terminated employee and his or her spouse and dependents, and are referred to as "Assistance Eligible Individuals" or "AEIs". This premium reduction, which equals 65% of the amount otherwise required to be paid, is referred to as the "Subsidy".

The period during which the Subsidy is available ends if the AEI becomes eligible for coverage under any other group health plan or for Medicare benefits. To make the Subsidy available, any AEI whose COBRA entitlement is due to an involuntary  termination which preceded the Enactment Date, and who on the Enactment Date is not receiving COBRA coverage (because he or she either failed to elect to receive the coverage or elected the coverage but later dropped it), must now be given a new period of time to elect to receive COBRA coverage and thus take advantage of the Subsidy (the "Extended Election Period").

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One of the issues which has arisen is what constitutes an involuntary termination of employment. Notice 2009-27 provides a detailed answer. Borrowing from the regulations under IRC Section 409A, it indicates that an involuntary termination of employment is (1) 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, or (2) an employee-initiated termination from employment taken for good reason, due to employer action which causes a material negative change in the employment relationship for the employee (e.g., such as a change in work location). Whether (1) or (2) exists depends on all facts and circumstances.

An involuntary lay-off period with a right of recall, or an involuntary temporary furlough period, under which the employee's work load is reduced to zero hours is generally an involuntary termination for these purposes. Similarly, an employer initiated lockout is an involuntary termination. However, a reduction in an employee's work hours other than to zero, an employee's death, or an employee's absence from work due to illness or disability, is not an involuntary employment. If the facts and circumstances indicate that, absent an employee's retirement, the employer would have terminated the employee's services, and the employee had knowledge of this, then the employee's retirement is an involuntary termination.

Other questions answered by Notice 2009-27 include that:

  • An individual cannot be an AEI unless the involuntary termination of employment, and the loss of coverage under the group health plan due to such termination, occur during the period from September 1, 2008 to December 31, 2009.
  • An individual cannot be an EAI unless he or she is (1) the employee covered by the group health plan, (2) recognized as the spouse or dependent of the covered employee by Federal law and covered by the group health plan on the day before the involuntary termination or (3) a child who is born to or adopted by the covered employee during the period of COBRA continuation coverage. Thus, a spouse not covered by the plan before the involuntary termination, or a spouse by a union not recognized by Federal law (e.g., a same sex marriage), cannot be an AEI.
  • Generally, eligibility for coverage under a health reimbursement arrangement ( an "HRA") does not cause the AEI to become ineligible for the Subsidy. Also, the Subsidy can apply to coverage under an HRA.
  • The premium used to determine the 65 percent Subsidy is the amount that would be charged to the AEI  for COBRA continuation coverage, if he or she were not an AEI. If, in the Subsidy's absence, the AEI would be required to pay a premium equal to 102 percent of the "applicable premium" for COBRA continuation coverage (i.e., generally the maximum premium allowed under the COBRA rules), the Subsidy is equal to 65 percent of 102 percent of the applicable premium. However, if the premium that would be so charged to an AEI is less than the maximum COBRA premium, for example, if the employer itself pays all or part of the cost of coverage (through tax-free reimbursement or otherwise) , the 65 percent Subsidy applies only to the amount actually charged the AEI.
  • If an AIE elects to receive COBRA during the Extended Election Period, the first premium payment is due no earlier than 45 days after the date on which the election is made.