This is the next in our series of WorkCites regarding the COBRA subsidy provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). See our previous items:
- COBRA Subsidy: More Guidance From the IRS (4/3/2009)
- Follow-Up On COBRA Subsidy: What To Do Now? (3/23/2009)
- IRS Provides Guidance Regarding COBRA Subsidy Reporting Requirements (3/27/2009)
- Trial and ARRA: New COBRA Changes Require Prompt Employer Action With Little Government Guidance (2/17/2009)
In this WorkCite, we discuss the updates provided by the Department of Labor (DOL) related to the COBRA model notices that the agency recently released.
In the “FAQs For Employers About COBRA Premium Reduction Under ARRA” released last week, DOL materially expanded the FAQs on this topic and clarified what kind of notice a plan sponsor must provide to assistance eligible individuals (AEIs) in various circumstances.
Here are some of the fact patterns and guidance that we found to be particularly helpful:
Q14: The Full General Notice must be sent to all qualified beneficiaries who experience a qualifying event between September 1, 2008 and December 31, 2009 and either (i) have not received an election notice or (ii) were provided an election notice on or after February 17, 2009 that fails to include all of the information required by ARRA.
The importance of this FAQ lies in two points. First, the Full General Notice must be sent to all qualified beneficiaries, not just to covered employees. Second, the Full General Notice must be sent in connection with all types of qualifying events (such as divorce and aging out of dependent coverage), not only involuntary terminations.
Q18: The Notice in Connection with Extended Election Periods, or Second Chance Notice, must be provided only to AEIs, including individuals who would be AEIs if COBRA continuation coverage were in effect, whose qualifying event was an involuntary termination between September 1, 2008 and December 31, 2009 and who either (i) did not elect COBRA or (ii) elected but subsequently discontinued their COBRA coverage.
Since the definition of AEI applies only to qualified beneficiaries whose qualifying event is an involuntary termination of employment, the Second Chance Notice is not to be sent to those qualified beneficiaries whose qualifying events were not an involuntary termination of employment.
Q23: An AEI was involuntarily terminated on January 11, 2009. He received a COBRA notice on February 22nd, but the notice failed to include all of the information required by ARRA. (Although the FAQ was not specific, presumably the AEI has not yet elected COBRA continuation coverage).
The DOL advises that the plan sponsor should provide the following two notices:
- The Notice of Extended Election Period (or Second Chance Notice). This is because the AEI was involuntarily terminated after September 1, 2008, but before ARRA’s enactment date, and did not elect to continue his benefits pursuant to COBRA.
- The Full General Notice. This is because, even though the AEI’s qualifying event occurred before the effective date of ARRA, the original notice was provided after ARRA’s enactment and did not contain all of the additional information required by ARRA.
The DOL permits the plan sponsor to combine both required notices into a single notice, but cautions that the notice must be clear as to all of the AEI’s rights.
Q24: An AEI was involuntarily terminated on January 24, 2009. Prior to her termination, the AEI participated in both the medical/surgical and dental group health plans. On her termination, the AEI elected COBRA coverage for the medical/surgical plan, but she did not elect continuation coverage for the dental plan.
The DOL advises that the plan sponsor should provide the following two notices:
- The Abbreviated General Notice regarding her coverage under the medical/surgical plan. This is because she had a qualifying event during the period set forth under ARRA (September 1, 2008 through December 31, 2009) and has COBRA coverage in effect.
- The Notice of Extended Election Period (or Second Chance Notice) for the dental plan. This is because she was involuntarily terminated after September 1, 2008, but before ARRA’s enactment date, and failed to elect to continue her benefits under the dental plan.
The AEI not only has the right to elect dental coverage within the extended election period, but she is also eligible for reduced premiums for continuation coverage beginning on or after February 17, 2009.
Again, the DOL permits the plan sponsor to combine both required notices into a single notice, but cautions that the notice must be clear as to all of the AEI’s rights.
This updated guidance from the DOL also highlights the importance of keeping careful participant records. Plan sponsors must be cognizant of participants who were involuntarily terminated before the ARRA enactment date and who elected continuation coverage for some, but not all of their benefits. Otherwise, the plan sponsor may fail to provide the correct dual notice and run afoul of the COBRA penalty provisions.
We will publish future WorkCites on the COBRA subsidy program as the government publishes more information.
For additional information, please contact any member of the McGuireWoods Employee Benefits or Labor & Employment teams, or the authors. You can also visit our Stimulus Package section for more updates on the American Reinvestment and Recovery Act.