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from Spencer’s Benefits Reports: An employee who is fired because he or she is incompetent remains entitled to the 65% COBRA subsidy, even though a number of employers have complained about this provision, according to Kevin Knopf, attorney-adviser, office of tax policy, Treasury Department. As long as the employee’s behavior is not gross misconduct, that employee will qualify for the subsidy if the employee is terminated involuntarily.
Mr. Knopf and representatives of the Department of Labor and the Treasury Department held their third webcast concerning COBRA subsidies, this time on the extension enacted in December 2009.
Other speakers included Mark B. Connor, deputy director, office of health plan standards and compliance assistance, in the DOL’s Employee Benefits Security Administration (EBSA); Kevin Horahan, senior employee benefits law specialist, office of health plan standards and compliance assistance, EBSA; and Patricia McDermott, special counsel to the division counsel/associate chief counsel, tax exempt and government entities, Internal Revenue Service office of chief counsel.
Another item of note identified at the January webcast concerns the health coverage tax credit (HCTC). Some individuals who are eligible for the COBRA subsidy also qualify for the HCTC and might want to choose this more generous benefit, instead. The HCTC pays 80% of health insurance premiums for those who qualify. Eligible individuals must be receiving Trade Adjustment Assistance benefits or be older than age 55 and receiving pension payments from the Pension Benefit Guaranty Corporation. Individuals also must be enrolled in a qualified health plan.
Questions And Answers
At the end of the formal presentation, the speakers addressed a number of questions about the extension, including these questions:
Q: An individual entitled to the original nine-month subsidy had that subsidy end in November 2009. The individual did not pay the full premium in December, because the individual could not afford it. How long does the individual have to make a retroactive payment under the extension?
A: The individual has until the later of Feb. 17, 2010, or 30 days from when a notice is provided regarding the extension.
Q: A qualified beneficiary who is an assistance-eligible individual received and paid for the first eight months of COBRA with the subsidy. However, the individual failed to pay for the ninth month of coverage in December 2009. Could this individual get to make up this payment?
A: No. The transition period relief is available only for individuals who did not pay for all of the original subsidized coverage. If an individual stopped his or her subsidized coverage early and did not reach the end of the subsidized coverage, the individual cannot now jump back in and get the extension.
Q: An individual was laid off last year but did not elect COBRA when it was first offered. Did the extension include a second election opportunity to get the subsidy?
A: No, the transition relief did not allow individuals a second election if they did not timely elect COBRA. The transition relief is for individuals who have exhausted the subsidy and at that point stopped paying their premiums. If the individual never elected COBRA, they have lost the opportunity to get the subsidy.
Q: Can a plan require individuals who are in a transition period to pay the full 100% of the COBRA premium as long as the plan agrees to refund or credit the person’s payment at a later date?
A: The answer to that is no. This is consistent with how the original subsidy was administered; and individuals have the right to make the 35% payment and in making that payment they have to be treated as if they made the whole payment. IRS guidance has been clear that the employer cannot require individuals to pay the entire amount and have the subsidy provided later.
Q: Suppose COBRA premiums are paid to a third party administrator rather than to the employer and the TPA receives the assistance-eligible individual’s 35% payment of the December premium in December, but the employer does not receive documentation that the premium was paid until January. Can the employer take the credit in December in its tax return for the last quarter of 2009?
A: Yes. Although the IRS has not addressed the situation in which payment is made to a TPA, it is fairly straightforward to treat amounts received by the TPA as received by the employer. Thus, in this situation, the employer is eligible for the credit for December, and the credit would be taken on the Form 941 for the last quarter of 2009.
Q: In certain situations under the extension provision, assistance-eligible individuals would be entitled to receive more than one notice at different intervals following the premium extension. Does the law require that these individuals receive duplicate notices?
A: An employer does not have to send multiple notices. One person could fall into several categories and the timing might be different. In that situation, the employer should send one notice in the earlier time frame and would be covered for that person. Clearly, everyone who got an old general notice now has to be notified of the new law. However, the general answer to this question is the employer does not have to send multiple notices to an individual who fits into two categories as long as the individual receives the notice by the earliest time period.
Q: How would the subsidy apply with a severance package scenario in which the employer is paying 100% of the premiums for the first three months?
A: It depends in part on how the employer chooses to treat the severance. It also is affected by a change in the extension in which an individual no longer has to have COBRA during the period that the individual qualifies for the subsidy. Generally, employers that are providing severance can delay the loss of coverage and make a decision whether to treat those three months of severance as the beginning of COBRA. If the three months are included in COBRA, the 18 months of COBRA start when the severance starts. The subsidy would go for 15 months from the beginning of the severance so there is no credit for the employer during that first three months, but there is also no payment required on the part of the employee. In addition, individuals would get 12 months of the subsidy after the first three months, and then they would continue on through the 18 months for the COBRA coverage.
On the other hand, the employer also can make a decision that COBRA will not start until the end of the three months, in which case the 18 months of COBRA due to the involuntary termination is measured from of the end of the three months. Because of the change noted above, it will not matter whether the end of the three months is before or after February 28 as long as the involuntary termination is before February 28.
Mr. Connor also noted that he and Mr. Horahan can be reached for questions at (202) 693-8335; and that questions that can answered by the IRS will be forwarded to Mr. Knopf or Ms. McDermott.
For more information, visit http://www.nejm.org.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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