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CCH® BENEFITS — 04/13/09

For COBRA Subsidy, Involuntary Termination Does Include Call-Up To Reserves

from Spencer’s Benefits Reports: An employee in the military reserve who is called up for active duty has experienced an involuntary termination and is eligible for the recently enacted COBRA subsidy, according to an April 6 Webcast sponsored by the Department of Labor’s Employee Benefit Security Administration (EBSA).

Kevin Knopf, attorney-adviser in the Office of Tax Policy at the Department of the Treasury, said at the Webcast that he had erred earlier by stating that military reservists called up for active duty were not eligible for the subsidy. Mr. Knopf said that he then discussed the issue with others at the Treasury Department and the Internal Revenue Service and noted that “we don’t have an official position yet, but we agree that being in the military reserves and being called up to active duty is an involuntary termination.”

Mr. Knopf explained that in general an involuntary termination has to be initiated by the employer, but in this case, although the employer is not doing anything, the federal government, which is paying the premium reduction subsidy, is taking the action. Mr. Knopf cautioned that this position is based on a unique example, and that it is the sole example in which eligibility for the subsidy is not caused by an employer-initiated action.

Webcast participants also had other questions, which had following answers:

• In response to a question about whether a plan can require an individual to pay the full COBRA premium until the employer has had time to put its new subsidy system in place, Patricia McDermott, special counsel in the IRS’s Office of Chief Counsel, said that the employer has no right to do this. “Under the transition rule, an assistance eligible-individual (AEI) has only to pay the 35%....We encourage individuals to check with their employers to make sure they are eligible.”
• In response to a question concerning the expedited review process, in which an individual can appeal a subsidy denial and have that appeal reviewed within 15 days, Amy Turner, EBSA senior adviser and special projects manager in the Office of Health Plan Standards and Compliance Assistance, said that both the Departments of Labor and Health and Human Services are working to put together an application to appeal a denial, and that those who subscribe to the DOL’s COBRA subsidy Web site (http://www.dol.gov/ebsa/COBRA.html) will be notified when the application is available.
• If an individual is not reelected to a public office in which COBRA or COBRA-like coverage is provided, this is an involuntary termination. There are two situations in which the failure to be reelected is involuntary: the individual cannot run again because of term limits or the individual ran and was defeated.
• Even if the entity required to take the credit under the statute does not administer the COBRA plan, it cannot designate another entity to take the credit. The IRS has the authority to change this, and the agency is examining situations in which some other entity might be a better alternative.
• For purposes of the COBRA subsidy, TRICARE benefits provided to the military are not considered other coverage that would cut off an individual’s right to the premium reduction. Cited as evidence for this was a 1994 Eighth Circuit U.S. Court of Appeals decision, McGee v. Funderburg (17 F3rd 1122).

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