Employee Benefits update

COBRA Subsidy Extended and Modified

The American Recovery and Reinvestment Act of 2009 allowed certain involuntarily terminated employees and their eligible dependents to purchase COBRA continuation coverage by paying only 35% of the otherwise applicable premium. The subsidy was made available for up to 9 months for eligible terminations of employment on or before December 31, 2009.

On December 21, 2009, the subsidy law was extended and modified. Qualified beneficiaries who recently exhausted their 9-month subsidy period will immediately benefit from this extension, as will employees involuntarily terminated in early 2010. The most significant points of the new law are
the following:

• The last day for an eligible termination of employment has been extended from December 31, 2009 to February 28, 2010.
• The subsidy is now available for up to 15 months rather than 9 months.
• Qualified beneficiaries who exhausted 9 months of the subsidy and then dropped coverage must be permitted to “retroactively” reinstate and continue the subsidized COBRA coverage.
• Qualified beneficiaries who began paying full COBRA premiums due to exhaustion of the 9-month subsidy period must be refunded or credited for premiums paid in excess of the subsidized premium amount.
• Plan administrators must provide notices to the following individuals:
  • A qualified beneficiary who exhausted his or her 9-month period of subsidized COBRA before December 21, 2009 must be notified of the subsidy changes, including the right to retroactively reinstate coverage or be refunded or credited excess premiums, as applicable. This notice is due within 60 days starting on the date that the qualified beneficiary lost his or her subsidized coverage.
  • Anyone who (i) was eligible for the subsidy at any time on or after October 31, 2009 or (ii) experienced a qualifying event that was a termination of employment (whether voluntary or involuntary) from October 31, 2009 through December 21, 2009 must be notified of the subsidy changes by February 19, 2010.
  • Anyone who experiences a qualifying event on or after December 22, 2009 must be notified of the subsidy changes by the otherwise applicable deadline for COBRA election notices.

Plan administrators should begin updating election notices for future qualifying events. In addition, plan administrators must determine which qualified beneficiaries are due supplemental notices and prepare notices that comply with the new law. While the Department of Labor provided sample notices when the subsidy was initially enacted, it has not yet stated whether it will do so at this time. We will be glad to provide compliance assistance with the
subsidy extension.

IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.