Client Alert: IRS Issues Important Information on COBRA Subsidies

The IRS has recently issued 86 questions and answers regarding the COBRA premium assistance requirements under the American Rescue Plan Act of 2021 (“ARPA”). See IRS Notice 2021-31.

As explained in previous Client Alerts, the ARPA requires that employers provide 100% COBRA subsidies to certain assistance eligible individuals from April 1, 2021 through September 30, 2021. Not only will COBRA be fully paid for these individuals during this time period, but eligible individuals who had previously declined COBRA (or who had elected COBRA and dropped it) have a second chance to elect and take advantage of the subsidized COBRA coverage. Notices of such subsidies and new election rights are due by May 31, 2021, so time is of the essence.

Q&A Highlights

Here are some highlights of these IRS Q&As but please note that the IRS guidance is extensive. This Client Alert just touches on some of the issues.

Who is an AEI?

Notice 2021-31 reiterates that an assistance eligible individual (AEI) is defined as an individual who (1) is a qualified beneficiary with respect to a period of COBRA continuation coverage during the period from April 1, 2021, through September 30, 2021, (2) who is eligible for that COBRA continuation coverage by reason of a qualifying event that is an involuntary termination of employment (except for gross conduct) or reduction of hours, and (3) who elects COBRA continuation coverage. This includes employees, spouses, and dependent children.

However, the IRS now explains that an individual can become an AEI more than once. As we know, being eligible for certain other group health plan coverage or Medicare will disqualify one from AEI status. Losing such eligibility at a later date may result in regaining AEI status. For example, an employee is terminated, loses coverage, and becomes an AEI on May 1, 2021. On June 1, 2021, the individual becomes eligible for his spouse’s employer’s group health plan and loses AEI status. However, on July 1, 2021, the spouse has an involuntary termination and loses coverage. Both the individual and spouse become AEIs as of July 1, 2021.

The notice goes on to provide that because eligibility for other group health coverage and/or Medicare will disqualify one from being an AEI, employers may required individuals to provide a self-certification or attestation that they are not eligible for any disqualifying group health plan coverage or Medicare. Employers must keep a record of such attestations.

The IRS clarifies that eligibility for other group health plan coverage will only create a loss in AEI status once that individual is permitted to enroll in that coverage (i.e., AEI status continues during a waiting period or until the next enrollment opportunity). Please note that the Emergency Relief Notices and the Outbreak Period extensions of deadlines have prolonged enrollment for HIPAA special enrollment events. So if an individual is able to enroll in a spouse’s plan (or another group health plan) due to HIPAA special enrollment extensions, that individual will not be an AEI. This can be a complicated determination.

Moreover, the IRS has explained that an individual who elected and remained on COBRA beyond the initial 18-month period due to a disability determination or a second qualifying event is also an AEI and eligible for the subsidy if the COBRA extended period falls within April 1 to September 30, 2021. For example, a qualified beneficiary who lost coverage 3 years ago due to termination/reduced hours may still be on COBRA as of April 1 due to a second qualifying event (e.g., divorce). The IRS recent Q&As clarified that these individuals will also be AEIs…

What is a Reduction in Hours?

Loss of coverage due to reduction in hours would cause the qualified beneficiary to potentially become an AEI regardless of whether the reduced hours is voluntary or involuntary. Furloughs and strikes are considered reduction in hours, so long as the employee and employer intend on maintaining the employment relationship.

What is an Involuntary Termination?

Many questions have arisen regarding involuntary terminations, such as whether resignations or non-renewal of temporary contracts can be deemed involuntary terminations. The determination of whether a termination is involuntary will be based on the facts and circumstances.

The IRS defines involuntary termination of employment as a “severance from employment due to the independent exercise of the unilateral authority of the employer to terminate employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” See Q&A-24. This includes circumstances where the employee is terminated while the employee is off work due to illness or disability if there was a reasonable expectation that the employee would return to work after he or she had recovered. Moreover, an employee-initiated termination will also constitute an involuntary termination if it is due to employer action that resulted in a material negative change in employment, similar to a constructive discharge.

With regard to resignations or other terminations which are designated as voluntary, if the facts and circumstances indicate that the employee was able and willing to work and that the employer would have terminated the employee absent the resignation or “voluntary“ termination, the IRS will deem this an involuntary termination.

A resignation resulting from a material change in the geographic location of employment for the employee is also deemed an involuntary termination.

An employee who leaves employment due to health concerns, however, is generally not a involuntary termination. Neither is an employee who terminates due to child-care reasons.

Some of these circumstances could result in AEI status if the individual lost coverage due to a reduction in hours. Moreover, if the employer involuntarily and materially reduced the employee’s hours, an employee who terminates employment in response will be deemed to have been involuntarily terminated.

Temporary employees also present an interesting situation. Typically, temporary employees are hired on a short-term contractual basis. Whether the non-renewal of the contract at its expiration is deemed an involuntary termination is again a factual determination.

Q-34. Does an involuntary termination of employment include an employer’s decision not to renew an employee’s contract, including for an employee whose employer is a staffing agency?

A-34. Generally, yes. An employer’s decision not to renew an employee’s contract will be considered an involuntary termination of employment if the employee was otherwise willing and able to continue the employment relationship and was willing either to execute a contract with terms similar to those of the expiring contract or to continue employment without a contract. However, if the parties understood at the time they entered into the expiring contract, and at all times when services were being performed, that the contract was for specified services over a set term and would not be renewed, the completion of the contract without it being renewed is not an involuntary termination of employment.

See Q&A-34.

What Plans is the Subsidy Available For?

The IRS confirms that the subsidy is available for any group health plan subject to COBRA (including certain HRAs, as well as vision-only and dental-only plans), except for health FSAs offered under Code section 125 plans.

Extended Election Period Information

With regard to AEIs who previously had not elected or dropped their COBRA coverage, they may now elect COBRA during the extended election period. This includes spouses and dependents who were covered under the group health plan along with the employee on the day before the involuntary termination or reduced hours resulting in the loss of coverage.

The IRS clarifies that these AEIs may waive COBRA for any period before their election. If COBRA for an HRA is elected during the extended period, the AEI is not entitled to reimbursement of expenses incurred after the qualifying event and before the first period of COBRA coverage beginning on or after April 1, 2021.

Tax Credit Information

Those to whom COBRA premiums are payable (generally the employer for most purposes) are entitled to a refundable tax credit against their share of Medicare taxes. This is now allowed under newly added Code section 6432. Notice 2021-31 includes numerous questions and answers regarding the calculation of this tax credit as well as how to claim it.

Conclusion

This Client Alert sets forth highlights of these Q&As but by no means addresses them all. Moreover, the IRS indicates further guidance may be forthcoming.  Please seek out advice on these complicated issues.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

Fraser Trebilcock is committed to providing you valuable information. Please watch for upcoming alerts on these and other topics.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.


Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.


Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Client Alert: DOL Releases COBRA Model Subsidy Notices – Due By May 31st!

As explained in previous Client Alerts, the American Rescue Plan Act of 2021 (“ARPA”) requires that employers provide 100% COBRA subsidies to certain assistance eligible individuals from April 1, 2021 through September 30, 2021. Not only will COBRA be fully paid for these individuals during this time period, but eligible individuals who had previously declined COBRA (or who had elected COBRA and dropped it) have a second chance to elect and take advantage of the subsidized COBRA coverage. Notices of such subsidies and new election rights are due by May 31, 2021, so time is of the essence.

Summary of COBRA Subsidy

Under ARPA, any assistance eligible individual (“AEI”) shall be treated as having paid the full amount of the COBRA premium from April 1, 2021 through September 30, 2021.

The Department of Labor recently issued additional guidance, FAQs, as well as the model notices, found here:

  • COBRA Premium Subsidy dedicated page, available here;
  • FAQs, available here;
  • Model Notices:
    • General Notice and Election Notice, available here;
    • Notice in Connection with Extended Election Period, available here;
    • Alternative Notice, available here;
    • Notice of Expiration of Premium Assistance, available here;
    • Summary of the COBRA Premium Assistance Provisions, available here.

Assistance Eligible Individuals

AEIs include individuals who, from April 1 through September 30, 2021, are COBRA qualified beneficiaries and:

  • are eligible for COBRA due to involuntary termination (for reasons other than the employee’s gross misconduct) or reduction in hours; and
  • elect such coverage.

However, the 100% subsidy is not available to AEIs for months beginning on or after the earlier of:

  • the date the individual is eligible for coverage under another group health plan (other than excepted benefits only, qualified small employer HRAs, or FSAs);
  • the date the individual is eligible for Medicare; or
  • the date COBRA expires, which is the earlier of: (a) the date the maximum COBRA period ends; or (b) the date the maximum COBRA period should have ended if it had been originally elected or not discontinued.

AEIs must notify the group health plan when they are no longer eligible for subsidies due to being eligible for other group health plans or Medicare. Penalties will ensue if they do not.

New Election Rights

For individuals who do not have a COBRA election in effect as of April 1, 2021 (but could have had they initially elected COBRA or not dropped COBRA coverage early), the ARPA allows such individuals to elect COBRA any time beginning April 1, 2021 and ending 60 days after receiving notice that they are allowed to do so. These notices must be provided to AEIs by May 31, 2021.

Basically, any individual who was eligible for COBRA due to involuntary termination (except for gross misconduct) or reduction in hours after October 1, 2019 could be an AEI. Therefore, it is imperative to determine who these individuals are and to provide them the requisite notice.  In some cases, an individual may only be an AEI for a month or two depending on when the original COBRA maximum period ends.

These new COBRA elections will begin on or after April 1, 2021 and cannot extend beyond the original date of COBRA had it originally been elected or not discontinued. The Department of Labor released FAQs which clarify that an AEI can elect COBRA prospectively after receiving the subsidy notice or can elect it retroactively to April 1, 2021. See Q5 of the FAQs.

Switching Coverage

Any AEI may, within 90 days after notice, elect to switch from one group health plan offered by the plan sponsor (i.e., employer in most cases) to another coverage offered by the plan sponsor, if:

  • the employer permits the switch;
  • the premium for such different coverage does not exceed the premium for coverage in which the individual was enrolled at the time of the qualifying event;
  • the different coverage is also offered to similarly situated active employees of the employer; and
  • the different coverage is not only for excepted benefits, a qualified small employer HRA, or a health FSA.

See Q15 of the FAQs.

New Notice Requirements

Along with traditional COBRA requirements, plan administrators (i.e., employers or TPAs in most cases) must provide clear notices of the ARPA’s COBRA premium assistance / subsidy requirements, new election rights, as well as notices of when the subsidy will expire.

Premium Assistance Notice for New COBRA Qualified Beneficiaries

For AEIs who become entitled to elect COBRA at any point from April 1 through September 30, 2021, the COBRA election notices must include the following:

  • the availability of the premium assistance if eligible;
  • the option to enroll in different coverage (if the employer permits);
  • the forms necessary to establish eligibility for the premium assistance;
  • the name, address, the phone number to contact the plan administrator (or TPA, etc) regarding the premium assistance;
  • a description of the extended election period;
  • a description of the qualified beneficiary’s obligation to notify the plan of their eligibility for other group health plan coverage or Medicare and the penalty if they fail to do so (which, for intentional failures, is sizable under the ARPA); and
  • a description of the right to the subsidized premium as well as the conditions for receiving it.

This can be accomplished by amending the current notices or including a separate document with the notices to describe the above.

The DOL Model General Notice and Election Notice are found here.

The “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021,” which contains information on the subsidy as well as the forms to elect or discontinue the premium assistance, must also be provided with the General Notice and Election Notice. The Summary can be found here.

Premium Assistance Notice for Current COBRA Qualified Beneficiaries / Re-Opened Election Rights Notice

This notice must be provided to those who are currently enrolled in COBRA to advise them of the new subsidy. Additionally, the notice also must be provided to AEIs who previously failed to elect COBRA or discontinued it and who may now elect COBRA under the extended election period.

Notice in Connection with Extended Election Period is found here.

As above, the “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021,” which again contains information on the subsidy as well as the forms to elect or discontinue the premium assistance, must also be provided with the Notice in Connection with Extended Election Period. The Summary can be found here.

These notices must be provided by May 31, 2021.

Subsidy Expiration Notice

Additionally, the plan administrator must provide clear notice when the premium assistance expiration date is approaching, as well as notice that the individual may be eligible to continue COBRA without the premium subsidy or other group health plan coverage (if eligible).

This notice must be provided between 45 days before such expiration and ending 15 days before the expiration date. However, this notice requirement does not apply if the individual will be losing the subsidy due to being eligible for another group health plan or Medicare.

The DOL’s Model Notice of Expiration of Premium Assistance can be found here.

COBRA Penalties

Failure to provide these notices is deemed a failure to meet the COBRA notice requirements. As you may know, failure to provide accurate and timely COBRA notices come with hefty penalties, so compliance is imperative.

Employer Tax Credit

In most cases, employers will be responsible for initially funding these COBRA subsidies and will receive a payroll tax credit for doing so. These tax credits are calculated per quarter, and credits provided may not exceed the Code section 3111(b) taxes imposed on wages paid for employment of all the employer’s employees. However, if the amount of the credit does exceed this amount, it is treated as an overpayment which will be refunded. Additionally, credits may be advanced.

Conclusion

Due to severe penalties for COBRA noncompliance, it is incredibly important for employers to act swiftly to identify individuals who are entitled to subsidies and to ensure notices, procedures, plans and other employee communications are updated quickly. Coordination with third-party administrators, consultants, and attorneys will also be important to ensure legal and tax compliance. It is also essential to keep in mind the expiration date of these legal changes, so that regular COBRA notices and procedures go back into effect after September 30, 2021.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

Fraser Trebilcock is committed to providing you valuable information. Please watch for upcoming alerts on these and other topics.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

FFCRA Paid Leave Extension Until September 30, 2021 with Tax Credits

If you are a private employer with under 500 employees, were you aware you can voluntarily extend FFCRA paid leave from April 1 through September 30, 2021 and still receive a tax credit?

This is now allowed under the American Rescue Plan Act (“ARPA”), which was enacted on March 11, 2021.

However, be cautious. ARPA changes the rules for Emergency Paid Sick Leave (“EPSL”) and Emergency FMLA Extension (“EFMLA”). If these rules are not followed, no tax credit will be available.

Highlights of these changes are below.

Under the EPSL, in addition to the previous 6 reasons for leave, you must allow leave for 3 more reasons, namely:

  • When the employee is seeking or awaiting results of a COVID-19 test or diagnosis;
  • When the employee is obtaining a COVID-19 vaccine;
  • When the employee is recovering from an injury, disability, illness, or condition related to the COVID-19 vaccine.

EPSL also includes a fresh 10-day bank of leave effective April 1, 2021.

Under the EFMLA, which previously was limited to leave needed to care for children due to COVID-19 related school and place of care closures or unavailable care providers, will now include “all” of the EPSL reasons for leave, including the 3 additional reasons.

EFMLA also gets rid of the first 10 days of unpaid leave, starts paid leave immediately, and increases the maximum paid leave over 12 weeks from $10,000 to $12,000.

Additionally, both EPSL and EFMLA provide new non-discrimination rules, stating that tax credits are not available if employers discriminate in favor of highly compensated individuals, full-time employees, or employees based on tenure.

Questions arising include whether employers can pick and choose which parts of this voluntary FFCRA extension to apply.

  • Can we extend paid sick leave without the fresh 10-day bank?
  • Can we extend either EPSL or EFMLA without the new reasons?
  • Can we extend EPSL but not the EFMLA (or vice versa)?

Given the wording of ARPA, picking and choosing whether to apply the new reasons for leave or the fresh 10-day bank does not appear to be an option. Strict compliance is required.

However, whether an employer can extend that EPSL but not the EFMLA (or vice versa) is not as clear. While it appears to be allowable, we are anxiously awaiting updated government guidance and clarification.

In the meantime, if you intend on providing FFCRA paid leave starting April 1st, be prepared to apply it with an “all or nothing” approach.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

Fraser Trebilcock is committed to providing you valuable information. Please watch for upcoming alerts on these and other topics.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.


Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.


Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Client Alert: Dependent Care FSA Relief, In a Big Way

The American Rescue Plan Act (“ARPA”) temporarily amends Code section 129(a) to increase the amount of dependent care expenses that may be excluded from gross income.

Dependent care FSAs have historically been capped at reimbursing $5,000 per calendar year.  However, under the ARPA, and only for taxable years beginning after December 31, 2020 and before January 1, 2022, dependent care FSAs can reimburse over double! The max is now $10,500 (or $5,250 for married individuals filing single returns).

Employers, of course, must amend their plans. Although generally Code section 125 cafeteria plans cannot be amended retroactively, the ARPA states that retroactive amendments are allowed for this purpose as long as: (1) the amendment is adopted no later than the last day of the plan year in which it is effective, and (2) the plan is operating consistent with the term of the amendment as of its effective date.

This will be welcome news for all employers who were struggling with allowing carryovers or grace periods for dependent care FSAs that would exceed the $5,000 max.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

Fraser Trebilcock is committed to providing you valuable information. Please watch for upcoming alerts on these and other topics.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.


Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.


Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Client Alert: The ARPA Brings COBRA Subsidies Back!

The American Rescue Plan Act (“ARPA”) was enacted Thursday, March 11, and will have a major impact on employee health and welfare benefit plans.

In part, the ARPA brings back the requirement to provide COBRA subsidies, although this time premiums are 100% subsidized.

Background

Do you recall back in 2009 when a percentage of COBRA premiums were reimbursed by the government? We called these ARRA COBRA subsidies. The American Recovery and Reinvestment Act of 2009 (ARRA) reduced the COBRA premium in some cases. The premium reductions were available to certain individuals who experienced qualifying events that were involuntary terminations of employment during the period beginning with September 1, 2008 and ending with December 31, 2009. If one qualified for the premium reduction, s/he needed only pay 35 percent of the COBRA premium otherwise due. The premium reduction was available for up to nine months.

Well, COBRA subsidies are back! And employers must pay close attention.

ARPA of 2021: 100% Subsidy

Under the American Rescue Plan Act (“ARPA”), any assistance eligible individual shall be treated as having paid the full amount of the COBRA premium from April 1, 2021 through September 30, 2021.

Moreover, any assistance eligible individual (“AEI”) may, within 90 days after notice, elect to switch from one group health plan offered by the plan sponsor (i.e., employer in most cases) to another coverage offered by the plan sponsor, if:

  • the employer permits the switch;
  • the premium for such different coverage does not exceed the premium for coverage in which the individual was enrolled at the time of the qualifying event;
  • the different coverage is also offered to similarly situated active employees of the employer; and
  • the different coverage is not only for excepted benefits, a qualified small employer HRA, or an FSA.

However, the 100% subsidy is not available to AEIs for months beginning on or after the earlier of:

  • the date the individual is eligible for coverage under another group health plan (other than excepted benefits only, qualified small employer HRAs, or FSAs);
  • the date the individual is eligible for Medicare; or
  • the date COBRA expires, which is the earlier of: (a) the date the maximum COBRA period ends; or (b) the date the maximum COBRA period should have ended if it had been originally elected or not discontinued.

AEIs must notify the group health plan when they are no longer eligible for subsidies due to being eligible for other group health plans or Medicare.

Assistance Eligible Individuals (AEIs) & New Election Rights

AEIs include individuals who, from April 1 through September 30, 2021, are COBRA qualified beneficiaries who:

  • are eligible for COBRA due to involuntary termination (for reasons other than the employee’s gross misconduct) or reduction in hours; and
  • elect such coverage.

However, with regard to COBRA election periods, for individuals who do not have a COBRA election in effect as of April 1, 2021 (but could have had they elected COBRA or not dropped COBRA coverage early), the ARPA allows such individuals to elect COBRA any time beginning April 1, 2021 and ending 60 days after receiving notice that they are allowed to do so…

For these new elections, COBRA will begin on or after April 1, 2021 and cannot extend beyond the original date of COBRA had it originally been elected or not discontinued.

New Notice Requirements

Premium Assistance Notice

For AEIs who become entitled to elect COBRA at any point from April 1 through September 30, 2021, the COBRA election notices must include the following:

  • the availability of the premium assistance if eligible;
  • the option to enroll in different coverage (if the employer permits);
  • the forms necessary to establish eligibility for the premium assistance;
  • the name, address, the phone number to contact the plan administrator (or TPA, etc) regarding the premium assistance;
  • a description of the extended election period;
  • a description of the qualified beneficiary’s obligation to notify the plan of their eligibility for other group health plan coverage or Medicare and the penalty if they fail to do so (which, for intentional failures, is sizable under the ARPA); and
  • a description of the right to the subsidized premium as well as the conditions for receiving it.

This can be accomplished by amending the current notices or including a separate document with the notices to describe the above.

Model notices are to be provided by the Department of Labor within 30 days of the ARPA’s enactment.

Re-Opened Election Rights Notice

For AEIs who previously failed to elect COBRA or discontinued it, but may now elect under the extended election period, the above notice must be provided within 60 days of April 1, 2021.

Subsidy Ending Notice

Additionally, the plan administrator (i.e., the employer or TPA in most cases) must provide clear notice when the premium assistance expiration date is approaching, as well as notice that the individual may be eligible to continue COBRA without the premium subsidy or other group health plan coverage (if eligible).

Notice must be provided between 45 days before such expiration and ending 15 days before the expiration date. This notice requirement does not apply if the individual will be losing the subsidy due to being eligible for another group health plan or Medicare.

Here again, the Department or Labor will be providing model notices, but within 45 days of the ARPA’s enactment.

COBRA Penalties

Failure to provide these notices is deemed a failure to meet the COBRA notice requirements.  As you may know, failure to provide accurate and timely COBRA notices come with hefty penalties, so compliance is imperative.

Employer Tax Credit

In most cases, employers will be responsible for initially funding these COBRA subsidies and will receive a payroll tax credit for doing so. These tax credits are calculated per quarter, and credits provided may not exceed the Code section 3111(b) taxes imposed on wages paid for employment of all the employer’s employees.  However, if the amount of the credit does exceed this amount, it is treated as an overpayment which will be refunded. Additionally, credits may be advanced.

Conclusion

Due to severe penalties for COBRA noncompliance, it is incredibly important for employers to act swiftly to ensure notices, procedures, plans and other employee communications are updated quickly.  Coordination with third-party administrators, consultants, and attorneys will also be important to ensure legal and tax compliance.  It is also essential to keep in mind the expiration date of these legal changes, so that regular COBRA notices and procedures go back into effect after September 30, 2021.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

Fraser Trebilcock is committed to providing you valuable information. Please watch for upcoming alerts on these and other topics.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.


Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.


Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.