IRS Hints at What an “Involuntary Termination” Means for Purposes of ARRA

March 27, 2009

At a March 24 webinar conducted by the IRS and the Department of Labor on the new COBRA provisions in the American Recovery and Reinvestment Act of 2009 (“ARRA”), IRS representatives gave insight into the IRS position on what is an “involuntary termination” for purposes of the COBRA subsidy. Group health plan sponsors should be ready for formal IRS guidance on this issue when it is issued (which is expected to be soon), because it appears that the phrase “involuntary termination” will be interpreted fairly liberally.
Examples of an “involuntary termination” under the new COBRA rules as mentioned by the IRS at its webinar include:

An employee quits after a “material negative change in employment” such as a reduction in hours (the employee must quit before coverage is lost due to the reduction in hours however);
An employee is laid off or told not to report to work for a period of time, even if there is an expectation that the employee will return to work;
An employee quits after a plant shutdown rather than accept a relocation offer from the same employer; and
Employer initiated “resignations.”

As we mentioned in our alert on March 19, the DOL issued model notices to assist employers in satisfying their obligations to advise potential assistance eligible individuals of their rights under COBRA as amended by ARRA. One important clarification made by the DOL during the March 24 webinar is its position that the “abbreviated general notice” which is supposed to be given to qualified beneficiaries who had a qualifying event since September 1, 2008 and who are still on COBRA, should be distributed to ALL qualified beneficiaries, regardless of the type of qualifying event. This means even those whose qualifying event was a loss of dependent status should get the “abbreviated general notice.”
If you have questions concerning this e-alert or the COBRA provisions in ARRA, please contact Mary Ellen Schill, the author of this article, or any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.

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