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The U.S. Department Of Labor And Internal Revenue Service Release Guidelines For New COBRA Rules Under The American Recovery And Reinvestment Act Of 2009 (ARRA)

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March 27, 2009

The U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) have recently published guidelines to help employers administer COBRA benefits under the American Recovery and Reinvestment Act of 2009 (ARRA). The DOL has published the mandatory COBRA notices to send to terminated employees that qualify for the new 65% subsidy under ARRA. The IRS has also issued guidelines that explain how employers can claim the tax credit for the 65% subsidy. (Use the following link, http://www.dol.gov/ebsa/cobra.html, or search on the DOL website, www.dol.gov, for "COBRA Assistance under ARRA".)

The DOL website has sample notification letters that employers should use to inform former employees and qualified beneficiaries of this new COBRA subsidy. Eligible individuals are those employees who were involuntarily terminated or laid off, other than for gross misconduct, between September 1, 2008 and December 31, 2009 and otherwise qualify for COBRA benefits. ARRA also gives former employees who previously declined coverage an option to now elect COBRA coverage. Different notices are required depending on whether the eligible individual is currently receiving COBRA benefits. The DOL website contains a "General Notice" and "Notice In Connection With Extended Election Periods." (Use the following link, http://www.dol.gov/ebsa/COBRAmodelnotice.html, or search on the DOL website, www.dol.gov, for "COBRA Model Notices".)

The IRS has published new information on its web site, including a Q&A fact sheet, to help employers claim the tax credit. Employers should have procedures in place to maintain the supporting documentation for claiming the tax credit (i.e. information on payment of the premiums and records of involuntary termination.) The IRS guidelines now explain how the employer can receive this tax credit against payroll taxes for the cost of the subsidy. The IRS guidelines discuss administration and eligibility, form preparation, reporting and documentation, taxability and claiming the tax credit. (Use the following link, http://www.irs.gov/newsroom/ article/0,,id=204335,00.html, or search on the IRS website, www.irs.gov, for "IRS Information Related to the American Recovery and Reinvestment Act of 2009" for general information.)

Employers and plan administrators should have already implemented procedures and identified eligible Individuals for the subsidy and their last known addresses. Employers and plan administrators should now take the following steps:

  • Obtain the model notices from the DOL website to send to eligible individuals under ARRA (see website above);
  • Implement procedures and provide written notice to eligible individuals (which includes covered employees and qualified beneficiaries);
  • Become familiar with the IRS guidelines for obtaining the tax credit to ensure that all proper documentation is being maintained for the employer's accountants (use the following link, http://www.irs.gov/newsroom/article/0,,id=204708,00.html, or search on the IRS website, www.irs.gov, for "COBRA Health Insurance Continuation Premium Subsidy" for the question and answer sheet).

Employers and plan administrators should take prompt action to ensure compliance with this new federal legislation (ARRA). Employers with questions about compliance with ARRA should consult with an employment attorney. Mr. Shalauta specializes in employment law at Burnham Brown. Mr. Shalauta can be reached at (510) 835-6716 and ashalauta@burnhambrown.com.

March 27, 2009

The U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) have recently published guidelines to help employers administer COBRA benefits under the American Recovery and Reinvestment Act of 2009 (ARRA). The DOL has published the mandatory COBRA notices to send to terminated employees that qualify for the new 65% subsidy under ARRA. The IRS has also issued guidelines that explain how employers can claim the tax credit for the 65% subsidy. (Use the following link, http://www.dol.gov/ebsa/cobra.html, or search on the DOL website, www.dol.gov, for "COBRA Assistance under ARRA".)

The DOL website has sample notification letters that employers should use to inform former employees and qualified beneficiaries of this new COBRA subsidy. Eligible individuals are those employees who were involuntarily terminated or laid off, other than for gross misconduct, between September 1, 2008 and December 31, 2009 and otherwise qualify for COBRA benefits. ARRA also gives former employees who previously declined coverage an option to now elect COBRA coverage. Different notices are required depending on whether the eligible individual is currently receiving COBRA benefits. The DOL website contains a "General Notice" and "Notice In Connection With Extended Election Periods." (Use the following link, http://www.dol.gov/ebsa/COBRAmodelnotice.html, or search on the DOL website, www.dol.gov, for "COBRA Model Notices".)

The IRS has published new information on its web site, including a Q&A fact sheet, to help employers claim the tax credit. Employers should have procedures in place to maintain the supporting documentation for claiming the tax credit (i.e. information on payment of the premiums and records of involuntary termination.) The IRS guidelines now explain how the employer can receive this tax credit against payroll taxes for the cost of the subsidy. The IRS guidelines discuss administration and eligibility, form preparation, reporting and documentation, taxability and claiming the tax credit. (Use the following link, http://www.irs.gov/newsroom/ article/0,,id=204335,00.html, or search on the IRS website, www.irs.gov, for "IRS Information Related to the American Recovery and Reinvestment Act of 2009" for general information.)

Employers and plan administrators should have already implemented procedures and identified eligible Individuals for the subsidy and their last known addresses. Employers and plan administrators should now take the following steps:

  • Obtain the model notices from the DOL website to send to eligible individuals under ARRA (see website above);
  • Implement procedures and provide written notice to eligible individuals (which includes covered employees and qualified beneficiaries);
  • Become familiar with the IRS guidelines for obtaining the tax credit to ensure that all proper documentation is being maintained for the employer's accountants (use the following link, http://www.irs.gov/newsroom/article/0,,id=204708,00.html, or search on the IRS website, www.irs.gov, for "COBRA Health Insurance Continuation Premium Subsidy" for the question and answer sheet).

Employers and plan administrators should take prompt action to ensure compliance with this new federal legislation (ARRA). Employers with questions about compliance with ARRA should consult with an employment attorney. Mr. Shalauta specializes in employment law at Burnham Brown. Mr. Shalauta can be reached at (510) 835-6716 and ashalauta@burnhambrown.com.