Category: Human Resources

IRS Issues New Guidance on COBRA Subsidy

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The Internal Revenue Service has issued Notice 2009-27 (.pdf), providing new guidance relating to the COBRA subsidy made available under the American Recovery and Reinvestment Act of 2009. Notice 2009-27 provides guidance on the definition of involuntary termination and assistance eligible individual. It also provides more detail on calculating the subsidy and determining the election periods.

Notice 2009-27 defines “involuntary termination” as

…  a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services. An involuntary termination may include the employer’s failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services. In addition, an employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee. … The determination of whether a termination is involuntary is based on all the facts and circumstances….

The notice goes into much greater detail about “involuntary termination” if you are still unsure.

Notice 2009-27 defines “assistance eligible individual.”

An individual must be an assistance eligible individual to be eligible for the premium reduction. Under ARRA, an assistance eligible individual is a qualified beneficiary as the result of an involuntary termination that occurred during the period from September 1, 2008, through December 31, 2009, is eligible for COBRA continuation coverage at any time during that period, and elects the COBRA continuation coverage. In order to be a qualified beneficiary, the individual must be covered under the group health plan on the day before the involuntary termination (except in the case of a child born to or adopted by a covered employee during a period of COBRA continuation coverage or in certain circumstances where coverage was wrongfully denied the individual (see section 54.4980B-3, Q&A-1)). For purposes of Federal COBRA, an individual who loses group health coverage in connection with the termination of a covered employee’s employment by reason of the employee’s gross misconduct is not a qualified beneficiary and thus cannot be an assistance eligible individual.

Notice 2009-27 provides some more information on calculating premium reduction (questions 20 to 26), the coverage eligible for premium reduction (questions 27 to 29), the beginning of the premium reduction period (questions 30 to 32), the end of the premium reduction period (questions 33 to 44), the recapture of premium assistance (questions 45 to 46), and the extended election period (questions 47 to 55)

Although Notice 2009-27 answers many of the open questions, there are still some unanswered questions:

  • What mechanism should Multiemployer Plans use for collection of the premium reimbursement?
  • If an assistance eligible individual has paid for individual coverage through March and April of 2009, may he re-instate his COBRA as of May 1, 2009? If so, is he entitled to nine months of premium assistance starting May 1, 2009?
  • What penalties apply to employers who provide the subsidy, intentionally or unintentionally, to qualified beneficiaries who are not Assistance Eligible Individuals?

See also:

Limiting Access to the Courts in a Collective Bargaining Agreement

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The United States Supreme Court handed a clear win for employers in 14 Penn Plaza LLC v. Pyett. Members of the Service Employees International Union, were employed to provide security services to a New York City office building owned and managed by 14 Penn Plaza. A provision in the collective bargaining agreement prohibited discrimination, but  stated “all such claims shall be subject to the [applicable] grievance and arbitration procedures… as the sole and exclusive remedy for violations.”

After some of the Union employees were reassigned to different responsibilities the Union alleged that these reassignments were based on unlawful age discrimination and violated provisions of the collective bargaining agreement. The Union filed complaints of age discrimination with the Equal Employment Opportunity Commission and ended up in federal court. The building owner wanted the court to compel arbitration.

The Supreme Court concluded that a union may bargain for a mandatory arbitration provision related to individual employment rights. As a result, the Court gutted the precedent set in its 1974 decision, Alexander v. Gardner-Denver. That case concluded that a collective bargaining agreement could not waive covered workers’ rights to a judicial forum. This new Penn Plaza Court decision distinguished Gardner-Denver by stating that the collective bargaining agreement provision at issue in Penn Plaza expressly covered both statutory and contractual discrimination claims.

The use of collective bargaining agreements is outside my area of expertise, but this case caught my eye because it involved a commercial property owner and its union employees.

In addition, this decisions could be a silver lining to the Employee Free Choice Act for those employers who are opposed to it. The EFCA, in its current form, would allow unions to more easily organize because it eliminates the secret ballot requirement. In light of this Penn Plaza decision, employers that are successful in negotiating comprehensive mandatory arbitration provisions into a collective bargaining agreement may at least reap the benefit of avoiding jury trials in favor of arbitrations of discrimination and other employment-related claims. Of course the unions are aware of this decision and may resist sweeping mandatory arbitration provisions.

But don’t take my word on it. Consult your labor and employment lawyer.

See also:

The New COBRA Subsidy: An Update for Employers

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The Employee Benefits and Executive Compensation group at Bingham McCutchen LLP put together a nice summary of the steps employers need to take in light of the changes to COBRA under the the American Recovery and Reinvestment Act of 2009. They dive into many of the details of who is eligible for the subsidy and how the reimbursement process works.

See my previous posts:

In the interest of full disclosure, I am related to one of the authors of the Bingham legal alert.

COBRA Expansion and Premium Subsidy Under The 2009 Stimulus Act

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Jack Eiferman, Director, Goulston & Storrs, specializes in healthcare and Adrienne Markham, Director, Goulston & Storrs, specializes in employment law gave this webinar and I thought I would share my notes.

Adrienne pointed out that federal COBRA is only for companies with more than 20 employees. Massachusetts, like many other states, have a mini-COBRA that applies to companies with fewer than 20 employees.

The ARRA added the new temporary COBRA subsidiary that applies to anyone “involuntarily terminated” since September 1, 2008 and prior to the end of 2009. There is an exception if you are involuntarily terminated for gross misconduct. Then you are not eligible for COBRA or the subsidiary.

Unfortunately the law does not define “involuntarily terminated.” If you want to get the subsidy you need to properly document the termination.

Employers are allowed to add a 2% administrative premium on COBRA coverage. The subsidy is 65% of the health care insurance costs. Employer gets a dollar for dollar credit on the payroll tax for the subsidy.

The subsidy benefit is currently for 9 months. (Although there is some discussion on extending the duration.) COBRA coverage is for eighteen months and remains unchanged.

If you already received checks for COBRA coverage. You can either refund the overpayment to the employee or credit the excess payments to future payments (as long as the catch-up within 120 days).

For COBRA eligible employees who did not elect COBRA or dropped the coverage, they get a second bite at the apple. You need to send a notice to those employees giving them another chance at electing COBRA coverage.

It also applies to other health coverage like dental and vision, as well as medical coverage. It does not apply to health care reimbursement plans.

The employer cannot pay the 35% payable by the employee. The employee or anyone except the employer must pay the 35%. The employer cannot claim their 65% credit until the employee pays their 35%.

There are some income requirements for eligibility. But this is the responsibility of the employee, not the employer.

What to do?

  • Identify all former employees who were subject to COBRA triggering events from September 1, 2008 to February 17, 2008.
  • Identify those who are eligible.
  • Send the right notice.
  • Manage the payment and election process.

It is important to have a compliance program for tracking eligible employees, premium payments, tax filings, etc.

See:

Model COBRA Subsidy Notices Released

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The American Recovery and Reinvestment Act of 2009 included some relief for laid-off employees. One of the biggest is a 65% subsidy for the payment of health plan payment from the government for certain eligible participants in COBRA health plan continuation coverage. ARRA mandates that health plans notify certain current and former participants and beneficiaries about this premium reduction.

The Department of Labor created and published model notices to help plans comply with these new requirements. Each model notice is designed for a particular group of qualified beneficiaries and contains information to help satisfy ARRA’s notice provisions.

General Notice – Full version (.doc) Plans subject to the Federal COBRA provisions must send the General Notice to all qualified beneficiaries (not just covered employees) who experienced a qualifying event at any time from September 1, 2008 through December 31, 2009, regardless of the type of qualifying event. This full version includes information on the premium reduction as well as information required in a COBRA election notice.

General Notice – Abbreviated version (.doc)  This version may be sent instead of the full version to individuals who experienced a qualifying event sometime on or after September 1, 2008, have already elected COBRA coverage, and still have it. This abbreviated version of the General Notice includes the same information as the full version regarding the availability of the premium reduction under ARRA, but does not include the COBRA coverage election information.

Alternative Notice (.doc) Insurance issuers that provide group health insurance coverage must send this Alternative Notice to persons who became eligible for continuation coverage under a State law. Continuation coverage requirements vary among States, and issuers should modify this model notice as necessary to conform it to the applicable State law. Issuers may also find the model Alternative Notice or the abbreviated model General Notice appropriate for use in certain situations.

Notice in Connection with Extended Election Periods (.doc) Plans subject to the Federal COBRA provisions must send this Notice to any assistance eligible individual (or any individual who would be an assistance eligible individual if a COBRA continuation election were in effect) who:

1. Had a qualifying event at any time from September 1, 2008 through February 16, 2009; and
2. Either did not elect COBRA continuation coverage, or who elected it but subsequently discontinued COBRA.

This notice includes information on ARRA’s additional election opportunity, as well as premium reduction information. This notice must be provided by April 18, 2009.

Unfortunately, the new information does not provide guidance on the definition of what constitutes an “involuntary termination” for purposes of the new COBRA premium subsidy. I have heard that the IRS is working on this guidance and may make it available in the next two weeks.

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Ex-Employees Admit to Stealing Company Data

symantecYou ex-employees are probably stealing your company’s data on their way out the door.  In a study by Symantec Corp. and Ponemon Institute, they found that 59 percent of ex-employees admit to stealing confidential company information: More Than Half of Ex-Employees Admit to Stealing Company Data According to New Study.

That employees are taking data is not surprising. That the percentage is this large may be a surprise to some of you. (It also not a surprise that Symantec also has a product to help limit this kind of data loss.) But in these economic times with many company’s downsizing, it is important to think about possible data loss.

Additional Survey Findings:

  • 53 percent of respondents downloaded information onto a CD or DVD.
  • 42 percent downloaded information onto a USB drive.
  • 38 percent sent attachments to a personal e-mail account.
  • 82 percent of respondents said their employers did not perform an audit or review of paper or electronic documents before the respondent left his/her job.
  • 24 percent of respondents had access to their employer’s computer system or network after their departure from the company.

The Ponemon Institute conducted the web-based survey in January 2009, polling nearly 1,000 adult participants located in the United States who left an employer within the past 12 months.

See also:

More Guidance on Extended COBRA Coverage under ARRA

IRS_LogoAs part of the enormous stimulus package in the American Recovery and Reinvestment Act of 2009, the federal government included some relief for laid-off employees: COBRA Coverage Under ARRA. Some of the unanswered questions are starting to be answered.

The IRS has posted information: COBRA Health Insurance Continuation Premium Subsidy, with COBRA: Answers for Employers.

The COBRA subsidy amount is reimbursed as a tax credit. Employers should use the updated Form 941 (.pdf), Employer’s Quarterly Federal Tax Return, to report their COBRA premium assistance payments. So employers have to come out of pocket for the health insurance premiums for their “involuntarily terminated” employees, but get a reduction on their quarterly employment taxes. Line 12a on Form 941 (.pdf) is for the COBRA premium assistance payments.

The Department of Labor has put together a collection of information on COBRA Continuation Coverage Assistance Under The American Recovery And Reinvestment Act Of 2009. That site has more detailed information on employee eligibility.

See also:

How Not To Fire Someone for Workplace Fraud

Staples fired sales director Alan S. Noonan was fired for padding his expense report. Executive Vice President Jay Baitler sent an e-mail to approximately 1,500 employees explaining the reason for the firing.

The e-mail contained no untruths, but Mr. Noonan sued for defamation anyhow.

Unfortunately for Staples, truth is not a defense in Massachusetts if the challenged statement was communicated with actual malice according to the 1st U.S. Circuit Court of Appeals in its recent decision Noonan v. Staples (posted at JD Supra).

The 1st U.S. Circuit Court of Appeals looked at G. L. c. 231, Section 92, which says that truth is a defense to libel “unless actual malice is proved.” However, in a 1998 case, Shaari v. Harvard Student Agencies, the Supreme Judicial Court ruled that statute unconstitutional as applied to matters of public concern.

See more:

COBRA Coverage Under ARRA

As part of the enormous stimulus package in the American Recovery and Reinvestment Act of 2009, the federal government included some relief for laid-off employees.

California Labor and Employment Law Blog

Mark Spring discusses the COBRA subsidy in ARRA over at the California Labor and Employment Law Blog: The Stimulus Bill’s Impact on COBRA.

The biggest change to COBRA is a 65% subsidy from the government for certain eligible COBRA participants.  The 65 percent subsidy is advanced by the employer and then recouped by a credit against payroll tax submissions.  The subsidy is available to eligible individuals for up to nine months.

Recent Changes to the ADA and FMLA

goodwinprocter_logoGoodwin Procter presented a webinar on recent changes to the Americans with Disability Act and the Family and Medical Leave Act. Rob Hale moderating the presentation.

Heidi Goldstein Shepherd led off with a background on the ADA. The key concept for employers is that it is up to the employee to request a “reasonable accommodation” by the employer. New amendments to the ADA went into effect on January 1.

The new term is “substantially limited” which is supposed to be defined by the EEOC. Unfortunately, the EEOC has not promulgated this definition.

The question of disability is still considered on a case-by-case basis. Employer needs to determine if the accommodation requested is reasonable. Employer is not required to lower quantitative or qualitative standards as a “reasonable accommodation.” Conduct standards can be enforced if  “job related and consistent with business necessity” and applied consistently.

Steve Feldstein looked closer at the EEOC enforcement guidance. An employee who first requests the accommodation during a discipline process still remains subject to the discipline. If you go to fire a person and person first claims a disability, it is too late for the employee.

An employer should not raise the possibility of disability in discussing a performance problem. Leave it up to the employee.

California has a different standard than the federal law for disabilities. It is not a “substantial impairment of a major life activity.” It is just an “impairment of a major life activity.”  In making a reasonable accommodation it requires you to engage in an interactive process.

Rob Hale moved on to the new FMLA regulations. There were many changes and extensive. But the substance did not change much. Rob focused on three types of changes: (1) National Defense Re-Authorization act and military leaves, (2) some substantive leave changes, and (3) changes in the notice and information right.

The military change only applies to reserve and national guard being called up for military service.  Allows time off for when the soldier returns. Also allows leaves for childcare when a family member leaves for service.

Rob moved on to new substantive changes.

  • There is longer period for counting the 12 months of service
  • If the person is out on leave that could count as part of the 12 months of service
  • Serious health condition standard changed for 2 doctors visits, now within 30 days
  • Paid leave during FMLA leave, then the paid leave provisions overrule so you can get kicked out the paid leave to the unpaid FMLA leave
  • Intermittent leave allows you to count part of day absence as a full day absence under the “physical impossible rule”  (Rob used the example of a clean room worker.)
  • You can deny a perfect attendance bonus if the employee was out on FMLA leave.
  • Releases of past FMLA claims are now permissible. (You cannot release future FMLA claims.)

Rob moved on to the new notice changes. There is a new poster you need to put up. (Ours is up.) Rob points out that you can also post it electronically.

The designation notice needs to be delivered in five days. Employee notifications have largely not changed. They have to state that they want to take a FMLA leave. Saying you want to take time off to take care of a sick child (etc.)  may not be enough. There is more pressure on frontline managers to determine if the reason is FMLA eligible.

Employer can impose requirements on FMLA request that they do with other leave request. So you can require written notice or require them to call a certain number.

There are new forms for medical certification. There are also some new procedures for completing the form and what to do if the form is incomplete.

Rob emphasized the need to have a leave counting period. Employers need to designate the 12 month period during which they can use the 12 weeks of leave.  He has seen some employees win suits by using an alternative counting method.

Steve pointed out that California has an alternative law covering medical leave: California Family Rights Act.  California allows leave for domestic partners (registered with the state and living in the same residence). Pregnancy gives you a longer time off.  Interestingly, the domestic partner situation allows a longer time off because you can take the CFRA leave and then the FMLA since the domestic partner leave is not recognized under the FMLA.

Goodwin also made some materials available: