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Compliance Briefing Center


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to Manage Benefits}

Compliance Alert – ARRA Update

IRS Changes Course with New IRS ARRA COBRA Subsidy FAQ

This briefing is intended to keep you up-to-date on developments related to the ARRA COBRA subsidy as they happen. Last week the IRS issued a new COBRA FAQ and posted it to its ARRA subsidy Web site. The new FAQ is surprising in that it contradicts in places the literal interpretation of the statutes and previous IRS guidance. 

Key Departures from Previous Guidance, with Respect to the Treatment of:

  • Seasonal Employees. Now, the failure to offer employment to a seasonal employee after the end of the initial employment period constitutes an involuntary termination of employment if the seasonal employee is otherwise willing and able to work. (see AE 28)
  • Elected Officials. An elected official who runs for reelection and is voted out is “involuntarily” terminated for purposes of the subsidy.  Likewise, an elected official who cannot run again due to term limits is involuntarily terminated.  On the other hand, an elected official who chooses not to run is not involuntarily terminated at the end of his term. (See AE 29-32)
  • Military Personnel. Military leave, regardless of how the employer treats it (e.g. leave or termination), is considered an involuntary termination of employment for purposes of the subsidy rules. (See AE -33)
  • Second Elections. With regard to an individual who makes a second election in accordance with the subsidy rules, the employer may allow the individual to start coverage at a date later than the “first period of coverage beginning on or after 2/17″ (e.g. March 1); however, if the employer allows a later effective date, the period between March 1, for example, and the later effective date is considered a “break in coverage” for purposes of HIPAA’s pre-existing/creditable coverage rules. (see AE 35)

Clarifications and Confirmations

  • Employer’s Payroll Tax Credit. The employer’s payroll tax credit with regard to an individual for whom the employer made a reasonable determination that the termination was involuntarily will generally not be challenged by the IRS.
  • Multi-employer Plans. If a plan sponsored by an employer covers employees of multiple employers in the same controlled group, the former employer of the employee generally takes the payroll tax credit.
  • Reporting Requirements. Employers are not required to report information to an assistance eligibility individual (e.g. on the W-2).