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Important - Department of Labor Issues Model COBRA Notice
Employers Must Comply With New Rules Under the American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009 (ARRA) temporarily reduces the premium that certain involuntarily terminated employees must pay to continue their COBRA benefits. The ARRA also gives eligible employees a second opportunity to elect COBRA benefits. The new rules for compliance are complex.
Employees and qualified beneficiaries who are eligible for a premium reduction are those who:
- Are eligible for COBRA continuation coverage at any time between September 1, 2008 and December 31, 2009;
- Elect COBRA coverage;
- Are eligible for COBRA as a result of the employee’s involuntary termination between September 1, 2008 and December 31, 2009; and
Do not exceed the income limits.
Eligible employees pay 35% of their COBRA premium for nine months. In the case of self-funded plans, the employer must pay the remaining 65%, which will be reimbursed to the employer by way of a tax credit on the IRS Form 941, line 12a. Take note that first quarter employment tax returns are due April 30, 2009, and there will be no extension. If the tax credit is less than what the employer paid, then the difference will be reimbursed by the Secretary of the Treasury.
The Department of Labor has issued model notices that employers may use to notify their employees of the new ARRA benefits, which are available on the web at www.dol.gov/ebsa/COBRAmodelnotice.html. The general notice is geared toward employees who have not elected COBRA coverage. The abbreviated notice may be used for employees who have already elected COBRA coverage. Both forms of the notice include information about the ARRA as well as election forms.
Employers who have terminated employees since September 1, 2008 should be aware of the new rules under the ARRA and the new model notices. These rules will affect premiums due in March 2009. Because the ARRA is so new and complex, employers will need to determine how the ARRA applies to their particular circumstances.
This Alert is provided for information purposes only, and does not constitute legal advice. According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2009 Posternak Blankstein & Lund LLP. All rights reserved.