- U.S. Department of Labor Liberally Interprets COBRA Subsidy Extension Provisions
- February 10, 2010 | Author: Mary V. Bauman
- Law Firm: Miller Johnson - Grand Rapids Office
On Friday, January 22, 2010, representatives of the U.S. Department of Labor and the IRS participated in a web seminar during which they provided additional guidance regarding the extension of the COBRA premium subsidy provisions in the Department of Defense Appropriations Act, 2010 (DOD Act). Their comments make it clear that both the IRS and the Department of Labor are taking a very expansive approach in interpreting the provisions of the DOD Act.
Expansive Definition of Transition Period
As explained in our first Client Alert on this topic, the DOD Act provides that an individual whose nine-month COBRA subsidy period expired before December 19, 2009 (the date the DOD Act was passed) is entitled to additional time to retroactively pay premiums for the “period of coverage” beginning immediately after the nine-month period expired. Under the DOD Act, an individual in this situation is described as having a “transition period.” The DOD Act provides that an individual in a transition period has until the later of February 17, 2010 or 30 days after the date notice of the extension of the premium subsidy is provided to pay the retroactive premiums.
A period of COBRA coverage is generally one month. Therefore, the literal language of the DOD Act only provides that a person whose COBRA subsidy period expired as of November 30, 2009 has additional time to retroactively pay the premium for December 2009 at the subsidized rate without losing coverage.
However, the Department of Labor and the IRS are taking the position that an individual’s transition period starts immediately after his or her nine-month subsidy period ends and continues until the date on which the individual receives notice of the extension of the premium subsidy. The following examples show how this will work:
- Assume an individual’s nine-month subsidy period expired November 30, 2009 and the individual is not provided with notice of the extension until February 15, 2010. That individual’s transition period runs from December 1, 2009 through March 17, 2010 (30 days from February 15, 2010). This means that the individual will have until March 17, 2010 to retroactively pay the reduced premium for December 2009, January 2010 and February 2010.
- Assume an individual’s nine-month subsidy period expires on January 31, 2010 and the individual is not provided with notice of the extension until February 15, 2010. That individual’s transition period runs from February 1, 2010 through March 17, 2010 and the individual will have until March 17, 2010 to retroactively pay the reduced premium for February 2010.
An individual who receives notice of the extension before his or her nine-month subsidy period would have expired does not get additional time to pay his or her COBRA premiums beyond the normal 30-day grace period for premium payment. For example, an individual who receives notice of the extension on February 17, 2010 whose nine-month period would have expired on February 28, 2010 does not have a transition period and does not get extra time to pay his or her premiums.
It is possible that a qualified beneficiary who experienced a qualifying event that was a termination of employment in December 2009 received a COBRA election notice that did not include any information regarding the premium subsidy. The U.S. Department of Labor representative stated that any qualified beneficiaries who received such a notice need to get a new complete updated election notice and a new 60-day election period from the date the updated notice is provided.
On the other hand, the representative stated that a qualified beneficiary who received an election notice with incorrect subsidy information in it could be provided with a supplement describing the premium subsidy rather than receiving a new notice. In this case, it appears that the qualified beneficiary’s 60-day COBRA election period is not extended.
The U.S. Department of Labor has issued updated model notices. The model notices can be found at: www.dol.gov/ebsa/COBRAmodelnotice.html.
Employer Tax Credits for Premium Subsidy
IRS representatives clarified during the seminar that where the qualified beneficiary’s 35% of the COBRA premium for coverage in 2009 is paid in 2010 (by qualified beneficiaries in the transition period), the employer must take the payroll tax credit for the remaining 65% of the premium in 2010. The credit can’t be taken until the qualified beneficiary pays his/her 35% of the premium.
On the other hand, the IRS representative also stated that where a qualified beneficiary paid the full premium in December 2009 (because the nine-month subsidy period expired as of November 30, 2009), the plan administrator should treat that qualified beneficiary as having paid his/her 35% of the premium for December 2009, and take credit for the remaining 65% of the premium on the Form 941 for the last quarter of 2009. If the remainder of overpayment is credited toward the qualified beneficiary’s 35% share of the premium for January and February 2010, the employer would take the payroll tax credit for those months for the first quarter of 2010.