COBRA Subsidy Clarification on Involuntary Termination

April 09, 2009

As previously reported, the stimulus plan provides for a subsidy of COBRA premiums for eligible employees who have lost their employment due to an involuntary termination between September 1, 2008 and December 31, 2009.

Because of the lack of guidance and subsequent confusion of what is considered an "involuntary termination," we are providing the following examples.

Involuntary Termination COBRA Subsidy Eligible

Layoff with right to recall or furlough or other suspension of employment
Termination of employment for cause (except in cases of gross misconduct)
Voluntary acceptance of severance programs (buy-out) if employer has indicated that additional terminations are likely after the buy-out election period ends
Employee's voluntary resignation or retirement, if facts and circumstances indicate that absent such resignation or retirement the employee knew that he or she would otherwise be terminated by the employer
Employee-initiated termination if termination is due to the employer's action that causes a material negative change in the employment relationship
Employee's voluntary termination in response to employer-initiated reduction in hours if it's a material negative change in the employment relationship
Employee's resignation due to material change in employment geographic location
Employer's action to end employee's employment while employee is absent due to a disability
Employer's failure to renew employee's contract upon expiration if employee is willing to continue in employment

Not an Involuntary Termination Not Eligible for COBRA Subsidy (However Eligible for Normal COBRA Coverage)

Reduction in hours (except where hours are reduced to zero e.g. layoff)
Absence from work due to illness or disability (unless employer takes action to terminate employment)
Retirement (except when retirement is in lieu of termination or layoff)
Death of employee (spouse and dependents are eligible for COBRA)

Not a COBRA Qualifying Event to Include Subsidy

Termination for gross misconduct

SESCO has developed a COBRA Administrative Manual to include necessary cover letters, forms as well as COBRA Subsidy documentation and compliance guidance. This manual can be ordered by going to SESCO's online publications store bu clicking here" Or you can contact SESCO to order the manual at 423-764-4127. Questions or concerns as relates to COBRA compliance from SESCO retainer clients and association members can be directed to Phil Richards at 423-764-4127 or phil@sescomgt.com.