EMPLOYER CLIENT ALERT:      5/01/2009

Department of Labor and the Internal Revenue Service Issues Long-Awaited Guidance and Forms for Employers under the New Economic Stimulus Laws

The American Recovery and Reinvestment Act of 2009 (“ARRA”), also known as the economic stimulus plan, signed by President Obama on February 17, 2009, provides federal subsidies to help newly unemployed workers cover the cost of health insurance premiums under COBRA or state mini-COBRA laws which apply to Employers with fewer than twenty (20) Employees. The subsidy is equal to 65% of the amount the Employee is otherwise required to pay for continued coverage. The subsidy is generally provided in the form of a tax credit to the Employer or the health care insurer.
Since then, Employers and human resource personnel have been anxiously awaiting guidance from the United States Department of Labor (“DOL”) regarding their new obligations to Employees under the Economic Stimulus Plan.
The wait is finally is over. The DOL and the Internal Revenue Service (IRS) just released guidance for Employers on how to implement federal the subsidies. In addition, the DOL also issued four model notices for Employers to use in discharging their notice and reporting obligations.

Q. What Employees Are Eligible for the Subsidy under the ARRA?

     A. Those Employees (and certain of their beneficiaries) who:

1. Were involuntarily terminated from employment during the period between September 1, 2008 through December 31, 2009; and
2. 2. Whose modified adjusted gross income does not exceed certain thresholds in 2009; and
3. 3. Who are not otherwise eligible for other group health coverage or Medicare, are eligible for a subsidy for COBRA premiums.

The thresholds are as follows:

•  Individuals whose income exceeds $145,000 (or $290,000 for joint filers) are not eligible for the subsidy and will be required to repay it through an increase in their tax liability;
• * Employees with modified adjusted gross incomes of between $125,000 and $145,000 (or between $250,000 and $290,000 for joint filers) are entitled to a proportionately reduced subsidy.

Q. What are the Employer’s Obligations under the ARRA?

   A. Employers have the following obligations under ARRA:

1. Employers have until April 18, 2009 (60 days after the enactment of ARRA) to inform potentially eligible workers (all individuals who had a COBRA qualifying event after September 1, 2008) of their options regarding COBRA assistance;
2. Employers must also notify potentially eligible former workers who initially declined coverage under COBRA as the decision to decline COBRA coverage was made before the subsidy was available;
3. The Employer must also supply waiver forms to Employees who know they are not eligible for the subsidy and who wish to waive the subsidy because of ineligibility or otherwise.

Q. Specifically, What Does the Notice to Employees Explain?

    A. The notice must advise the Employee that:

1. He or she has until June 16, 2009 to elect coverage at reduced rates;
2. The election can be made by individuals currently receiving COBRA coverage as well as by Employees who previously declined COBRA coverage or discontinued it;
3. The group health plan cannot impose any “pre-existing condition” limitations which would otherwise apply because of a cessation of coverage after October 1, 2008 to an individual entitled to a special election; and
4. Former Employees who apply to their group health plan for the subsidy and who are denied coverage, can appeal their denial directly to the Department of Labor.

Q. Does the ARRA Apply to Employees of Employers with fewer than 20 Employees?

   A. Yes. Employers who are subject to New Jersey’s mini-COBRA law, N.J.S.A. 17B:27A-27, are subject to the ARRA requirements as well.

Q. How Does the Subsidy Affect Severance Arrangements for Employees Who are Involuntarily Terminated?

A. The subsidy is not available to involuntarily terminated Employees whose Employers pay the Employee’s health care premiums. The subsidy is only partially available to involuntarily terminated Employees whose Employers pay a portion of the Employee’s total health care premium.
The subsidy is equal to the amount to the amount the Employee is otherwise responsible for, and the Employee is required to pay the other 35%.

Q. Where can the Employers get the Forms and More Information?

A. The four model notices can be downloaded on http://www.dol.gov/ebsa/cobra.html. In addition, detailed information and 54 questions and answers can be found at http://www.irs.gov/pub/irs-drop/n-09-27.pbf

If you have any questions about any of the issues raised in this Employer Alert, or any employment and labor issue or concern, please call Thomas Ryan, Esq. or Linda Day, Esq. of Laddey, Clark & Ryan’s Employment and Labor Practice Group at (973) 729-1880. If you do not wish to receive updates concerning developments in the law which could affect your business in the future, please indicate your preference below, and we will take you off our e-mail list.

The Employment and Labor Practice Group

Thomas N. Ryan, Esq.	Michael S. Garofalo, Esq.	Ursula H. Leo, Esq.	Linda Day, Esq.