eTrends - Additional COBRA Subsidy Guidance Released

Both the IRS and DOL have released additional guidance regarding COBRA premium subsidies available under the American Recovery and Reinvestment Act of 2009 ("ARRA"). Of particular interest to employers is the IRS's detailed guidance regarding the definition of an "involuntary termination" for COBRA purposes. As discussed in our earlier eTrends, the 65% COBRA premium subsidy under ARRA is available only to those individuals (plus their covered dependents) experiencing an involuntary termination of employment and a loss of coverage from September 1, 2008 through December 31, 2009.

The first 9 of the 58 Q&As in IRS Notice 2009-27 are devoted to helping employers determine whether an individual has experienced an involuntary termination for ARRA purposes. In Q&A-1, the IRS provides that an involuntary termination is defined to mean "a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee's implicit or explicit request, where the employee was willing and able to continue performing services." Expanding on the general definition, the Notice provides that, under the right facts and circumstances, involuntary terminations may include:

  • An employer's failure to renew an expiring employment contract if the employee is willing and able to execute a new contract on similar terms;
  • Employee-initiated terminations for "good reason" due to employer actions creating material negative changes in the employment relationship;
  • Lay-offs, furloughs, or other complete suspensions of employment (i.e., reductions to zero hours) resulting in loss of group health coverage, even if the furlough or suspension is temporary or employees remain subject to recall;
  • An employee's voluntary termination due to a reduction in hours (but not complete suspension or reduction to zero hours) if the partial reduction results in a loss of group health coverage thereby creating a material negative change in the employment relationship;
  • An Employer's action terminating an individual's employment status due to an individual's absence from work (or failure to return to work) due to illness or disability;
  • Retirement by an employee when, absent such retirement, the employer would have terminated the employee's services and the employee had knowledge that he or she would be terminated; and
  • Termination of employment elected by an employee in return for a severance package (a "buy out") where the employer has indicated that after the offer period for the "voluntary" severance package, a certain number of remaining employees will be terminated.

In addition to the new guidance from the IRS, the DOL expanded its prior FAQs to include a number of helpful examples reviewing distribution of the various COBRA notices under ARRA. As discussed in our earlier eTrends, the DOL released model COBRA notices for use by employers on March 19, 2009. Employers generally have until April 18, 2009 to distribute applicable notices informing assistance eligible individuals of the new COBRA premium subsidy and their rights to a second election.

For more information, please contact Jamison H. Hinkle

Employment, Labor and Human Resources

Employee Benefits and Compensation

Environmental Health and Safety

Government Contracting


  • Alicia A. Gilleskie
  • Frederick R. Zufelt

Smith Anderson publishes eTrends periodically as a service to clients and friends. The purpose of this eTrends is to provide general information about a significant legal development in the field of employment law. Readers should be aware that the facts may vary from one situation to another, so the conclusions stated herein may not be applicable to the reader’s particular circumstances.

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©Copyright Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. 2012


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