The Internal Revenue Service issued Notice 2021-31, providing the much-anticipated guidance plan sponsors, multiemployer plans, and COBRA administrators have been waiting for related to the COBRA subsidy provisions under the American Rescue Plan Act.
Notice 2021-31 (the Notice) is lengthy, at more than 40 pages with 86 questions and answers. Despite its length, much of the guidance is not surprising and is a carryover of previous Internal Revenue Service (IRS) guidance related to the COBRA subsidy under the American Recovery and Reinvestment Act of 2009. The Notice comes as plan sponsors and COBRA administrators are gearing up to issue required notices to subsidy eligible individuals under the American Rescue Plan Act (ARPA) (known as assistance eligible individuals).
The ARPA provides for a temporary 100% COBRA premium subsidy for individuals who elect COBRA continuation coverage due to a loss of coverage as a result of any reduction in hours (whether involuntary or voluntary) or an involuntary termination of employment. The COBRA premium subsidy is available from April 1, 2021, through September 30, 2021. Below is a summary of the noteworthy guidance included in the Notice.
We previously issued a blog post discussing the US Department of Labor’s (DOL’s) guidance on the ARPA subsidy, which explained the requirement that individuals eligible for the COBRA premium subsidy opt into it and attest to not being eligible for other group health plan coverage or Medicare, making them assistance eligible individuals. This is accomplished by completing the DOL-issued Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 document, which also includes a Request for Treatment as an Assistance Eligible Individual form (Opt-In Forms). The DOL guidance, including the model notices, makes it clear that the COBRA premium subsidy should not be automatically given to assistance eligible individuals absent completion of the Opt-In Forms.
The Notice states that plan sponsors may, but are not obligated to, require individuals to self-certify or attest that they are eligible for the COBRA premium subsidy. Despite this statement, the Notice also cautions that claiming the tax credit will require documented proof and substantiation (either by way of the Opt-In Forms or otherwise). While the Notice recognizes that the IRS cannot require that plan sponsors collect the Opt-In Forms to identify assistance eligible individuals, the IRS can require receipt of the opt in and attestation to claim the tax credit. Therefore, if a plan sponsor wants the employer tax credit, it should ensure Opt-In Forms are required from each individual to self-identify as an assistance eligible individual. This also aligns with the DOL guidance that Opt-In Forms are required.
Many COBRA administrators are administering the opt in and attestation for the COBRA subsidy through their call-in centers. Each plan sponsor should ensure that its COBRA administrator maintains appropriate records of the calls for the plan sponsor to substantiate its tax credit or to demonstrate compliance should it become an issue on audit.
The Employee Benefits Security Administration (EBSA) Disaster Relief Notice 2021-01 suspends certain timeframes under ERISA, including the timeframes to report a special enrollment opportunity and to make a COBRA election, for a period of up to one year or until 60 days after the conclusion of the COVID-19 National Emergency, whichever occurs earlier.
The definition of what it means for an individual to be involuntarily terminated remains largely the same as the guidance issued by the IRS in 2009 and is based on the facts and circumstances. Generally, an involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment where the employee is willing and able to continue performing services. It includes the employer’s action to end an individual’s employment while the individual is absent from work due to illness or disability if before the action there is a reasonable expectation that the employee will return to work after the illness or disability has subsided.
An involuntary termination also includes participation by an employee in a window program under which employees with impending terminations of employment are offered a severance window arrangement to terminate employment within a specified period of time. Employers are faced with many different situations that result in a termination of an employee and it is impossible to address every scenario. Therefore, employers should carefully consider and analyze the facts and circumstances to determine if a particular individual’s termination is indeed involuntary.
As mentioned above, an individual is not eligible for the COBRA premium subsidy if he/she is eligible for other group health plan coverage or Medicare. Prior to the issuance of the Notice, there was a question regarding the impact of an offer of retiree health coverage on eligibility for the COBRA premium subsidy. The Notice clarifies that eligibility for the COBRA premium subsidy depends on whether the retiree health coverage is offered under the same group health plan as the COBRA continuation coverage or under a separate group health plan. If offered under the same group health plan, the individual remains eligible for the COBRA premium subsidy. However, the individual is not eligible for the COBRA premium subsidy if the individual is offered retiree coverage under a separate health plan than the plan under which the COBRA continuation coverage is offered. This means coverage offered under a standalone retiree-only plan will render an individual ineligible for the COBRA premium subsidy for COBRA continuation coverage under an active plan.
The Notice clarifies that the COBRA premium subsidy is available for COBRA continuation coverage under a Health Reimbursement Arrangement (HRA) and that eligibility under an HRA ends the period of COBRA premium subsidy in the same way as eligibility for coverage under any other group health plan. The tax credit for an HRA is limited to 102% of the amount actually reimbursed with respect to an individual who is eligible for the COBRA premium subsidy.
The Notice clarifies that the COBRA subsidy is available to individuals who have elected and remained on COBRA for an extended period due to a disability determination or second qualifying event if those additional periods of coverage fall between April 1, 2021, and September 30, 2021, and as long as the initial qualifying event was a reduction in hours or an involuntary termination of employment. These individuals don’t get a second bite at the apple, but if they are still on COBRA at any point during the April 1, 2021, through September 30, 2021 window, they are eligible to receive the COBRA premium subsidy.
Multiemployer plans that are entitled to claim the credit and may not have any employment tax liability can still claim the credit on Form 941 for the quarter in which the multiemployer plan becomes entitled to the credit. The multiemployer plan entitled to the credit should also report any advance payments received in anticipation of the credit on the same Form 941 and enter zero on all remaining nonapplicable lines so that the overpayment amount on Form 941 is the amount of the credit reduced by any advance payment received by the multiemployer plan.
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