Home Email This page Print Bookmark


2009 Recovery Act - DOL and IRS Release Long Awaited Guidance


April 8, 2009

The American Recovery and Reinvestment Act of 2009 (ARRA) required the Department of Labor (DOL) and the Internal Revenue Service (IRS) to issue regulations and further guidance on the application of the 65% government subsidy of COBRA premiums. On April 2, 2009, the DOL posted on its website new guidance in the form of questions and answers (Q&As) for Employers which clarifies who must receive each version of the COBRA Subsidy Notice. Additionally, the IRS issued Notice 2009-27. This notice clarifies what constitutes involuntary termination for purposes of the subsidy. This bulletin explains how the newly released guidance clarifies these two issues: Involuntary Terminations and Distribution of Model Notices.


IRS Notice 2009-27 states that the determination of whether a separation from employment qualifies as involuntary is made based on all the facts and circumstances. The termination will be deemed involuntary for purposes of the subsidy if the facts and circumstances show that the decision to terminate the employment was the independent exercise of the unilateral authority of the employer, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.

The examples provided of involuntary terminations include: (i) layoffs, furlough or other suspension of employment; (ii) employee-initiated termination if for good reason due to a material negative change in the employment relationship; (iii) employer action to end employment status while employee is on leave of absence; (iv) retirement when absent said retirement the employer would have terminated the employee’s services; (v) resignation if prompted by a material change in the geographic location of the employment; (vi) lockout initiated by the employer (however, work stoppage as a result of strike initiated by the employees is not); and (vii) termination elected by the employee in return for a severance package (“buy-out”).


DOL updated Q&As for Employers clarifying which group of individuals should receive each of the different versions of the model notice. The best approach to coordinate the mailing of the different versions is to follow the three steps outlined below to identify who should receive each version of the notice: full, abbreviated, and special election.

  1. Identify who should receive the full version of the General Notice – GROUP I - This notice must be provided to all qualified beneficiaries (not just employees) who experienced a qualifying event of any kind (e.g., termination - either voluntary or involuntary; divorce; reduction in hours) on or after September 1, 2008 who either did not receive a COBRA election notice whatsoever or received a COBRA election notice on or after February 17, 2009, without the additional information regarding the subsidy required by ARRA (in other words, the standard COBRA election notice that is customarily provided whenever an individual lost coverage). The full version should be mailed as soon as possible.
  2. Identify who should receive the abbreviated version of the General Notice – GROUP II – Exclude from GROUP I individuals who currently have COBRA coverage due to a qualifying event (any qualifying event on or after September 1, 2008) and provide to them this abbreviated notice instead of the full version. The abbreviated version should be mailed as soon as possible.
  3. Identify who should receive the Special Election Notice – GROUP III – Exclude from GROUP I individuals who were involuntarily terminated after September 1, 2008 who, because of the termination lost coverage, were offered COBRA before February 17, 2009, and were not enrolled on COBRA on February 17, 2009. This group of individuals should receive this Special Election Notice instead of the full version General Notice. The Special Election Notice must be mailed no later than April 18, 2009.

Related Practices