As we explained previously in our previous blogs, both here and here, on the new COBRA grant rules, the American Rescue Plan Act of 2021 (“ARPA”), includes a 100% COBRA grant for periods of coverage occurring between April 1 and September 30, 2021. The grant is available to eligible beneficiaries who are eligible for COBRA coverage due to a reduction in work hours or an involuntary termination of employment of a covered employee.
If a person’s right to COBRA coverage is due to a reduction in working hours (eg leave), the question of whether it is voluntary or involuntary does not apply. ARPA’s exclusion from the grant only applies to voluntary layoffs.
One of the key interpretive questions, therefore, is’ what is a involuntary termination “? Given the various factual situations that could arise, it is not surprising that this is one of the most frequently asked questions about the ARPA premium subsidy. In 2009, Congress passed another version of a COBRA grant and, at that time, the IRS issued guidelines to help define an “involuntary” termination. There is no guarantee that the IRS will achieve the same. conclusions under ARPA; but for those of you who are planning, the following criteria were relevant in 2009 and may be relevant today.
According to the 2009 rules, the basic principles are that an involuntary termination means:
- termination of employment;
- by reason of the independent exercise of the employer’s unilateral authority to terminate the employment, other than by reason of the employee’s implicit or explicit request;
- where the employee was willing and able to continue providing services.
Ultimately, the determination of the involuntary nature of a termination rests on all the facts and circumstances. Therefore, just because a termination of employment is characterized as “voluntary” does not mean that it is voluntary for the purposes of ARPA. Again, here are some key scenarios from the 2009 directions.
CAUTION: The following information is taken from the 2009 COBRA Grant Guidelines and cannot be relied on until the IRS and / or DOL issues ARPA Guidelines:
An involuntary reduction in employment to zero hours, such as a layoff, leave or other suspension of employment, resulting in a loss of health coverage has been treated as an involuntary termination. This was true even though the layoff included recall rights. Unlike the 2009 ARRA grant provisions, however, ARPA includes the reduction in working hours as one of the qualifying events that trigger COBRA grant eligibility. Thus, a qualified beneficiary who loses coverage under these circumstances should be eligible for the ARPA COBRA grant without having to treat it as an “involuntary termination of employment”, assuming that they meet the other eligibility conditions.
Strikes / lock-outs
Generally, a strike called by an employee was not considered an “involuntary” termination of employment. However, an employer-initiated lockout was an involuntary termination.
Departure agreements / “buybacks”
The IRS included in the category of involuntary layoffs a dismissal chosen by the employee in exchange for severance pay (a “buy-back”) when the employer indicates that after the period of offer for severance pay, a certain number of employees remaining in the the employee’s group will be made redundant. What was less clear was how a truly voluntary buyout would be handled.
Constructive dismissal / resignations for “good reason”
Another important category of “involuntary” dismissals from 2009 included so-called “just cause” dismissals. It is an employee-initiated termination of employment when the termination has occurred by the employee for a good reason due to an action by the employer which caused a significant negative change in the employment relationship for the employee. This could also apply if there is a material change in the geographic location where the services are provided.
Fixed-term contract / seasonal employees
Some employees are hired under a voluntary but limited-term employment contract. For example, an employee can be hired for six months. Or an employee can be hired for a particular season that begins in April and ends in September. In these cases, does reaching the end of the time limit mean that there has been an involuntary termination of employment? Generally, the IRS view expressed in 2009 was that failure to return to work after the end of the original contract was a involuntary Termination. Specifically, an involuntary termination could include the non-renewal of a contract by the employer at the time the contract expires, if the employee was willing and able to perform a new contract with conditions similar to those of the expiring contract. and continue to provide the services. This was true even if the employer simply failed to offer overtime and was not limited to a case where the employer specifically terminates the employee.
If an employee retires, some might think that it means the individual was not unintentionally fired. However, this may not necessarily be correct for ARPA purposes. Under the 2009 guidelines, if the facts and circumstances indicate that in the absence of retirement, the employer would have terminated the employee’s service and the employee knew he would be terminated, retirement would be considered as an involuntary termination of employment. In addition, in many cases “retire” simply means that the employee met certain age and service conditions at the time of termination. So, if the employer fires an employee, if that employee meets the age and service requirements, he or she could retire, but still be considered to have involuntarily terminated his or her employment.
In its 2009 guidelines, the IRS indicated that an employee who was a member of a Military Reserve or National Guard unit and who has been called up to active duty should be treated as an involuntary termination. On a related note, the IRS also clarified that eligibility for coverage under TRICARE would not terminate entitlement to a premium subsidy.
Not to be reelected
The IRS said in its 2009 guidelines that an elected official who completed his term and was not re-elected was treated as having been unintentionally removed. Likewise, an elected official who could not stand for re-election due to the limitation of the mandate was considered to be involuntarily dismissed at the end of his mandate. However, if an elected official simply did not stand for election while eligible, termination was considered voluntary.
These are just a few of the many scenarios that will arise when interpreting “involuntary” termination. Hopefully future IRS and / or DOL guidelines will clarify the rules.