Employee Benefits & Executive Compensation Blog

The View from Proskauer on Developments in the World of Employee Benefits, Executive Compensation & ERISA Litigation

The Pocket Guide to COBRA Subsidy Notices

The American Rescue Plan Act of 2021 (ARP) requires that plan administrators distribute new COBRA notices to individuals in connection with the COBRA premium subsidy, as discussed in our prior blog posts.  To help keep track of who gets which COBRA notice and the applicable deadline to send each notice, we have prepared a “pocket guide” chart for plan administrators, which can be downloaded here.

 

You’ve Sent the COBRA Special Extended Election Period Notices – What’s Next?

Due to tight timelines and an initial sprint to issue the special extended COBRA election period notices by the May 31st deadline, plan administrators may not have focused on the other COBRA-related notice requirements under the American Rescue Plan Act (ARP). This blog post focuses on these other notices – for individuals who become entitled to COBRA coverage on or after April 1st, and for individuals approaching the end of their ARP-subsidized coverage period.

Individuals Who Become Entitled to COBRA Coverage on or After April 1, 2021

The DOL issued new model COBRA notices for qualified beneficiaries who become entitled to COBRA coverage during the period from April 1, 2021 through September 30, 2021. These updated models are to be used for notifying qualified beneficiaries of their COBRA rights in connection with all types of qualifying events, not just reduction of hours or involuntary termination of employment.  The models contain an updated COBRA election form.

In addition, the DOL’s “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021” must be included with the COBRA notice in order to comply with the ARP notification requirements.  This Summary contains a form to request the COBRA premium assistance (i.e., the COBRA premium subsidy), as well as a form for a participant to notify the plan of subsequent eligibility for other group health coverage or Medicare (and, thus, ineligibility for the subsidy). The model notices expire on October 31, 2021, although they will not apply to qualifying events occurring after the subsidy period ends on September 30, 2021.

The normal deadlines for plan administrators to provide COBRA notices apply. However, the rules governing the deadlines for participant elections are a bit more complex.

  • To receive COBRA premium assistance under ARP, an assistance eligible individual who meets the subsidy requirements must elect COBRA and return the premiums assistance election form within 60 days. (Although the DOL model notices indicate that this 60-day period starts upon receipt of the notice, we understand that the DOL did not intend to modify the general standard which is based on when notice is provided).
  • The extended COBRA election and payment deadlines under earlier COVID-19 relief continue to apply for COBRA elections, but do not apply to elections of COBRA with the premium subsidy. This means the period for qualified beneficiaries to elect unsubsidized COBRA coverage is tolled until the end of the “Outbreak Period”, up to a maximum of one year (as explained in more detail in our earlier posts).

The model DOL COBRA notice includes optional language if the employer or other plan sponsor is allowing assistance eligible individuals to change their plan coverage option. This is permissible if the other option is offered to similarly-situated active employees and does not cost more than the coverage the individual was enrolled in at the time of the COBRA qualifying event. Plans are not required to allow individuals to change their COBRA coverage options; but if changes are being allowed, the applicable optional language should be included in the COBRA notice.  Individuals will have 90 days to elect a change in coverage options.

Plan administrators should also note that the DOL updated the model COBRA notices with respect to some issues unrelated to ARP. It remains to be seen whether the DOL will carry over these updates into the general model COBRA notice once these models expire.

Notice Regarding the Expiration of the COBRA Premium Subsidy

Another notice that plan administrators have to provide is a notice that the ARP COBRA premium subsidy will expire for an assistance eligible individual.  This notice must be sent within 15-45 days before the subsidy expires (unless the subsidy expires due to the individual becoming eligible for other group health coverage or Medicare). This notice of expiration must alert assistance eligible individuals to the fact that the COBRA premium subsidy will be expiring soon and specify the date of expiration. The notice must also inform them that they may be eligible for unsubsidized COBRA coverage, or coverage through Medicaid or the Health Insurance Marketplace. A model expiration notice can be found here.

Because an individual’s COBRA premium subsidy will end when their maximum COBRA period ends (or September 30th, if earlier), plan administrators will want to quickly identify whether anyone entitled to the special 60-day election period is nearing the end of their potential COBRA period.  For example, if a qualified beneficiary lost coverage due to a reduction of hours of employment on November 1, 2019, their 18-month COBRA coverage period (if elected) would end on April 30, 2021.  Although counter-intuitive, under a strict reading of the law, the plan administrator would have until May 31st to notify the individual of their special enrollment opportunity and potential COBRA premium subsidy for April, but would have had to send notice of the subsidy’s expiration by April 15th.  Perhaps more commonly, the deadline for sending an expiration notice may occur after the special election notice is sent, but before the 60-day election period has expired.

The guidance does not provide any indication of deadline relief with respect to subsidies expiring shortly after issuance of the model notice, so plan administrators should consult with counsel and use good faith efforts to meet the deadline or, if not possible, to notify individuals as soon as practicable.

More Information to Come

Stay tuned for more insights about the new DOL guidance on the COBRA premium subsidy, and on the expected IRS guidance regarding how to implement the subsidy and apply for the tax credits.

ARP COBRA Subsidy Special Election Opportunity: Who Gets a Second Bite at the Apple, and How Do They Take It?

The American Rescue Plan (“ARP”) offers a special 60-day election period for certain individuals who previously declined or discontinued COBRA coverage (“Assistance Eligible Individuals” or “AEIs,” as defined in ARP). These individuals may elect COBRA coverage prospectively, beginning April 1st, at no cost, as long as they are not eligible for Medicare or other group health coverage (with certain exceptions).

This post examines who gets this “second bite at the apple” during the special election period based on the recent guidance issued by the U.S. Department of Labor (“DOL”), and what notice requirements are imposed on plan administrators with respect to this special election period.  The DOL guidance, issued on April 7, 2021, includes model notices and FAQs, which answer some questions about the second election opportunity and the ARP subsidy in general, but also raise additional questions.

Who Gets the Special Election Opportunity and What Is It?

An “Assistance Eligible Individual” under ARP is a qualified beneficiary who, during the period from April 1, 2021 to September 30, 2021, is eligible for COBRA coverage due to a reduction in hours or involuntary termination of employment, and who elects such coverage. An individual who did not have COBRA coverage on April 1st, but who would be an AEI had they previously elected or stayed on COBRA, is entitled to a special COBRA enrollment opportunity (the titular “second bite”) in order to receive the 100% COBRA subsidy.*

The ARP special election period is distinct from the normal COBRA election rules, which generally provide for a retroactive election of COBRA coverage to the date the qualified beneficiary lost group health coverage.  Under the ARP special election period, AEIs are permitted to prospectively elect COBRA, starting on April 1st (i.e., coinciding with the subsidy period).  However, the special election period does not extend an individual’s maximum period of COBRA coverage. Thus, an AEI who became eligible for COBRA coverage on January 1, 2020 and elects COBRA during the special election period is eligible for COBRA only until June 30, 2021 (18 months from the qualifying event), unless the period is extended under the normal COBRA rules (i.e., due to disability or a second qualifying event). In addition, the DOL made clear that the 60-day election period is not subject to the COVID-19 extended tolling period as set forth in EBSA Disaster Relief Notice 2021-01 and described in detail here. However, as a result of the extended tolling period, an individual may still have an opportunity to elect COBRA coverage retroactive to the date of the loss of coverage (with payment of the required premiums), instead of electing COBRA only on a prospective basis under ARP’s special election opportunity.

Notice of the Special Election Opportunity

The plan administrator must send a special election notice to these individuals by May 31, 2021. The special COBRA election period begins on April 1, 2021 and ends 60 days after the notice is provided to the individual. (Although some of the DOL notices and FAQs note that the 60-day period runs from the date of receipt, we understand that the DOL did not intend to revise the regular COBRA rules, which key the election deadline off of the date notice is “provided”).  The packet sent to these individuals should include the Model Notice in Connection with Extended Election Period tailored to reflect the specific facts and circumstances, along with the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021, which explains the COBRA subsidy and includes an election form and a form for the individual to notify the plan if they become ineligible for the subsidy due to eligibility for other coverage (see below).

*Open Question: While it seems that the intention of ARP was to open up a special election opportunity for individuals to take advantage of the government’s COBRA premium subsidy, it appears that the statutory language can be read more broadly to allow even individuals not eligible for the subsidy to take advantage of this second election opportunity. This ambiguity is not resolved in the DOL FAQs, so we await any additional clarification from the regulators.

How to Elect Subsidized COBRA

To elect the COBRA premium subsidy, the AEI must complete a “Request for Treatment as an Assistance Eligible Individual,” in which they certify that they are not eligible for other group health plan coverage or Medicare.  Once receiving the COBRA premium subsidy, the AEI must also notify the plan administrator if they become eligible for other group health plan coverage or Medicare during the subsidy period.  A failure to so notify the Plan may result in the individual being assessed a penalty of $250 or 110% of the premium assistance that was provided after they were no longer eligible.

Subsidy Expiration Notice

In addition to the notifying individuals of the right to elect subsidized COBRA, plan administrators must notify AEIs of the expiration of their subsidy period.  The DOL’s Model Notice of Expiration of Period of Premium Assistance must be provided no later than 15 days and no more than 45 days before the date of the subsidy’s expiration.  This notice must be provided if the subsidy period is expiring due to the end of the individual’s maximum period of COBRA coverage, or the end of the ARP subsidy period on September 30, 2021.  Notice is not required if the subsidy period is ending due to the individual becoming eligible for other group health coverage or Medicare. Practically, it may be difficult (if not impossible) to provide this notice within the above timeframe, particularly if an AEI already is near the end of their maximum period of COBRA coverage (i.e., an AEI whose maximum COBRA period ends on April 30, 2021). Plan administrators should make a good faith effort to comply with the deadline or provide notices as soon as practicable. Consideration may be given to including the expiration notice in the initial election package, depending on when the package will be sent and when the COBRA premium subsidy will expire.

To Be Continued

Even with the issuance of the DOL FAQs and model notices, there are many unanswered questions regarding the ARP COBRA premium subsidy and the related election and notice requirements. We hope these questions will be addressed by future agency guidance.  Stay tuned for important updates on this developing law.

All Good Subsidies Must Come to an End: ARP’s Expiration Notice Requirements

As mentioned in our earlier posts, the American Rescue Plan Act of 2021 (“ARP”) provides a 100% COBRA premium subsidy for continuation coverage between April 1 and September 30, 2021 for certain assistance eligible individuals (“AEIs”).  As employers and plan administrators prepare to educate AEIs about this subsidy, they cannot overlook another necessary notice:  a notice to some AEIs that their subsidy is about to expire.  Under a literal reading of the rules, this expiration notice might already be late!  Plan administrators must act quickly to ensure compliance, especially with respect to those AEIs nearing the end of their COBRA continuation coverage in the upcoming weeks.

When does the COBRA premium subsidy end?  The subsidy ends on the earlier of:

  • September 30, 2021,
  • The date on which the AEI reaches the end of their maximum COBRA continuation coverage period, or
  • The date on which the AEI becomes eligible for Medicare or another group health plan (not including excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA), or a health FSA). AEIs must notify the plan sponsor if they become eligible for such coverage and failure to do so may result in a tax penalty.

Who needs to be provided with the COBRA subsidy expiration notice?  The subsidy expiration notice only has to be provided to AEIs who will lose the subsidy due to the first two events: either the end of (a) the COBRA subsidy period (September 30, 2021) or (b) their COBRA continuation coverage period.

When is the expiration notice due?  Plan administrators must notify AEIs at least 15 days (but no more than 45 days) before they will lose the subsidy.

Note:  This deadline creates an immediate problem with respect to AEIs nearing the end of their maximum COBRA coverage period.  For example, some AEIs will lose their COBRA coverage—and thus their right to a subsidy—at the end of April.  Administrators must have provided these AEIs with a subsidy notice by April 15, before most plan administrators have even told AEIs about the subsidy in the first place.  Given the possible challenges in timing the subsidy expiration notice, plan administrators should consult with counsel and consider their options for good faith compliance.

What must the expiration notice include?  Perhaps most obviously, the notice must explain in “clear and understandable language” that the AEI’s subsidy will expire soon and indicate the expiration date in a prominent way.  But, as illustrated by the DOL’s model expiration notice, the notice must also detail other coverage options for which a special enrollment period may be available, including Medicare or group coverage through the Health Insurance Marketplace.  Using the model notice as a guide, plan administrators should include information on the factors the AEI should consider in choosing among coverage options, how and when to enroll, and the difficulty (or in many cases, impossibility) of switching coverage options later.  Further, administrators must note how much, if any, time remains in the AEI’s COBRA coverage period and specify the full, unsubsidized premium amount owed should the AEI choose to keep their COBRA coverage in effect.

Finally, plan administrators of insured plans should consider other applicable COBRA notice requirements.  Specifically, COBRA rules have always required that insured plans provide notice to qualified beneficiaries of their option to enroll in a conversion health plan in the 180 days before their COBRA coverage period ends.  In preparing subsidy expiration notices for such beneficiaries, plan administrators should consider including notice of any conversion options, particularly if they have not otherwise done so.

Next Steps

Time is of the essence.  Plan administrators should work quickly to ensure compliance with the new subsidy expiration notice rules—while keeping track of other COBRA notice requirements—for AEIs who will lose the subsidy nearly as soon as they get it.

U.S. Department of Labor Steps into the Cybersecurity Discussion

Formally wading into the cybersecurity discussion for the first time, on April 14, 2021, the U.S. Department of Labor (DOL) posted on its website a suite of new guidance, including Tips for Hiring a Service Provider with Strong Cybersecurity Practices, Cybersecurity Program Best Practices, and Online Security Tips for Participants and Beneficiaries.

By way of background, cybersecurity has over the last decade become an area of critical importance to sponsors and administrators of employee benefit plans as well as plan participants.  Put simply, this is because plans (which the DOL estimates hold $9.3 trillion in assets) are a prime target of cyberthieves, given that they typically hold significant amounts of sensitive participant data, often permit electronic access to funds (think 401(k) distributions) and rely on outside service providers, who provide additional access points for breach.  This risk was only exacerbated by the COVID-19 shutdowns, where benefits personnel and their service providers quickly had to transition to working remotely and begin relying on electronic access more than ever before.

In the face of these cybersecurity challenges, many plan sponsors and administrators have considered ways to mitigate risk, both internally (e.g., through education of their benefits personnel and participants) and externally (principally through management of their service provider relationships).

In recent years, it has been suggested (including by the Government Accountability Office in a February 2021 report) that the DOL should provide its perspective on fiduciary responsibilities with respect to cybersecurity.  Until now, the DOL has been largely silent on these matters, but has now stepped into the discussion with the following three pieces of guidance aimed at three different audiences.

Cybersecurity Program Best Practices: This document contains a list of 12 best practices for use by recordkeepers and other plan service providers responsible for information technology and data.  This guidance provides fairly extensive detail for each of the 12 items, which range from a description of what the DOL expects to see in a formal, documented cybersecurity program to stressing the importance of annual internal risk assessments along with external audits of security controls.  The document also details the actions that should be taken in the event a cybersecurity breach or incident occurs.  While this document is principally aimed at controls for service providers, it would still be relevant for plans that maintain information technology systems in-house.  Even for plans that do not maintain in-house systems, the DOL indicated that these best practices are for use by plan fiduciaries in their vendor hiring decisions.  Notably, the DOL has a blanket statement in this document that “plan fiduciaries have an obligation to ensure proper mitigation of cybersecurity risks.”

Tips for Hiring a Service Provider with Strong Cybersecurity Practices: The DOL then turned its focus directly to plan fiduciaries, issuing a document that provides some succinct suggestions for steps that plan sponsors and administrators might take with respect to diligence of, and contracting with, plan service providers. For example, the DOL guidance suggests the following steps:

  • Ask about the provider’s cybersecurity program and compare it to industry standards. As noted above, the DOL’s twelve Cybersecurity Program Best Practices can serve as useful guidance on the DOL’s view of what constitutes a sound cybersecurity program.
  • Seek providers that engage a third-party auditor to annually review and validate its cybersecurity program. The DOL further suggests that plan fiduciaries include a provision in the contract with the provider requiring that an annual third-party cybersecurity compliance audit be conducted.
  • Evaluate the provider’s track record in the industry by reviewing publicly available information about past security incidents and legal proceedings involving the provider.
  • Ask about past security breaches and how the provider responded.
  • Ask about the provider’s insurance policies that would cover losses caused by cybersecurity and identity theft breaches and consider requiring the provider to maintain professional liability and errors and omissions liability insurance, cyber liability and privacy breach insurance, and/or fidelity bond/blanket crime coverage.
  • Negotiate clear provisions in the contract regarding the provider’s obligation to keep private information private and meet a strong standard of care to protect confidential information.
  • The provider contract should require the provider’s ongoing compliance with internal cybersecurity and information security standards as well as compliance with records retention and destruction, privacy and information security laws.
  • Include in the provider contract how much time the provider has to provide notice to the fiduciary of a security breach and require that the provider investigate and reasonably address the cause of the breach. The DOL also states that plan fiduciaries should carefully review contract provisions that would limit the provider’s responsibility for cybersecurity breaches.

Online Security Tips for Participants and Beneficiaries:  Apparently recognizing that participants and beneficiaries represent a primary vulnerability from a cybersecurity perspective, the DOL provided these security tips for participants to consider in order to reduce the risk of fraud or cybertheft with respect to their benefits.  This list contains many predictable, but important, topics such as strong password use, phishing awareness, updating personal contact information and monitoring accounts.  While the DOL did not specifically suggest this, plan sponsors and administrators may wish to consider disseminating this guidance (or their own version of the guidance) to participants to improve their cybersecurity awareness and help avoid future crises.

The View from Proskauer

Given the threat that cybercrime poses to plans in the post-COVID world, it is an excellent time for plan sponsors and administrators to analyze their own vulnerabilities and establish an action plan to mitigate the risk of loss associated with data security breaches.  Vendor diligence and contracting is a critical – albeit not the sole – component of such an action plan.  The DOL’s guidance provides a helpful look into the DOL’s perspective on this issue and should be considered as a useful data point in the broader analysis.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

DOL Releases COBRA Premium Subsidy Model Notices – With a Few Surprises

Immediate Action Required

As discussed in our prior posts, the American Rescue Plan Act of 2021 (“ARP”) requires that plan administrators distribute new COBRA notices advising individuals of their possible rights to a COBRA premium subsidy.  Yesterday, the U.S. Department of Labor released new COBRA premium subsidy model notices and FAQs explaining how that is to be done.

New COBRA election notices must now be used for all qualifying events. Also, special COBRA election notices explaining ARP rights to individuals who terminated before April 1, 2021 must be provided by May 31, 2021. Notice of termination of the availability of the subsidy might have to be provided within the next few days (depending on when an individual’s COBRA premium subsidy expires).

Plan administrators and employers have to act swiftly to ensure compliance with ARP’s COBRA notice obligations.  Read below for more details about the notices and next steps.

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DOL Issues Notices and Guidance on ARPA COBRA Premium Subsidy

As we previously explained in prior blogs, the American Rescue Plan Act of 2021 (“ARPA”) includes a 100% COBRA premium subsidy for periods of coverage occurring between April 1 and September 30, 2021 for certain eligible individuals. Today, the U. S Department of Labor issued model notices and guidance in the form of Frequently Asked Questions (FAQs) to assist employers and plan administrators in fulfilling their notice obligations under the law and administering the COBRA subsidy. A link to the DOL notices and guidance is here.

Sixth Circuit Rules Retiree Healthcare Benefits Claim Is Not Arbitrable

The Sixth Circuit, in a split decision, held that a dispute between a union and an employer regarding retiree healthcare benefits was not arbitrable because the issue of retiree healthcare benefits was not encompassed within the collective bargaining agreement’s (CBA’s) grievance procedures.

The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied-Industrial and Service Workers International Union (the “Union”) commenced suit against LLFlex, LLC, (“Employer”), arguing that the Employer violated the CBA by refusing to arbitrate the Union’s grievance related to the Employer’s unilateral change requiring individuals who retired to pay a share of the premium cost of their healthcare benefits.  The CBA contained a grievance procedure with the last step being arbitration.  The Union utilized the CBA’s grievance procedure, but when the time came for arbitration, the Employer refused to engage in arbitration.

Before reaching the merits, the Sixth Circuit first concluded, contrary to the district court’s ruling, that the Union had Article III standing because a CBA is a contract and a party to the contract has a judicially cognizable interest for Article III purposes regardless of the merits of the claim.

Two of the three judges on the Sixth Circuit panel nevertheless concluded that the case was properly dismissed by the district court because the Union’s dispute over the change in retiree healthcare benefits was not arbitrable.  The Court identified three reasons for its decision.  First, the four-step grievance procedure clause applied only in limited circumstances, such as “working conditions, discharges, seniority rights, layoff and re-employment.”  Second, the retiree health benefits at issue were not mentioned in the CBA and therefore the grievance procedure clause was not susceptible to an interpretation that it covered a dispute regarding such benefits.  Finally, the CBA’s “Purpose of Agreement” article explained that the CBA only concerned conditions of employment for “employees” and retirees are not “employees.”

The dissenting judge reached the opposite conclusion for three reasons:  (i) the arbitration clause was available to “any employee who feels that he/she has a just grievance” and nothing in the grievance procedure clause prohibited the grievance committee from considering other “just grievances” not expressly listed in the clause; (ii) the grievance procedure had been used by the parties and there was no reason to prohibit the use of the final arbitration step; and (iii) the CBA expressly incorporated by reference the pension plan and that plan contained a clause about retiree health benefits.

The case is United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied-Industrial and Service Workers International Union, AFL-CIO-CLC v. LLFlex, LLC,No. 19-5464, 2021 WL 1123301 (6th Cir. March 24, 2021).

Ninth Circuit Enforces Forum Selection Clause in 401(k) Plan

On April 1, 2021, the Ninth Circuit became the third circuit court to conclude that a forum-selection clause in an ERISA 401(k) plan is enforceable.  The Ninth Circuit thus denied a petition for mandamus seeking to overturn a district court decision transferring an ERISA action from the Northern District of California to the District of Minnesota.  In re Becker v. United States Dist. Court, No. 20-72805, __F.3d__ (9th Cir. Apr. 1, 2021).

The plaintiff in the Becker case is a former Wells Fargo employee and participant in the company’s 401(k) plan who brought a putative class action against Wells Fargo and others, alleging that defendants’ inclusion of certain Wells Fargo-affiliated plan investment alternatives breached their fiduciary duties of prudence and loyalty and violated ERISA’s prohibited transaction rules.  Despite the plan’s forum-selection clause, which specifies the District of Minnesota as the exclusive venue for plan-related disputes, the plaintiff filed her complaint in the Northern District of California.

Proskauer moved to transfer the case to the District of Minnesota pursuant to the plan’s forum-selection clause.  The district court granted the motion, reasoning that forum-selection clauses are presumptively valid and plaintiff did not meet her “heavy burden” to challenge this one.  After the district court denied plaintiff’s request to stay the order, she petitioned the Ninth Circuit for a writ of mandamus compelling the district court to rescind its transfer order.

The Ninth Circuit denied the “extraordinary remedy” of mandamus, holding that the plan’s forum-selection clause was enforceable.  The Court emphasized the presumptive validity of forum-selection clauses and reasoned that nothing in ERISA prohibits plans and participants from agreeing on a forum for litigating their disputes.  The plaintiff had argued that, because ERISA’s venue provision enumerates three locations where a suit “may be brought,” any agreement to limit venue violates the text of ERISA and the statute’s express purpose of providing plan participants with “ready access to federal courts.”  The Court rejected plaintiff’s argument and explained that while ERISA’s venue provision provides that an action “may be brought” in three specified locations, it did not prevent Wells Fargo and Becker from agreeing in advance to litigate in just one—the place where the plan is administered.  Furthermore, the forum-selection clause promoted, rather than hindered, ERISA’s goal of providing ready access to the federal courts by encouraging uniformity and guaranteeing a federal forum.  The Court also cited its recent decision enforcing an arbitration provision in a 401(k) plan in Dorman v. Schwab as demonstrating that plan participants can agree to a preferred forum through participation in a 401(k) plan.  The plan’s forum-selection clause was therefore enforceable, and the district court did not clearly err in transferring the case.

The Proskauer team representing Wells Fargo includes partners Russell L. Hirschhorn, John E. Roberts, and Myron D. Rumeld, senior counsel Joseph Clark, and associates Tulio Chirinos and Kyle Hansen.

ARPA COBRA Subsidy – Special Second Election Period (Two Bites at the Apple and Some Additional Food for Thought)

The American Rescue Plan Act of 2021 (“ARPA”) provides a 100% COBRA premium subsidy for “assistance eligible individuals” for periods of coverage occurring between April 1, 2021 and September 30, 2021, as summarized here.  An “assistance eligible individual” includes any qualified beneficiary who is eligible for COBRA coverage as a direct result of a covered employee’s reduction in hours or involuntary termination of employment.

A key feature of ARPA is that it provides for a special second election period for a qualified beneficiary who either: (1) does not have an election of COBRA coverage in effect on April 1, 2021, but who would be an assistance eligible individual if such election were in effect, or (2) elected COBRA coverage and discontinued that coverage before April 1, 2021.  The special election period begins on April 1, 2021 and ends 60 days after the date on which notice is provided to the individual.  Plan administrators must provide notice by May 31, 2021.

For individuals who elect COBRA coverage during this special election period, COBRA coverage commences with the first period of coverage beginning on or after April 1, 2021, and does not extend beyond the end of the original period of COBRA coverage that would have applied had the individual elected coverage (and not discontinued such coverage, if applicable).  For example, if a qualified beneficiary’s COBRA coverage would have started on December 1, 2019 and the individual elects COBRA coverage during the special second election period, the person’s subsidized COBRA coverage may last from April 1, 2021 through May 31, 2021.

As we have pointed out in our previous blog posts, there are a number of questions that arise in the interpretation of ARPA and administration of the COBRA subsidy.  The following are a few interesting quirks about the special second election period:

Spoiled for Choice: Retroactive and Prospective COBRA Coverage Options

Under general COBRA rules, a qualified beneficiary must elect and pay for COBRA coverage retroactively to the date of the loss of coverage.  Because COBRA election and payment deadlines are temporarily tolled under COVID-19 relief, as explained here, many individuals who lost coverage several months ago are still within their original COBRA election periods and may elect and pay for COBRA coverage retroactive to their loss of coverage.

Under ARPA, however, qualified beneficiaries may instead elect prospective COBRA coverage, starting April 1, 2021, through the end of the COBRA subsidy period.  This creates a planning opportunity, as individuals making an election will have an opportunity to elect COBRA coverage on a retroactive basis (back to their loss of coverage) or on a prospective basis (starting April 1, 2021), depending on their healthcare needs.  Regardless of which option such an individual elects, COBRA coverage will only be 100% subsidized from April 1, 2021 through September 30, 2021.

Two Bites at the Apple

Qualified beneficiaries eligible for the special election period described above include individuals who elected COBRA coverage and discontinued that coverage before April 1, 2021, as well as individuals who did not elect COBRA coverage before April 1, 2021—provided that the individual is still within the individual’s maximum COBRA period and lost coverage as a direct result of a covered employee’s reduction in hours of employment or involuntary termination of employment.

Open Issue: The statutory language of ARPA creates some ambiguity as to whether any qualified beneficiary (i.e., an individual who lost coverage due to a qualifying event other than reduction in hours or involuntary termination of employment) and who discontinued coverage before April 1, 2021 but is still within that individual’s maximum COBRA period—may reenroll in COBRA during the special election period, albeit without the COBRA subsidy.  Stakeholders have asked the agencies to confirm whether this is the case, as the broader interpretation does not seem consistent with the statutory intent underlying ARPA.

Special Second Election Period May Not Apply to State Law Continuation Coverage

While the COBRA subsidy is available for state law continuation coverage comparable to federal COBRA, the special second election period described above may be limited to periods of continuation coverage provided under federal COBRA.  This is because the section of ARPA that provides for the second election period references ERISA, the Internal Revenue Code, and the Public Health Service Act—but does not explicitly address state law programs.  This suggests that the special election period might not apply to state law continuation coverage.  We note that under the American Recovery and Reinvestment Act of 2009, subsequent agency guidance clarified that state law programs may choose to offer, but were not required to provide, a special second election period.  We expect similar clarification with respect to ARPA.

These are some of the issues relating to the special second election period under the ARPA COBRA subsidy.  We expect the government agencies to issue guidance soon.  Stay tuned for additional coverage and insight.

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