Employee Benefits & Executive Compensation Blog

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

District Court Denies Interlocutory Appeal for Novel Issue of “Hardwired” 401(k) Plans

A federal district court in Maryland recently declined to certify an interlocutory appeal to the Fourth Circuit on the issue of whether financial institutions can “hardwire” a preference for their own proprietary investment vehicles into their employees’ 401(k) plans.  David G. Feinberg, et al., & all others similarly situated, Plaintiffs, v. T. Rowe Price Group, Inc., et al., Defendants, No. 17-cv-427, 2021 WL 2784614 (D. Md. July 2, 2021).  In so ruling, the district court prevented, at least for now, an opportunity for an appellate court to consider an issue that could significantly impact the adjudication of fiduciary breach challenges to the offering of proprietary funds in 401(k) plans.

A group of T. Rowe Price employees who participated in the company’s 401(k) plan sued the company in 2017, alleging that T. Rowe Price breached its fiduciary duties of prudence and loyalty in its administration of the plan.  The employees took issue with, among other things, T. Rowe Price’s decision to amend the plan to include “hardwiring” language requiring plan fiduciaries to exclusively offer T. Rowe Price’s proprietary funds as investment options.

Earlier this year, plaintiffs asked the court to find the hardwiring amendment void as against public policy because it “purports to relieve [the fiduciaries] from responsibility or liability” as prohibited by Section 1110(a) of ERISA.  See Feinberg v. T. Rowe Price Group, Inc., No. 17-cv-427, 2021 WL 1102455 (D. Md. Mar. 23, 2021).  Judge Bredar of the District of Maryland rejected this argument, finding the provision in question unlike language that has been held to violate Section 1110(a), such as language expressly limiting fiduciary liability or requiring fiduciaries to take actions that clearly violate ERISA.  Plaintiffs subsequently asked the court to certify for appeal to the Fourth Circuit the narrow question of whether the hardwiring amendment violates Section 1110(a) of ERISA.

In his recent order, Judge Bredar held that the plaintiffs failed to make the showing necessary to justify the “extraordinary step” of an appeal at this stage.  In particular, Judge Bredar stated that the amendment’s permissibility did not pose a “controlling question of law” because it required resolving factual disputes—such as the plan drafters’ intent as to the amendment’s meaning—at the district court level.

Proskauer’s Perspective

While this decision focused on the standard for an interlocutory appeal, the underlying litigation raises novel questions about the validity of hardwiring provisions and the extent to which they might protect plan sponsors against fiduciary breach allegations related to the inclusion of proprietary investment vehicles.  The Supreme Court previously ruled that ordinary rules of prudence govern the decision to maintain employer stock in employee stock ownership plans (“ESOPs”), even though by definition the assets of these plans must be invested in company stock.  Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (U.S. 2014).  It remains to be seen whether the Supreme Court’s reasoning in the ESOP context applies equally to employers who, like T. Rowe Price, limit their 401(k) plan investment menus to proprietary funds.

Tenth Circuit Addresses Damages for Excessive Recordkeeping Fee Claims

One of the multitude of recent cases challenging the recordkeeping fees of 401(k) plans recently made its way to the Tenth Circuit Court of Appeals.  Ramos v. Banner Health, No. 20-1231, — F.3d —- (10th Cir. June 11, 2021).  Following a bench trial that resulted in a determination that the fiduciaries of Banner Health’s 401(k) plan had failed to monitor the plan’s uncapped, asset-based, revenue sharing arrangement with Fidelity, the Court affirmed the district court’s rejection of the plaintiffs’ expert testimony on damages and fashioning of its own method to calculate the plan’s losses due to the excessive recordkeeping fees.

First, the district court found the expert testimony concerning reasonable recordkeeping fees to be unreliable because it was based vaguely on the expert’s experience, which was mostly with smaller plans.  And, while there were 4,770 mega plans available for comparison, the expert claimed not to have relied upon their data in forming his opinion.  Second, when devising its own damages calculation, the district court took into account the fact that the recordkeeper eventually offered to create a revenue credit account to refund some of its uncapped revenue sharing proceeds to the plan.  The court noted that the amount of the revenue credits “may be viewed as the amount that Fidelity itself considered to be excessive” and thus could be used to approximate the loss.  This measure led to the court finding no losses to the plan for the years in which the revenue credit account was in place.

Proskauer’s Perspective

Plaintiffs’ difficulties in proving loss due to excessive recordkeeping fees is becoming a recurring theme.  Currently on appeal before the Second Circuit is Cunningham v. Cornell Univ., No. 16-CV-6525 (PKC), 2019 WL 4735876 (S.D.N.Y. Sept. 27, 2019), appeal filed, No. 21-88 (2d Cir. Jan. 13, 2021), wherein the district court granted summary judgment to the defendants on the ground that, even if they had failed to monitor the recordkeeping fees of the Cornell 403(b) plans, the plaintiffs had failed to prove any resulting loss because their expert testimony concerning reasonable recordkeeping fees was unreliable.  In particular, reminiscent of Banner Health, the testimony was based vaguely on the experts’ experience and a cherry-picking of a few university plans with lower recordkeeping fees.

Temporary Relief for Witnessing Spousal Consent Extended for Another Year

Just when we were about to draft our blog reminding plans of the expiration of the temporary relief. . . The IRS has now issued Notice 2021-40 extending for another year the temporary relief from the requirement that spousal consent for plan distributions or loans be witnessed in person.

As discussed in greater detail in our earlier post, in response to the COVID-19 National Emergency, the IRS previously issued guidance temporarily allowing a notary or plan representative to witness spousal consent electronically via live video, provided certain conditions are met.  This relief was originally due to expire on December 31, 2020, but last December the IRS issued a notice extending it through June 30, 2021.  Notice 2021-40 now further extends the same relief for another year, through June 30, 2022.

Notably, as it did in its prior extension notice, the IRS is requesting comments on whether it should issue permanent guidance modifying the physical presence requirement.  Notice 2021-40 contains various questions it would like commenters to address in that regard.  Comments are due by September 30, 2021.

Plan administrators must continue to ensure that electronic witnessing meets all of the conditions set forth in the initial temporary relief, outlined here.

Calculating the ARP COBRA Premium Subsidy Tax Credit

On May 18, 2021, the IRS released Notice 2021-31 (the “Notice”) providing guidance on the temporary 100% COBRA premium subsidy under the American Rescue Plan Act of 2021 (“ARP”), summarized generally here.  The Notice addresses how to calculate the premium subsidy and the corresponding tax credit available to premium payees, as well as the rules for claiming the tax credit.

Calculating the Tax Credit: Generally

The general COBRA rules provide that a group health plan may charge a qualified beneficiary 102% of the applicable premium for COBRA continuation coverage.  According to the Notice, if the employer does not subsidize COBRA premiums for similarly situated qualified beneficiaries who are not eligible for the subsidy, then the tax credit is equal to the full premium charged to other similarly situated qualified beneficiaries for COBRA continuation coverage.  Additionally, the Notice clarifies that the premium amount includes any administrative costs typically permitted to be charged with respect to COBRA continuation coverage.  Thus, if an employer does not provide a subsidy for COBRA continuation coverage, the employer may claim a tax credit for the full 102% of the applicable premium.

Effect of Employer Subsidies

If the employer subsidizes all or part of the COBRA premium for similarly situated individuals who are not eligible for the subsidy, the amount of the tax credit available to the employer is the premium that would have been charged to an assistance eligible individual in the absence of the premium subsidy.  The Notice clarifies that the tax credit does not include any amount that the employer would have otherwise subsidized.  For example, if the full COBRA cost for continuation coverage (102% of the applicable premium) is $1,000 per month, but the employer only charges terminated employees $250 per month, the tax credit is $250.

The amount of the credit varies based on how the employer structures its severance package.  As an example, assume 102% of the applicable premium is $1,000 per month, and the employer offers a 3-month period during which terminated employees may continue coverage for $200 per month, after which they must pay the full COBRA rate.  Based on the Notice, the analysis is as follows:

  • If the employer considers the 3-month period part of the terminated employee’s COBRA continuation period, the available credit is $200 per month during the 3-month period, and $1,000 per month thereafter.
  • If the employer considers the loss of health coverage and the beginning of the COBRA period to occur at the end of the 3-month severance period, then the employee is not entitled to the ARP premium subsidy during that period (because the coverage is not COBRA coverage) and the employer may not claim the credit. Once the severance period ends, if the former employee (who is an assistance eligible individual) elects COBRA coverage, the credit is $1,000 per month for the remainder of the subsidy period.

The Notice contemplates that employers may change their severance programs to take advantage of the subsidy/credit.  In addition, the Notice clarifies that an employer may claim the credit if it charges the full COBRA premium to all employees and qualified beneficiaries but makes a separate, taxable payment to assistance eligible individuals (i.e., pays a severance amount as taxable compensation rather than subsidizing COBRA as part of the severance packages).

How Much is the Premium Subsidy When Non-Qualified Beneficiaries are Covered?

An assistance eligible individual is any COBRA “qualified beneficiary” who loses group health coverage on account of a covered employee’s reduction in hours of employment or involuntary termination of employment.  COBRA’s definition of a “qualified beneficiary” includes only a covered employee and their spouse and dependent children who were covered under the health plan on the day before the COBRA qualifying event, as well as children born to or adopted by the employee during a period of COBRA coverage.  However, group health plans may extend “COBRA-like” coverage to family members who are not considered qualified beneficiaries (e.g., a domestic partner), and covered employees may add new spouses to their COBRA coverage in accordance with HIPAA’s special enrollment rules.  In such instances, the employer or plan administrator will need to determine what portion of the premium is eligible for the subsidy and how much it may claim as a tax credit.

The Notice confirms that the IRS uses an incremental approach when determining the amount eligible for the premium tax credit (and subsidy) in these situations.  If the cost of covering a non-qualified beneficiary does not add to the cost of covering the assistance-eligible individual(s), then the amount of the tax credit is the full COBRA premium.  If covering a non-qualified beneficiary adds to the cost of coverage, then the incremental cost to cover the non-qualified beneficiary is not eligible for the COBRA premium subsidy or the corresponding tax credit.

Example: An assistance eligible individual elects COBRA coverage for himself and all of his family members who were covered under the plan on the day before the qualifying event, which includes one dependent child and his domestic partner.  Under the terms of the plan, COBRA coverage for an employee plus-two-or-more-dependents costs $800 per month, and the COBRA premium is $600 per month for self-plus-one-dependent.  Accordingly, the incremental cost of covering the domestic partner is $200 per month.  As a result, the individual will pay $200 per month for COBRA coverage for his domestic partner, and the premium payee may claim the $600 per month as a payroll tax credit for the subsidy.


The Notice provides useful guidance on the calculation of the premium subsidy and the corresponding tax credits in various circumstances.  However, the calculations may be less than straightforward depending on the facts and circumstances, particularly where post-termination coverage is subsidized, or if the plan voluntarily provides continued coverage to individuals who are not otherwise qualified beneficiaries.  When in doubt, reach out to legal counsel for advice.

A Word from the IRS on Involuntary Terminations of Employment for Purposes of the ARP COBRA Premium Subsidy

One important question that arises when determining whether an individual is eligible for the COBRA premium subsidy under the American Rescue Plan Act of 2021 (“ARP”) is whether the employee has experienced an involuntary termination of employment.  (See our prior blogs on the ARP subsidy, here.) The IRS’s recent Notice 2021-31 (the “Notice”) provides helpful guidance on this issue.

What is an Involuntary Termination?

One of the key interpretive questions under ARP is “what is an involuntary termination of employment”?  Given the various factual circumstances that could arise, it is not surprising that this is one of the most frequently asked questions. The Notice helps define an involuntary termination of employment, and in many respects follows previous IRS guidance relating to the 2009 federal COBRA subsidy.

Under the Notice, the basic principle is that an involuntary termination means:

  • a severance from employment;
  • due to the independent exercise of the unilateral authority of the employer to terminate the employee’s employment, other than due to the employee’s implicit or explicit request;
  • where the employee was willing and able to continue performing services.

In the end, the determination of whether a termination is involuntary is based on all the facts and circumstances. Even if a termination is labeled as “voluntary” or is designated as a resignation, it won’t necessarily be voluntary for ARP purposes. The Notice explains that such a termination will be involuntary if the circumstances indicate that the employee was willing and able to work and, absent the employee’s termination, the employer would have terminated the employee and the employee had knowledge of that. Here are some example scenarios from the Notice.

Termination for Cause

A termination by the employer for cause is an involuntary termination. However, if the employee was terminated due to gross misconduct, there will not be a COBRA qualifying event (and, thus, no subsidy).

Employee-Initiated Terminations

An important point made in the Notice relates to employee-initiated terminations. The Notice clarifies that even an employee-initiated termination will be considered involuntary if the employee leaves their job for “good reason” due to an employer action that caused a material negative change in the employment relationship for the employee, akin to a “constructive discharge.” The Notice provides examples such as terminations in response to an involuntary material reduction in hours, and a material change in the geographic location of employment.

The Notice makes clear, however, that an involuntary termination generally does not include a termination by the employee due to: (i) concerns about workplace safety, (ii) personal circumstances such as a health condition of the employee or a family member, the inability to locate daycare, or similar issues,  or (iii) the inability of a child to attend school or because another childcare facility is closed due to the COVID-19 pandemic (though in that case the termination may qualify as a reduction in hours if the circumstances indicate that it is a temporary leave of absence and the parties intend to maintain the employment relationship. An employee’s death also does not qualify as an involuntary termination for ARP purposes.

Absence Due to Illness or Disability

According to the Notice, absence from work due to illness or disability is not an involuntary termination for ARP purposes (though the individual may qualify for the premium subsidy if they lose health coverage due to the reduction in hours of employment). However, an involuntary termination will occur if the employer takes action to terminate the individual’s employment while they  are out on disability, if, prior to the termination, there was a reasonable expectation that the employee would return to work after the illness or disability had subsided.

Participation in a Window Program

Involuntary terminations also include situations where an employee with an impending termination participates in a window program, in which the employee is offered severance in exchange for agreeing to terminate employment within a specified time period. The Notice provides that, for this purpose, the window program must meet the requirements for such programs under the relevant IRS regulations.

Limited duration contract/seasonal employees

Some employees work under a limited duration employment agreement. For example, an employee might be hired for a six-month period, or for a particular season. In these cases, the question arises as to whether reaching the end of that period means that there has been an involuntary termination of employment.

As a general rule, the IRS view is that an employer’s decision not to renew an employee’s contract will be considered an involuntary termination if the employee was willing and able to continue the employment relationship and willing to execute a new contract with similar terms or continue without a contract. However, in a slight departure from the 2009 COBRA subsidy rules, the Notice provides that if the parties understood at the time they entered into the contract, and at all times while the services were being performed, that the contract was for specified services over a set term and would not be renewed, the completion of the contract without it being renewed is not an involuntary termination.


The IRS’ general view is that a retirement is not an involuntary termination. However, if the facts and circumstances indicate that, absent retirement, (i) the employer would have terminated the employee, (ii) the employee was willing and able to continue employment, and (iii) the employee had knowledge that they would be terminated, the retirement will be considered an involuntary termination. Moreover, in many cases, to “retire” simply means that the employee has met certain age and service conditions at the time of a termination of employment. So, if the employer terminates an employee who meets the applicable age and service requirements, the employee could retire, but still was involuntarily terminated.

More to Come

Even with the issuance of IRS Notice 2021-31, there are many unanswered questions that arise in connection with the ARP COBRA premium subsidy, particularly related to eligibility for the subsidy and the tax credit.  Stay tuned for important updates on these issues.

All Good Subsidies Must Come to an End, Part II: The IRS Adds Some Nuances

In an earlier post we reviewed the end dates for the ARP COBRA premium subsidy provided by the American Rescue Plan Act of 2021 (“ARP”), and addressed the required expiration notice.  This post revisits the topic in light of the new guidance in IRS Notice 2021-31 (the “Notice”).

In general, for individuals otherwise eligible for the COBRA premium subsidy, the subsidy ends on the earliest of:

  • The end of the subsidy period set forth in the statute (September 30, 2021),
  • When the individual reaches the end of their maximum COBRA continuation period, or
  • The first month of coverage beginning on or after the first date that the individual becomes eligible for other, disqualifying coverage.

However, the new IRS guidance provided some clarifications and nuances, addressed below.

End of the Statutory Subsidized Period (September 30, 2021)

ARP makes subsidized COBRA coverage available to eligible individuals through September 30, 2021.  In the Notice, the IRS explained that, for individuals still eligible for the premium subsidy on September 30th, the subsidy will not necessarily end on that date. Instead, the subsidy continues until the end of the last “period of coverage” beginning on or before September 30, 2021.  A “period of coverage” means a month or shorter period with respect to which premiums would normally be charged.  For example, if premiums are usually assessed on a bi-weekly period basis, including the period from September 25th to October 8th, the subsidy would not be prorated to September 30th, but would instead cover the entire period.

The IRS also clarified in the Notice that COBRA coverage continues automatically when the premium subsidy period expires, subject to timely payment of premiums according to the terms of the plan and the extended due dates under the COVID-19 Emergency Relief Notices.

Maximum COBRA Continuation Period

The COBRA premium subsidy ends when an assistance eligible individual is no longer eligible for COBRA continuation coverage. The IRS guidance clarified that an otherwise assistance eligible individual continues to be eligible for the subsidy if they remain on COBRA for an extended period (beyond the 18-month period applicable to an involuntary termination or reduced work hours), due to a Social Security disability determination, second qualifying event, or an extension under a State mini-COBRA law. For example, if an individual who was involuntarily terminated on April 1, 2019 is still receiving continuation coverage due to New York’s mini-COBRA extension (i.e., continuation coverage for up to 36 months), then they will be entitled to the premium subsidy from April 1, 2021 through the end of the period of coverage beginning on or before September 30, 2021, assuming they remain assistance-eligible (i.e., not eligible for other disqualifying coverage).

Additionally, the IRS guidance specified that the death of the employee or former employee who experienced the reduction in hours or involuntary termination will not end their spouse’s or children’s eligibility for the COBRA subsidy.

Disqualifying Coverage

The COBRA premium subsidy ends when an assistance eligible individual becomes eligible for (even if not enrolled in) disqualifying coverage. Disqualifying coverage includes Medicare or another group health plan, but does not include excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA), or a health FSA.  The IRS explained in the Notice that if an individual meets the eligibility requirements for disqualifying coverage but there is a waiting period before such coverage starts, the individual will continue to be eligible for the premium subsidy during the waiting period.

If an employee retires and becomes eligible for retiree coverage that is not COBRA continuation coverage, such retiree coverage may or may not constitute disqualifying coverage. In its guidance, the IRS distinguished between retiree coverage offered under the same group health plan, in which case such coverage would not be disqualifying, and coverage offered under a separate plan, which would be disqualifying. The rules for determining whether plans offered by the same employer (such as an active plan and a retiree plan) constitute one or more group health plans can be complicated, and generally turn on the documentation and plan operation.  Legal counsel can help determine whether a retiree plan may be considered part of the active plan (i.e., not disqualifying from the subsidy).

The IRS also clarified that if an individual is eligible for coverage under another plan that would otherwise be disqualifying, but the coverage under that plan is COBRA continuation coverage, such other coverage will not render the individual ineligible to receive a premium subsidy.

Take Away

Generally, the IRS guidance is consistent with the text of ARP and the DOL’s discussion of when premium subsidies end. However, the IRS provided some clarifications with respect to specific scenarios. When in doubt, reach out to legal counsel for more information about when an individual’s subsidy will end.

Guide to New IRS Guidance on COBRA Premium Subsidy

On May 18, 2021, the IRS released Notice 2021-31, which provides implementation guidance on the COBRA premium subsidy available under the American Rescue Plan Act of 2021 (ARP).  As discussed in our prior blog posts, ARP includes a 100% COBRA premium subsidy for qualifying individuals during periods of COBRA continuation coverage from April 1, 2021 through September 30, 2021.

The guidance in Notice 2021-31 includes helpful information for employers and plan sponsors administering the COBRA premium subsidy and claiming the related tax credit.  At the same time, however, the Notice introduces new questions regarding the subsidy that may require future Treasury and IRS input.  Read below for more details about the guidance, and stay tuned for additional blog posts that dive into the issues summarized below.

  • Eligibility for COBRA Premium Assistance and Self-Certification

To receive COBRA premium assistance, an individual must be an “Assistance Eligible Individual,” which is defined in Notice 2021-31 as any individual who: (1) is a qualified beneficiary as the result of the covered employee’s reduction of hours or involuntary termination of employment; (2) is eligible for COBRA coverage for some or all of the COBRA premium subsidy period (April 1, 2021 through September 30, 2021); and (3) elects COBRA.

Notice 2021-31 confirms that an employer or other plan sponsor may require individuals to self-certify or attest that they meet the eligibility criteria to receive the COBRA premium subsidy and are not eligible for other disqualifying health coverage or Medicare.  An employer or other plan sponsor may rely on the individual’s attestation for the purpose of substantiating eligibility for the tax credit unless the entity has “actual” knowledge that the attestation is incorrect.

In a somewhat surprising twist, Notice 2021-31 states that individuals whose initial 18-month COBRA period was extended due to a disability determination, second qualifying event, or an extension under State mini-COBRA, are eligible for the COBRA premium subsidy during their extended COBRA period, provided that the original qualifying event was a covered employee’s reduction in hours or involuntary termination of employment and the individual elected COBRA coverage and remained on such coverage during the extended period.  More context on this rule—including what notices (if any) these individuals are required to receive—would be helpful for implementation purposes.

  • Reduction in Hours/Involuntary Termination of Employment

To qualify as an Assistance Eligible Individual, the qualified beneficiary must have lost coverage as a result of the covered employee’s “reduction in hours” or “involuntary termination of employment.” Notice 2021-31 provides guidance on the definition of “involuntary” for this purpose, and includes pandemic-specific examples relating to terminations resulting from workplace safety issues and inability to obtain childcare.  The Notice also addresses issues relating to furloughs and work stoppages, and includes examples of qualifying terminations in the context of window arrangements and retirement.

  • Coverage that Qualifies for COBRA Premium Assistance

COBRA premium assistance is available for COBRA coverage that is otherwise available under a group health plan subject to ERISA, the Internal Revenue Code, or the PHSA (except for health FSAs), as well as coverage pursuant to a state law that requires continuation coverage comparable to federal COBRA coverage.  Notice 2021-31 addresses several questions regarding the “type” of COBRA coverage that qualifies for COBRA premium assistance.  The Notice confirms that COBRA premium assistance is available for coverage under a vision-only or dental-only plan, and provides details about qualifying retiree coverage and coverage under a health reimbursement account (HRA).  The Notice also supplies guidance on what types of state continuation coverage qualify for COBRA premium assistance.

  • Extended COBRA Election Period

One key feature of the COBRA premium assistance available under ARP is the “extended election period”—a special election window for individuals who previously declined or discontinued COBRA coverage, but who would be Assistance Eligible Individuals if enrolled in COBRA during the COBRA premium subsidy period (April 1, 2021 through September 30, 2021).  For the most part, the Notice is silent on “who” is eligible for the extended election period—a question on which stakeholders were hoping for more detail from the IRS.  However, the Notice answers a “grab bag” of other questions on the extended election period.  One point addressed in the Notice is that individuals who were offered COBRA coverage for both comprehensive medical and also dental and vision coverage but previously elected COBRA coverage only with respect to dental or vision coverage must also be offered the extended election period with respect to the comprehensive medical coverage.  The Notice also confirms that the extended election period is not available if the continuation coverage is provided solely under a state program.

  • Implications of Special Emergency Disaster Relief

In response to the COVID-19 pandemic, the DOL, HHS, and IRS provided a special tolling period for certain deadlines under employee benefit plans, including the deadline for qualified beneficiaries to elect COBRA coverage and make COBRA premium payments.  Notice 2021-31 confirms that this special tolling relief does not apply to the 60-day deadline for an individual to elect COBRA continuation coverage with premium assistance or to the plan administrator’s obligation to furnish extended election period notices by May 31, 2021. Stay tuned for a future blog post covering additional details about the interaction between the special tolling relief and COBRA premium assistance.

  • Calculation of COBRA Premium Assistance Credit

COBRA premium assistance is implemented by means of a tax credit, whereby the person to whom COBRA premiums would otherwise be payable may claim a tax credit in the amount of the premium.  In general, the credit for the applicable quarter is equal to the amount of the COBRA premiums that are not paid by Assistance Eligible Individuals, including any applicable administrative fee.  Notice 2021-31 provides guidance on the calculation of this tax credit, including details on how to calculate the credit if the employer subsidizes COBRA premiums for individuals who are not eligible for COBRA premium assistance and how to allocate the credit if COBRA coverage also is provided to individuals who are not eligible for the subsidy.

  • Claiming the COBRA Premium Assistance Credit

The COBRA premium assistance tax credit is available to the premium payee for the COBRA continuation coverage.  Notice 2021-31 includes details on “who” qualifies as a premium payee for purposes of claiming the credit and “when” the premium payee can first claim the credit, as well as details for premium payees wishing to request an advance of the anticipated tax credit.  The Notice also provides directions on how to claim the tax credit for premium payees without any employment tax liability (such as a multiemployer plan with no employees), as well as premium payees that use a third-party payer to report and pay employment taxes to the IRS.

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This blog post is intended as a general overview of Notice 2021-31.  Look out for additional blog posts taking a closer look at the guidance, including details on calculating and claiming the COBRA premium subsidy tax credit.


The Wait is Over: Treasury and IRS Release COBRA Premium Subsidy Guidance

Today, the Treasury Department and the IRS released detailed questions and answers providing guidance on various implementation issues related to the COBRA premium subsidy under the American Rescue Plan Act of 2021 (ARP).

By way of background, ARP includes a 100% COBRA premium subsidy for qualifying individuals during periods of coverage from April 1, 2021 to September 30, 2021.  The COBRA premium subsidy is implemented by means of a tax credit, whereby the person to whom COBRA premiums would otherwise be payable claims a tax credit in the amount of the premium.

Today’s guidance provides detailed information about how to calculate and claim that tax credit.  It also provides information about other implementation issues, including the following:

  • who is eligible for the premium subsidy,
  • when a termination of employment is considered involuntary for subsidy purposes,
  • the types of coverage to which the subsidy applies,
  • the period of coverage to which the subsidy applies,
  • the right to make a special COBRA election, and
  • the interaction with state mini-COBRA coverage.

A link to the guidance is here.  Continue watching our blog for more information about this guidance over the coming days and weeks.


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.


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