Wrap Plan Documents and the New COBRA Subsidies

Yet again, employers are faced with a new roadmap to follow in compliance. The recent developments on COBRA subsidies may help former employees; however, they are quite an undertaking for the employers. Our ERISA Desk team has prepared helpful notes to grasp the necessary details, as well as an outline of a clear and concise action plan. Furthermore, specific steps by the ERISA Desk team on our Wrap Plan Documents and SPDs are included (see number 5).

Key Notes:

The American Rescue Plan Act (ARPA) includes a temporary six-month COBRA (and state mini-COBRA) subsidy that allows qualified individuals to stay on their employer-sponsored group health plan (medical, dental, vision) at no cost.

Individuals qualify for the COBRA subsidy when they have lost group health plan coverage due to a layoff, furlough, or reduction in hours.

The subsidy became available on April 1, 2021 and will generally end on September 30, 2021.

The DOL recently issued model notices for implementing the COBRA subsidy, as well as FAQs for individuals and employers (both available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy).

General Action Plan for Employers:

1. Identify Assistance Eligible Individuals (AEI)

• The first type of AEI is an individual entitled to COBRA coverage any time after April 1, 2021, and before September 30, 2021, who timely enrolls in COBRA coverage and has been paying for COBRA premiums.
• The second type of AEI is entitled to COBRA coverage but failed to elect continuation coverage or timely elect coverage but dropped that coverage prior to April 1, 2021. Individuals in the second category have 60 days to enroll. Note that entitlement to an extended election opportunity under the ARPA does not serve to extend the AEI’s COBRA maximum coverage period under the plan (generally 18 months), which will continue to be based on their initial qualifying event.

2. Decide Whether or Not to Allow Plan Changes

• If the employer provides multiple coverage options under its plan, the employer needs to determine whether to permit AEIs or to switch to a different, less expensive option than the one in which they were enrolled at their qualifying event.

3. Send Notices to AEIs

• Employers should send out the notice to all AEIs using the applicable DOL notice form.
• Employers must provide the notice to AEIs within 60 days following April 1, 2021 (by May 31, 2021).
• The employer should communicate with its COBRA administrator to discuss the ARPA notice requirements.

IRS guidance notes that the COVID-19 “Outbreak Period” extension of certain participant notice deadlines does not apply to the ARPA subsidy notice deadlines.

4. Claim the Credit

• The IRS intends to revise Form 941 to accommodate claiming the COBRA premium subsidy credit against the employer’s Medicare taxes for the new subsidy period.

5. Review/Amend Plan Documents

• ERISA requires a summary of material modification to be distributed to plan participants within 210 days after the end of the plan year in which a change to plan benefits has been adopted.
• Our ERISA Desk team is currently working with an ERISA attorney to update our summary plan description’s COBRA continuation coverage section to add the ARPA COBRA subsidy provisions.
• We also intend to send our mandatory legislative amendment and summary of material modifications to our clients around mid-November, which will include the ARPA COBRA subsidy language.

We fully appreciate how these new developments can be as trying as finding one’s way through a labyrinth. If you have any questions or need further clarification, don’t hesitate to reach out to Wrangle for assistance. You can reach out to Ann McAdam at amcadam@wrangle5500.com.