The Internal Revenue Service (IRS) recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Involuntary Termination under Notice 2009-27.

According to the IRS, “involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” The facts and circumstances surrounding each termination will determine if a termination is involuntary. The IRS does clarify that the involuntary termination is from employment, not health coverage. Therefore, if someone is involuntarily terminated from a health plan of a spouse due to divorce, the terminated individual does not qualify for the premium reduction.

The following examples are generally considered involuntary terminations:

1. Employer’s failure to renew a contract if the employee was willing and able to provide services under similar terms and conditions
2. Employee-initiated termination due to “employer action that causes a material negative change” for the employee
3. Employee resignation when the employee had knowledge that the employer was about to terminate the employee
4. Employee retirement when the employee had knowledge that the employer was about to terminate the employee
5. Employee voluntary termination when the employer had reduced hours resulting in “a material negative change” for the employee
6. Lay-off with right of recall
7. Temporary furlough period
8. Employer termination of employee’s job while employee is out due to illness
9. Employer termination of employee’s job while employee is on disability leave
10. Involuntary termination for cause, although gross misconduct may result in the employee’s disqualification for federal COBRA benefits
11. Resignation of an employee due to a “material change in the geographic location of employment for the employee”
12. Employer initiated lockouts
13. An employee-elected termination in acceptance of a severance package when the employer indicates that a certain number of employees must accept the package or layoffs will result

The following examples are generally not considered involuntary terminations:

1. A reduction in hours if the reduction is not to zero, but see 5 above for exception
2. Absence from work due to illness
3. Absence from work due to disability
4. Death of an employee
5. Retirement, but see 4 above for exception
6. Work stoppages due to strikes imitated by employees or their representatives

The next topic covered will be Assistance Eligible Individual or AEI. Contact Vision Payroll if you have any questions on Notice 2009-27.