UBP blog

07/15/2009

When is resignation “involuntary termination”?

Filed under: ARRA Act COBRA Subsidy,COBRA — ubpblogger @ 8:58 am
Tags: , ,

For the purposes of the new ARRA Act COBRA subsidy, determining who qualifies as an Assistance Eligible Individual (AEI) due to an “involuntary termination” is a lot more complicated than many HR professionals think. That’s why the IRS released Notice 2009-27 on April 1, 2009 and included in it both a definition and further clarification of “involuntary termination” when dealing with the COBRA subsidy. With just two weeks left to notify all AEIs of the new COBRA subsidy, HR professionals must know what exactly “involuntary termination”means, what it includes and what it excludes. That way they can ensure compliance by notifying everyone about the subsidy and not inadvertently leaving anyone out.

The Notice defines an “involuntary termination” as:

“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”

based on all the facts and circumstances.

For COBRA Premium Assistance purposes, the facts and circumstances are what determine whether a termination is involuntary.

This means that under the IRS Notice 2009-27, a termination otherwise deemed “voluntary” (or a resignation) will be considered involuntary if the facts and circumstances indicate that the employer would have terminated the employee anyway and that the employee knew that his or her employment would be terminated.

In Notice 2009-27, the IRS gives examples of situations where the terminated employee would be eligible for COBRA due to the fact that his or her termination was deemed “involuntary” given the facts and circumstances. These circumstances include, among other things:

  • Failure of an employer to renew an employee’s contract at the time it expires (provided that the employee in question is willing and able to continue work under the contract)
  • Constructive discharge
  • Involuntary reduction in an employees work hours to zero resulting in loss of health coverage
  • Early retirement of employees who would have been laid off otherwise
  • Voluntary termination of employment due to an employer-initiated material reduction in the employee’s work hours or material change in the geographic location
  • Voluntary termination in return for a severance package (i.e. a buy-out) offered to the employee by his or her employer.
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