The
American Recovery and Reinvestment Act makes several important changes to the
requirements that contractors must meet in order to comply with COBRA.
Contractors and construction companies need to take immediate action to locate
all eligible participants and distribute eligibility notices, since all notices
must be distributed by
April 18.
Grant
Thornton LLP’s Construction group and Compensation and Benefits practice have
identified key points that contractors and construction companies should be
aware of in the new requirements:
- The changes
are generally effective March 1, 2009, and require employers to pay 65 percent
of COBRA continuation coverage premiums for “assistance-eligible individuals”
for up to nine months after their separation from service. The
assistance-eligible individuals pay only the remaining 35 percent of the
premium.
An “assistance-eligible
individual” is generally defined as an employee who is involuntarily terminated
between Sept. 1, 2008, and Dec. 31, 2009, who elects COBRA coverage and pays 35
percent of the required premium amount.
- The employer
subsidy applies if assistance-eligible individuals elect COBRA coverage and
actually made payment of 35 percent of the premium amounts.
- All employees
who were involuntarily terminated on or after Sept. 1, 2008, are eligible for
the subsidy, including those who initially elected COBRA coverage, those who
did not, and those who failed to continue it under some circumstances.
Employers must send these former employees a notice of eligibility by April 18,
2009, allowing them 60 days to elect COBRA continuation coverage at the 35
percent premium rate.
- The U.S.
Treasury will reimburse the employer that is responsible for the plan for the
portion of the premium it pays (i.e., 65 percent) through a credit on its
quarterly employment tax return (Form 941).
- The subsidy
rate is prospective for all COBRA coverage periods beginning on or after Feb.
17, 2009. Thus, the premium reduction starts on March 1, 2009, for plans that
charge for COBRA coverage on a calendar-month basis.
“All contractors should
note that appropriate documentation and filing the appropriate forms with the
government is required in order to receive the reimbursement from the U.S.
Treasury,” said
Todd Taggart, tax partner and
practice leader of Grant Thornton’s Construction practice.
