Contractors need to take immediate action to locate all eligible participants and distribute eligibility notices, since all notices must be distributed by April 18.

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.