Lookback period for COBRA subsidy eligibility could complicate administration

NOTE: after this article was posted, the DOL issued FAQs for employers and employees, along with notice models.

The administration of the new COBRA subsidy in the American Rescue Plan Act of 2021 (ARPA) could be complicated due to the determination of eligible individuals during the lookback period. That’s according to experts at a recent Segal webinar that addressed the law’s COBRA provisions along with others affecting plan sponsors.

Subsidy eligibility. Pursuant to the ARPA, a temporary 100-percent reduction in premiums for COBRA continuation coverage is provided to assistance eligible individuals who are either involuntary terminated or suffer a reduction of hours from employment from April 1, 2021 through September 31, 2021. The involuntary termination or reduction in hours does not have to be COVID-related for subsidy eligibility purposes, explained Julia Zuckerman, Vice President & Senior Consultant, Compliance at Segal. However, the subsidy is not available for individuals who voluntarily terminated employment.

Retroactive? In addition, Zuckerman addressed several questions regarding whether the subsidy is retroactive. She explained the subsidy is available to individuals who lost coverage and became eligible for COBRA prior to April 1, 2021, and the period of COBRA coverage to which they would be entitled (18 months) includes any month between April and September of 2021 — even if the individual did not elect COBRA when it was initially offered or elected COBRA but discontinued it before April 1, 2021. Generally, this means anyone who had — or could have had — COBRA as far back as November 2019, because their 18 months of coverage would extend through April 2021.

Notice requirements. The ARPA requires plan sponsors to provide assistance eligible individuals with notice of the availability and expiration of the subsidy. There is no model notice just yet, but the DOL should be issuing one by April 10, Zuckerman said. She recommended that plans “wait and see” and not try to create their own notice. Plans should, however, start to identify who needs to receive the notice and consider whether to permit individuals to enroll in different coverage if they are already enrolled in coverage, she said. The ARPA allows, but does not require, that option.

Who pays? The employer or plan covers the COBRA premium paid to a carrier and can seek reimbursement via a payroll tax credit, according to David Brenner, Senior Vice President & National Director of Multiemployer Consulting at Segal.

Dependent care assistance. The speakers also noted that for 2021, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500. Plan sponsors can, but are not required, to amend their cafeteria plans retroactively to adopt this increase. The amendment must be done by the last day of the plan year in which the amendment is effective.

Pension funding. The speakers also addressed single-employer pension plan funding relief. The ARPA made changes to the amortization of funding shortfalls and the interest rate corridor. Multiemployer pension plan funding relief was discussed as well with the speakers noting that the ARPA is the most significant multiemployer plan legislation since the Multiemployer Pension Reform Act, which was enacted in 2014.

SOURCE: Segal webinar, What the American Rescue Plan Act of 2021 Means to Plan Sponsors, March 16, 2021.

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