FAQ: What circumstances are considered “involuntary termination” for purposes of eligibility for COBRA premium assistance under ARPA?
An employer must use a facts and circumstances test in order to determine whether termination is involuntary for purposes of COBRA premium assistance eligibility under the American Rescue Plan Act of 2021(ARPA).
The ARPA provides premium assistance for qualified beneficiaries who elect continuation coverage through COBRA, including state continuation programs. To be an assistance eligible individual (AEI), a qualified beneficiary must have experienced a reduction of hours or an involuntary (i.e., employer-initiated) termination of their employment (other than by reason of such employee's gross misconduct) and must also not be eligible for other group health coverage or Medicare. This subsidy covers the entire cost of COBRA premiums and applies to COBRA premiums paid for coverage periods between April 1, 2021, and September 30, 2021 (or when the qualified beneficiary becomes eligible for other group medical or Medicare coverage, whichever date comes first).
On May 18, 2021, the IRS issued guidance related to COBRA premium assistance under the ARPA. This guidance defined involuntary termination as an employer’s unilateral decision to terminate employment when the employee is willing and able to continue performing services. As an example, IRS Notice 2021-31 explains that termination is involuntary, even if it is designated as voluntary, when the facts and circumstances indicate that the individual was willing and able to continue working and but for the voluntary termination, the employer would have terminated the individual (and the individual was aware that they would be terminated).
Since the ARPA was signed into law, how to determine if a termination was in fact involuntary remained unclear in certain circumstances. That said, the notice clarified that:
- Voluntary termination due to general concerns about workplace safety, a health condition of the employee or a family member, or other similar issues generally will not be involuntary termination. This is because the actual reason for the termination is unrelated to the action or inaction of the employer.
- Absence from work due to disability or illness is not an involuntary termination unless the employer takes action to terminate employment. However, this could be a reduction in hours that may give rise to premium assistance if the individual loses coverage as a result of the leave.
- Involuntary termination includes when an individual voluntarily terminates employment due to being offered a severance agreement or imminent termination.
- Generally, retirement is a voluntary termination except for when the facts and circumstances indicate that, absent retirement, the employer would have terminated the individual’s employment and the individual was aware that they would be terminated and was willing and able to continue working.
- Employees who voluntarily terminated employment because they do not have childcare would not be AEIs. However, if such employees remain employed, take leave for that reason, and lose coverage this would be considered a reduction in hours that may make them AEIs.
- Involuntary termination includes a situation where an employee voluntarily terminates employment because of the employer’s material change to the employment relationship such as a reduction in hours or change in geographic location of worksite.
- An employer’s decision not to renew an employee’s contract is an involuntary termination only if the employee is willing and able to continue the employment relationship. However, if all parties always understood that the contract was for specified services over a set term and would not be extended, the completion of the contract without it being renewed is not an involuntary termination.
Not all terminations will fall neatly into the scenarios provided above. As mentioned, whether a termination is considered voluntary will ultimately depend on whether facts and circumstances show that the termination was the employer’s unilateral decision to terminate employment when the employee is willing and able to continue performing services. Clients may need to seek counsel to make such a determination.
View this article on NFP.com.