Early Retirement Windows

[PJ2009]

Can an employer elect to pay for the health insurance of employees who elect an early retirement package for a set period of time, essentially deferring the start of COBRA?

[J Simmons]

There's at least one federal court decision that has held that the EEs in such a situation would be losing coverage when the set period of time ends, but not by reason of their termination of employment--and therefore those EEs might not be entitled to COBRA continuation rights at that time.

[CEB]

Why not just subsidize the cobra premiums, rather than delaying COBRA? I would imagine you would have to do this for all employees in the same situation regardless of level in the company. Also, don't forget this might fall under the COBRA Stimulus subsidy rules as well

[Guest anygig]

See 26 USC 4980B(f)(8) that explicitly allows an employer to start the maximum COBRA period from the loss of coverage date, rather than the qualifying event date --- IF the plan document so allows. Also see IRS Notice 2009-27; Q&A 14. Although this is related to the new subsidy, it indicates that the answer to your question depends on how the employer (meaning the plan) treats the payments - if they are considered part of the obligation to provide COBRA, the period starts on the termination date; if they are treated as delaying the end of health coverage, the COBRA period starts as of the date health coverage would otherwise be lost (when the employer stops paying for it). This is also the case for multiemployer plans, where participants can essentially build-up future health plan coverage, such that the date COBRA starts may be months after the date employment ends. The COBRA regulations specify that COBRA must be offered when the individual would otherwise lose coverage under the plan as a result of a qualifying event. 26 CFR 54.4980B-1. The loss of coverage definition in the regs may also be helpful to answer your question. 26 CFR 54.4980B-4, A 1©.

[oriecat]

You would also need to check your plan docs to make sure they can remain on the plan if they are not active and not on COBRA.

[Guest Seaire]

If an employer pays monthly health insurance premiums that are normally paid by the retiree for retiree coverage, is the premium subsidy an HRA this is subject to COBRA?

Technically, no account is created for the retiree, but there is a formal agreement for the employer to pay the monthly premium for certain period of time.

The goal, of course, is to make the insurance payments non-taxable for both employer and employee, and ideally, without the COBRA complications an HRA introduces. Is it still possible to simply pay premium through a TPA without the use of an HRA, and achieve tax-free treatment of the payments?

[Guest jackmo]

I don't see why you couldn't do this. You are simply creating a separate classification of employees (those who elect the early retirement package) for whom the corporate contribution rate toward their insurance is 100%.

But if providing coverage beyond the termination date, better do like Oriecat says and check with the insurance carrier to see if it will cover non-actively at work individuals. If OK with the insurance carrier, you would set up a MERP/HRA to pay the premiums, which would guarantee both the employer and the employee tax free treatment.

[Guest Seaire]

I don't see why you couldn't do this. You are simply creating a separate classification of employees (those who elect the early retirement package) for whom the corporate contribution rate toward their insurance is 100%.

But if providing coverage beyond the termination date, better do like Oriecat says and check with the insurance carrier to see if it will cover non-actively at work individuals. If OK with the insurance carrier, you would set up a MERP/HRA to pay the premiums, which would guarantee both the employer and the employee tax free treatment.

Thanks, Jackmo.