Chaz

Thanks for the post Kimb. That was a very interesting response from the IRS. As you probably know, unfortunately, "sticky situations" like this happen all the time.

I don't know the answer to any of your questions, although I believe that my client just spoke to a regional rep in the client's area so it probably wasn't a senior person. I also don't know how she phrased the question but she is faced with multiple terminations on December 31 so I feel fairly confident that she asked it in the correct way. I can't disagree with you about the optics and the effect on employees but doesn't the simple fact that the DOL felt compelled to issue new guidance indicate that the answer is "NO"?

A client spoke with a live person at the DOL who confirmed that the answer is "NO" (i.e., COBRA eligibility starts on January 1) so it apparently have considered the issue, although it reached the wrong answer in my view. Of course, my view counts for nothing.

The DOL pretty much said exactly what it said before (that a person is an AEI only if the person is eligible for COBRA continuation coverage at any time during the period ending on December 31, 2009). See above for my two hypothetical scenarios, the answers to which are still not clear to me even after the new guidance. (This is all theoretical, as the DOL pretty clearly is saying that I am wrong in its view.

The DOL just put on guidance on this. Although, to me, they seem to just be reiterating their past statements and don't really answer the question, it appears as if they are saying the answer is "NO" but that there is pending legislation. http://www.dol.gov/ebsa/faqs/faq-cobra-arra.html

Let's hope that Congress extends the subsidy into 2010 and makes this moot. Of course, with our luck, they will extend the law but only make the extension effective for terminations/losses of coverage after January 1.

Another hypothetical: What if plan is not artfully drafted and says that "coverage ends at midnight on the last day of the month"? (Real world plan language, unfortunately.) If so, coverage actually ends between December 30 and December 31 (but on December 31). If a terminated employee goes to the hospital the afternoon or evening of December 31, he or she is not covered as an active employee any more, but will the employee be covered for the expenses by electing COBRA?

If loss of coverage is January 1, 2010, someone who terminates on December 31, 2009 would not be eligible for the subsidy under any circumstances, right? Why, then do Congress and the IRS have the language about those terminating employment through December 31 being eligible for the subsidy?

Thanks for the link. I missed that thread. I think the argument that the loss of coverage occurs on January 1 is unpersuasive. If coverage ends, as you state as an example on the other thread, at 11:59:59 on December 31, wouldn't the employee be eligible for COBRA coverage on 11:59:5901 on December 31? (Technically, there would be an infinite number of zeros before the one, I think.)

The answer to this seems obvious to me but a large and prominent COBRA administrator feels differently than I do: An employee involuntarily terminates employment on December 31, 2009, and loses coverage at the end of that day. If the employee otherwise meets the requirements, can the employee receive the COBRA subsidy? (This scenario would also apply to employees who involuntarily terminate during December and whose coverage ends until the end of the month.)

Scenario: Seller is selling a division to Buyer in a stock sale. Buyer will not be able to provide health insurance for three months so, although COBRA is not required to be offered for continuing employees, Seller agrees to cover employees under Seller's self-insured plan for the three-month period. If an employee terminates employment (or a participant otherwise incurs a qualifying event) during the three-month period, is Seller required to offer the employee continuation coverage?

Thanks for the response. There is an added wrinkle, however: The first QMCSO is actually in effect right now and the EE is going through the process of obtaining the second one, which probably won't be finished until sometime next year (e.g., January). Meanwhile, the employer is having its annual open enrollment period, during which time the EE would have to elect coverage for himself and child in accordance with the QMCSO. With my new facts, will the employer now be "monkeying" the EE's election come January when the new QMCSO is presented? Or, perhaps, is the EE not making an "election" (even though it is now OE) because he is still being forced to be on the plan by reason of the first QMCSO?

Employee is not enrolled in employer's cafeteria plan. Under employer's plan, dependents can only participate if the employee is enrolled. Employee presents QMCSO requiring his child to be added to plan. Accordingly, to meet the plan requirements and the QMCSO, Employee and child are added to plan pursuant to Prop. Treas. Reg. 1.125-4(d) Employee obtains QMCSO requiring former spouse to add the child and wants to disenroll the child and himself from the Plan. Under Prop. Treas. Reg. 1.125-4(d)(ii), as long as the child is actually enrolled in the spouse's plan, coverage for the child can be dropped mid-year. But under what 125 provision can the employee drop his coverage? This has to come up occasionally. Thanks.

Anyone have any thoughts on this?

Without going into detail, it is possible to have a MERP and an HSA at the same time but only if the MERP cannot be used to reimburse the same expenses at the same time as the HSA. You probably need an attorney to draft the relevant MERP provisions for you.

An HSA is NOT a form of MERP. You may be thinking of an HRA, which is simply a MERP with a rollover feature.

Lighten up, Francis

If the FSA is an "excepted benefit," there is no need to comply with Michelle's Law. The cafeteria plan itself is not a group health plan and need not comply but any underlying other group health plans paid through the cafeteria plan that are not excepted benefits have to comply with the law.

Are there any New York practitioners that have any thoughts on this?

See these examples copied and pasted from the proposed regs: Example 1. Same qualified benefit for same salary reduction amount. Employer A has one employer-provided accident and health insurance plan. The cost to participants electing the accident and health plan is $10,000 per year for single coverage. All employees have the same opportunity to salary reduce $10,000 for accident and health plan. The cafeteria plan satisfies the eligibility test. Example 2. Same qualified benefit for unequal salary reduction amounts. Same facts as Example 1 except the cafeteria plan offers nonhighly compensated employees the election to salary reduce $10,000 to pay premiums for single coverage. The cafeteria plan provides an $8,000 employer flex-credit to highly compensated employees to pay a portion of the premium, and provides an election to them to salary reduce $2,000 to pay the balance of the premium. The cafeteria plan fails the eligibility test. Example 3. Accident and health plans of unequal value. Employer B’s cafeteria plan offers two employer-provided accident and health insurance plans: Plan X, available only to highly compensated participants, is a low-deductible plan. Plan Y, available only to nonhighly compensated participants, is a high deductible plan (as defined in section 223©(2)). The annual premium for single coverage under Plan X is $15,000 per year, and $8,000 per year for Plan Y. Employer B’s cafeteria plan provides that highly compensated participants may elect salary reduction of $15,000 for coverage 117 under Plan X, and that nonhighly compensated participants may elect salary reduction of $8,000 for coverage under Plan Y. The cafeteria plan fails the eligibility test. Example 4. Accident and health plans of unequal value for unequal salary reduction amounts. Same facts as Example 3, except that the amount of salary reduction for highly compensated participants to elect Plan X is $8,000. The cafeteria plan fails the eligibility test.

I refer you to Prop. Treas Reg. 1.125-7 for the cafeteria plan nondiscrimination rules. The rules apply to POP plans. On an unrelated note, does anyone have any idea when final 125 regs are coming out.

Yes. If the employer pays the full premium or if the employee pays with AT dollars, there is no cafeteria plan testing issues (because there are no payments through a cafeteria plan).

If the HCEs pay their portion of their premium through a cafeteria plan, there are separate nondiscrimination rules that must be satisfied.

New York has adopted a law requiring insurers to permit children of policyholders the ability to continue coverage under the group health plan of the policyholder through age 29. The law has a number of nuances and inconsistencies but I am stumped by one of them: The law provides that eligible children may elect the continuation option "during the annual 30-day open enrollment period described in the group health insurance policy or contract." What does that mean? I have found no discussion of this. Most employers' open enrollment periods are shorter than 30 days. Does that mean that employers must have a longer period for dependents to enroll? Wouldn't that be preempted by ERISA? Do New York insurance contracts require a 30-day open enrollment period? Any help would be appreciated.

I agree. If the employee requests the subsidy, deny it and have the DOL make the call. They have said that they are going to rely heavily on the employer's determination as to whether a termination is involuntary and I think that will be the same with gross misconduct determinations.