Pennsylvania Labor and Employment Blog : Pennsylvania Labor and Employment Lawyer & Attorney : McNees Wallace & Nurick Law Firm : Human Resources, Workplace and Business Law : Harrisburg, Lancaster, Allentown, Lehigh

On February 26, 2009, the Internal Revenue Service released detailed information that will help employers claim credit for the COBRA medical premiums they pay for their former employees.

Under the new law, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage.  Employers must treat the 35 percent payment by eligible former employees as full payment, but the employers are entitled to a credit for the other 65 percent of the COBRA cost on their payroll tax return.

• Employers must maintain supporting documentation for the credit claimed. This includes:
• Documentation of receipt of the employee’s 35 percent share of the premium.
• In the case of insured plans: A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier.
• Declaration of the former employee’s involuntary termination.

The informational Release is IR-2009-15, includes an amended Form 941 and the Instructions,  together with a Q&A for Employers.  The Q&A makes the following notes on implementing and claiming the subsidy:

• The Employer may provide the subsidy (65%) and take the take the credit on its employment tax return only after it has received the 35% premium payment from then intdividual.
• The law became effective on the date of enactment, Feb. 17, 2009. However, under a transition rule, the regular premium amount may continue to be paid for up to two months after enactment (e.g., for March and April), and the subsidy can be provided retroactively.
• An employer can reduce its tax deposits or claim the credit on its quarterly return.
• An assistance-eligible individual can be any COBRA qualified beneficiary associated with the related covered employee, such as a dependent child of an employee, who is covered immediately prior to the qualifying event. The qualifying event for purposes of eligibility for the subsidy is involuntary termination of the covered employee’s employment that occurs during the period beginning Sept. 1, 2008, and ending Dec. 31, 2009. The individual must also be eligible for COBRA coverage, or similar state coverage, during this period.
• Model notices implementing the law will be issued shortly apparently by the Department of Labor.
   

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The Associated Press reports that "California Rep. Hilda Solis won confirmation Tuesday as President Barack Obama's labor secretary, giving the agency a decidedly pro-worker tilt after years of business-friendly leadership under the Bush administration…. The 80-17 vote ended more than a month of delays prompted by GOP concerns over Democrat Solis' work for a pro-union organization, and later, revelations about her husband's unpaid taxes."

Ms. Solis is a union proponent as described by John Phillips of The Word on Employment Law in his post Hilda Solis, Secretary of Labor Nominee — Say, “Union Yes”.  At her confirmation hearing, Secretary Solis avoided being drawn into a fight over matters such as the Employee Free Choice Act a/k/a the 'card check' bill, which she co-sponsored in the House. She received campaign contributions from several unions in her 2006 bid for Congress.  The new Secretary of Labor's Biography appears on the Department of Labor website.

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On February 21, 2009, the Internal Revenue Service released new withholding tables implementing the new Making Work Pay credit, one of the key tax provisions included in the American Recovery and Reinvestment Act of 2009.

The new withholding tables, along with other instructions related to the new tax law, will be incorporated in new Publication 15-T. This publication will be posted to this Web site next week and mailed to more than 9 million employers in mid-March. The IRS states that employers start using these new tables as soon as possible but not later than April 1.

Eligible workers will get the benefit of this change without any action on their part.  Workers don’t need to fill out a new W-4 withholding form to get the Making Work Pay credit reflected in their take-home pay.

Available for tax years 2009 and 2010, the Making Work Pay credit is 6.2 percent of a taxpayer’s earned income with a maximum credit of $800 for a married couple filing a joint return and $400 for other taxpayers.  Most workers will qualify for the maximum credit.  The Making Work Pay credit is phased out for a married couple filing a joint return whose modified adjusted gross income (AGI) is between $150,000 and $190,000 and other taxpayers whose modified AGI is between $75,000 and $95,000

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The American Recovery and Reinvestment Act has passed both the House and Senate and awaits the President's signature. The substance of the Act as it relates to COBRA continuation subsidies is as follows:

COBRA Subsidy: Eligible Employees who are involuntarily separated from employment can receive a 65% subsidy toward COBRA premiums for up to 9 months. The Eligible Employee or a third party must pay the remaining 35% of the COBRA premium. Employers cannot pay this amount. Severance agreements that offer employer-paid health continuation should be drafted to take advantage of the subsidy.

Employee Eligibility: Individuals who have been involuntarily terminated between September 1, 2008 and December 31, 2009 with annual incomes less than $125,000 (individual) or $250,000 (joint) are eligible for the COBRA premium assistance. The amount of the subsidy covers both employee and family coverage. The premium assistance is not considered income to the Eligible Employee. 

Employer/Health Plan Payroll Tax Credit: Employers or health plans (if they administer COBRA benefits) must front the COBRA subsidy amount and in exchange receive a credit against payroll taxes for the cost of the subsidy. 

Duration of Subsidy: The subsidy terminates upon offer of any new employer-sponsored health care coverage or Medicare eligibility.

Special Elections and Alternate Enrollment Options: Qualified individuals, who initially decline COBRA coverage, have an additional 60 days after they receive notice of the special election period to elect to receive the subsidy. The election period begins on the date of enactment. Group health plans may provide a special enrollment right for eligible individuals to elect different coverage under the plan in conjunction with a COBRA continuation coverage election. The alternate coverage must meet certain requirements and may not be more expensive than the original coverage.

 Notice Requirements: COBRA notices must include information on the availability of the premium assistance. Model notices from the Department of Labor will be published 30 days after enactment.

Effective Date:  The law is effective for premiums as of the first calendar month following the date of enactment.

UPDATE:  IRS Releases Information for Employers to Claim COBRA Assistance Credit on Payroll Tax Form

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On June 26, 2008, the U.S. Supreme Court issued a unanimous decision in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. The case had attracted significant attention because it dealt with the common situation that plan administrators face in having to deal with conflicting documents relating to a pension distribution to a divorced spouse. The Court held that plan administrators have a duty under ERISA to follow the language in the plan in distributing benefits and that a divorce decree can not supersede the plan's terms.

William Kennedy had designated his wife, Liv, as the beneficiary of his interest in his employer's pension and savings plans. When they divorced, Kennedy executed a new beneficiary form with respect to the pension plan (naming his daughter as the beneficiary), but he did not execute a new form for the savings plan. In their divorce decree, Liv waived her interest in the savings plan benefits. Upon William's death, the savings plan administrator, relying on William's unrevoked beneficiary designation, paid the savings plan benefits to Liv rather than to William's estate.

The estate sued, alleging that the distribution to Liv violated ERISA. The District Court granted summary judgment for the estate. On appeal, the U.S. Court of Appeals for the 5th Circuit reversed the decision, holding that Liv's waiver was an improper assignment or alienation of her benefits under ERISA and, therefore, could not be honored. The 5th Circuit stated that the divorce decree did not satisfy the requirements for a QDRO, which is the only exception to the anti-alienation rule.

With respect to the anti-alienation issue, the Supreme Court reversed and held that the divorce decree simply waiver Liv's rights, but did not constitute an impermissable assignment or alienation. The Court went to hold, however, that the plan administrator is required under ERISA to follow the terms of the plan, not the divorce decree, with respect to the distribution of benefits. Because the DuPont plan included a specific procedure for changing a beneficiary, which William did not follow, the plan administrator properly distributed the benefit to Liv. The Court left open the question, however, of whether the benefit had to be returned in light of Liv's valid waiver as to that benefit.

The result of this Supreme Court decision is that plan administrators should review the terms of their plans, SPDs and other communications to ensure that benefit distribution and beneficiary designation provisions are clear and unambiguous. Consideration should also be given to including language in SPDs and other communications that specifically states that divorce decrees that are not QDROs will not determine the disposition of benefits under the plan. This decision provides plan sponsors and plan administrators with a long awaited directive that they are not required to investigate the existence of other documents or other events in determining the manner in which benefits are to be distributed if the terms of the plan are clear and unambiguous.

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U.S. Citizenship and Immigration Services (USCIS) announced today it has delayed by 60 days, until April 3, 2009, the implementation of an interim final rule entitled “Documents Acceptable for Employment Eligibility Verification”.  The Revised I-9 was to take effect on February 2, 2009. 

The delay will provide DHS with an opportunity for further consideration of the rule and also allows the public additional time to submit comments. A notice announcing the delay was transmitted today to the Federal Register.  In addition, USCIS has reopened the public comment period for 30 days, until March 4, 2009.

Employers must complete a Form I-9 for all newly hired employees to verify their identity and authorization to work in the United States, but should not use the Revised Form.  The interim final rule will amend regulations governing the types of acceptable identity and employment authorization documents employees may present to their employers for completion of the Form I-9.  Under the interim rule, employers will no longer be able to accept expired documents to verify employment authorization on the Form I-9.

UPDATE:  There are no further delays in use of the revised I-9 Form and further compliance resources have been issued by the USCIS (click here for more information).

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