Employer Adjustments Required by Economic Stimulus Package

This week, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA).  Totaling nearly $790 billion, the stimulus package will have a significant impact on the way employers administer the Consolidated Omnibus Budget Reconciliation Act (COBRA), while also implementing a few mandates relative to executive compensation, payroll administration and the recruitment of H-1B visa recipients.  COBRA Under the new COBRA provisions, employees terminated involuntarily (except for gross misconduct) between September 1, 2008 and December 31, 2009, and their dependents, will automatically qualify for a 65% subsidy for COBRA premiums for up to nine months after their date of termination or lay-off.  Qualifying individuals may not have an individual income of more than $125,000 or $250,000 for couples.  Also, covered individuals who become eligible for coverage under another group health care plan or become eligible for Medicare coverage before the end of the nine month period must notify the health plan providing COBRA in writing or face a 110% penalty of the subsidy received.  Effective for premiums beginning on March 1, 2009, the subsidy will be reimbursed to employers by the Treasury Department in the form of a payroll tax credit.  Additionally, qualifying individuals are now eligible to elect different coverage under the plan when electing COBRA continuation coverage.  If applicable, this allows individuals who may have been participating in a more expensive group health plan through the employer (i.e., high deductible plan or PPO) to select a less expensive plan, also provided by the employer (i.e., low deductible plan or HMO). The COBRA notice, which was already required of employers, must now include information on the premium subsidy and the ability to change plan options.  This notice must be sent out within 60 days of enactment to employees who currently have COBRA continuation coverage and also to employees who were eligible for COBRA after September 1, 2008 but did not elect coverage.  These individuals must now be given a second chance to elect COBRA coverage with the subsidy, with an effective date of or after March 1, 2009, but expiring 18 months after the date COBRA coverage would have begun because of the original qualifying event.  Eligible employees will have 60 days from the date of notice to take advantage of this special election period, so employers are encouraged to notify qualified individuals as soon as possible.  Look for the Department of Labor to issue a sample notice within the next 30 days. Employers using third-party COBRA administrators should coordinate with the administrator as quickly as possible regarding the proper way to communicate this information to both eligible past employees and dependents, as well as future eligible COBRA recipients.  A COBRA Premium Reduction Fact Sheet can be found on the Department of Labor's website.  Click here for answers to FAQs on the COBRA subsidy. PAYROLL & EXECUTIVE COMPENSATION The ARRA will make it necessary for employers to communicate more with payroll processors to ensure compliance with the new law.  In addition to the payroll tax credit that will reimburse employers for the 65% COBRA subsidy, workers with an individual income of up to $75,000 or $150,000 for couples filing jointly, will receive a 6.2% earned income tax credit that may be withheld from employee paychecks or claimed on individual tax returns.  Executive compensation is also affected by the ARRA, limiting compensation and bonuses for the highest paid individuals of companies that receive financial assistance from the Troubled Asset Relief Program (TARP).  RECRUITING & IMMIGRATION Employers who receive financial assistance from the TARP or certain federal loans may not be able to reach outside of the United States for applicants for two years, unless they can show that they have made good faith efforts to recruit domestic workers for the job.  Covered employers who typically use the H-1B visa program to bring in foreign workers are now required to offer any such job to an equally or better-qualified U.S. worker that has applied. Final text of the complete legislation can be found by visiting the U.S. Government Printing Office's Federal Digital System.