Benefits During Layoffs

**UPDATE AT BOTTOM**

Unfortunately, many of our clients are making tough choices about shutting their doors. Does that mean that benefits must be terminated? Is it time to send mass COBRA notices?

To determine an employee’s eligibility for health and welfare benefits while furloughed, you should review your current leave of absence (“LOA”) policy and the applicable health and welfare benefit plan documents (e.g., certificates of coverage). You should also contact the carriers to discuss employee eligibility during the furlough. We confirmed that most major carriers will defer to an employer’s LOA policy with respect to employees’ eligibility during the furlough, as long as it is consistent with the certificate of coverage. For example, many certificates of coverage may allow an employee to continue participation in a health or welfare benefit for a certain number of days while the employee is temporarily laid-off or on an employer-approved leave of absence, like a furlough. We also understand that carriers may be willing to grant exceptions if employees will lose eligibility during the furlough. But you should confirm this with your carrier in writing.

If employees are eligible to continue health and welfare benefits during the furlough, but will not be paid, you may be wondering how you can collect the employee’s portion of the premiums. Generally, you can provide employees with three options:

1. “prepay” on a pre-tax basis (under a Section 125 Cafeteria Plan) before the furlough begins

2. “pay-as-they-go” by mailing the employer a check during the furlough when the employee premium is otherwise due

3. “pay-when-they-return” on a pre-tax basis (again, under a Section 125 Cafeteria Plan).

Each option has its advantages and disadvantages. The “prepay” option is difficult because the length of the furlough is unknown before it begins, which means this option must often be paired with another option. Under the “pay-as-you-go” option, you may deal with late payments. (In this situation we recommend that, like COBRA, you provide the employees a 30-day grace period in the event of a missed payment. You should also notify the employee as soon as possible after a missed payment that benefits will be terminated if payment is not made by the 30-day period.) The “pay-when-you-return” option requires you to “front” employees their portion of the premiums until you can collect the employee’s portion when they return. Many employers often allow employees to allocate this cost over several pay periods to minimize the financial impacts of repaying these premiums, especially in the event of a long furlough.

Please note, however, employees who are on an unpaid FMLA-protected leave must be offered all payment options as employees who are on a non-FMLA-protected leave, but they cannot be required to prepay.

Finally, if employees will lose coverage under any group health plan (e.g., medical, vision, dental, HRA or health FSA) as a result of the furlough, this will likely entitle the employee to COBRA, even if the employee is not terminated. That is because a “reduction of hours” (in addition to a termination of employment) that causes a loss of coverage under a group health plan is a COBRA qualifying event.

Please note that this advice is of general applicability and is not legal advice. If you are facing the possibility of a furlough and have specific questions, we recommend that you contact your legal counsel.

If you intend to pay for health care premiums for your employees during layoffs, there are many resources for you.

• Families First Coronavirus Response Act - Healthcare Premium Tax Credit

• CARES Act - Forgivable Loan

**UPDATE as of 5/14/20**

Under new guidance jointly released by the DOL and the Internal Revenue Service, the time periods in which participants can submit claims for coverage, elect and pay for COBRA continuation coverage, enroll in group health plan coverage, and file appeals for adverse benefit determinations are extended. The EBSA also provided guidance allowing additional time in which a group health plan sponsor or plan administrator can provide certain notices, disclosures, or other documents.

Specifically, the guidance provides that the “Outbreak Period” (defined as the period beginning March 1, 2020 and ending 60 days after the date on which the federal government declares the COVID-19 national emergency has ended, which has yet to be determined) will be disregarded with respect to certain plan deadlines.

While there has yet to be any end date to the national emergency period announced, it uses – for purposes of illustration – an assumed national emergency period of March 1, 2020 through April 30, 2020, with the Outbreak Period ending June 29, 2020 (i.e., 60 days following the national emergency end date contemplated in the guidance).

This extension relief provides additional time for impacted participants and beneficiaries when calculating:

• the date by which members may file claims for benefits under the plan’s generally applicable claims procedures (essentially extending the run-out period for reimbursement by health plans, healthcare flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs) until the end of the COVID-19 outbreak);

• the 60-day election period for electing COBRA coverage;

• the date by which COBRA premium payments must be made;

• the 30-day period to exercise special enrollment rights under HIPAA (or the 60-day period, in the case of the special enrollment rights added by the Children’s Health Insurance Program Reauthorization Act of 2009) for major medical plans and other non-excepted benefits (e.g., following the addition of a spouse through marriage or the addition of a child through birth, adoption, or placement for adoption);

• the date by which an individual must notify the plan of a qualifying event (e.g., a divorce or legal separation) or a Social Security disability determination; and

• the date by which claimants may file an appeal of adverse benefits determinations or request external review after receipt of an adverse benefit determination or a final internal adverse benefit determination.

It is noteworthy, however, that this relief does not seem to allow changes or revocations to cafeteria plan salary reductions (e.g., an election of pre-tax contributions under a healthcare FSA).