Human Resources News & Insights

IRS defines ‘involuntary’ separation for COBRA

Now that employers are required to pick up the bulk of COBRA costs for employees who are separated involuntarily, many HR managers have asked how “voluntary” and “involuntary” are defined. The Internal Revenue Service has answered.

The IRS released this breakdown:

  • Failure to renew a contract at its expiration: Involuntary if the employee is willing and able to execute a new contract on similar terms and to continue the employment relationship.
  • The employee terminates for “good reason”: Involuntary if due to the employer’s action resulting in a material negative change in the employment relationship.
  • Layoff with a right to recall or a temporary furlough: Involuntary if the reduction is to zero hours and health coverage is lost.
  • Reduction in hours: Voluntary where the reduction is to an amount that is more than zero hours. However, if the employee then terminates for this reason, it could qualify as a termination for good reason and would thereby be deemed to be involuntary.
  • Termination by the employer due to absence from work or disability:  Involuntary, but only when the employer acts to terminate the employment relationship.
  • Retirement: Voluntary unless the employees knows that the employer would otherwise terminate the relationship involuntarily.
  • Termination for cause: Involuntary; however, if the termination is due to “gross misconduct,” the termination is not a COBRA-qualifying event and no continuation coverage is required.
  • Resignation due to a material change in geographic location: Involuntary.
  • Termination following a work stoppage as a result of an employee-initiated strike: Voluntary.
  • Termination following an employer-initiated lockout: Involuntary.
  • Termination with a severance package: Involuntary where the employer has indicated that there will be a specified workforce reduction following the end of the severance package window.
  • Death: Voluntary — at least according the IRS.

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  • http://www.blackhillsfcu.org Dara

    The 8th point above really ticks me off!! If someone elects to quit their job to move to Florida to lay in the sun, why the heck is that an involuntary quit? I can understand if the military requires the family to move, but otherwise..it’s their choice and employers shouldn’t have to pay for it. Grrrrr

  • Kathy Mitchell

    Can you provide where you found the info on the COBRA definitions as I can not find it in the IRS website.

  • Loryn

    Dara, that references a company’s change in geographic location, not the employee’s. I.e. a company closes a plant down and gives employees the option of working at a plant four hours away. If an employee can’t make the move, they are considered an involuntary term for purposes of the COBRA subsidy.

  • Crystal K

    This links to Notice 2009-27 which has a complete section of Q & A regarding involuntary termination…

    http://www.irs.gov/pub/irs-drop/n-09-27.pdf

  • Cindy

    Does anyone know if it matters where the 35% is paid from? If the terminated employee became re-employed and was not offered benefits through the new employer until their probation period ends, can the new employer pay the 35% for the employee or does the employee have to pay the 35%?

  • Michele

    Dara and Loryn,
    It doesn’t necessarily reference a move on the company’s part. If you are required to move due to a spouse’s job changing location, that qualifies as well. If you are just moving for the sake of moving it’s not considered to be involuntary, however, the employer cannot always prove the reasons for moving.

  • Crystal K

    Cindy – According to Notice 2009-27 “In determining whether an assistance eligible individual has paid 35 percent of the premium, payments on behalf of the individual by another person (other than the employer with respect to which the involuntary termination occurred) are taken into
    account. For example, some or all of the 35 percent share of the premium could be
    paid on behalf of the individual by a parent, guardian, State agency, or charity.” I would take this to my legal reprenstative and see what they think about the whether or not the new employer would fall under this same category.

  • Pingback: IRS releases detailed guidance on COBRA subsidies | HRMorning.com | Your daily dose of HR

  • http://www.stormontvail.org Bernie

    Still no good guidance on what constitutes “gross misconduct”…

  • http://HRmorning.com Debbie L

    I thin its rediculous for the “Government” to give up the definition of “gross misconduct”. This is a “MAJOR” factor in determining who gets what and more imprtantly “IF”………..then again maybe that is the reason……..the Government doesn’t want to be responsible on either side of the coin for denying or rewarding the subsidy but yet they want it to be law……………come on……..you can’t have it both ways!!! If you’re going to make it a law you need to give better instructions on how to follow through with the terms.

  • Helen P. Murphy – Dir of HR

    We certainly need a definition on “gross misconduct”. If you go by the definition in the dictionary it covers a lot of gross conduct.

  • Sandi W

    I called and asked what specifically defined “Gross Misconduct” and got this answer…

    Gross Misconduct is a termination that involves legal action where the police are/were involved.

  • Mary

    Misconduct that disqualifies an employee from benefits under Tennessee Law states:
    “Misconduct Connected with Work” is termed a deliberate act or willful violation of an employee’s duties, insubordination, intentional violation of company rules or conduct detrimental to the interest of the employer or his fellow workers. An employer is fully justified in discharging an employee who is careless, inefficient, indifferent to work, makes errors, or whose whork is unsatifactory, BUT these offenses are not termed misconduct connected with work UNLESS it can be shown that these acts were deliberate or intentional or due to failure to observe rules of saftety or conduct that an average person would observe.”

  • http://carolynmolder@msn.com Carolyn Mendez-Molder

    I would like to know if involuntary covers an employee who is asked to leave the employee as a result of the lack of fubding and reduction of her position. Am I eleigible for the stimulus package for COBRA

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