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.