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Stimulus Bill Clears Congress: What Employers Need To Know

Posted on: February 16th, 2009

The American Recovery and Reinvestment Act of 2009 (“ARRA” or “the Act”) has been largely publicized in terms of its price tag, roughly $787 billion.  However, the Act also contains several provisions affecting employers’ workplace duties. 

A Retroactive COBRA Subsidy

Initially, ARRA expands employee rights under COBRA, requiring employers to fund continuing health care for the unemployed.  This provision goes into effect on March 1, 2009.  However, as explained below, the bill applies retroactively to employees terminated on or before September 1, 2008.

Under current law, COBRA generally is available for 18 months after a qualifying event, or until an individual becomes eligible for coverage under any other group health plan or Medicare.  Although ARRA shortens that period to 9 months, the new subsidy would be available prospectively for individuals who were involuntarily terminated from employment between September 1, 2008 and December 31, 2009, who made less than $125,000 per year (single) or $250,000 year (couple) and who elect COBRA coverage.

Under the Act, an employee who elects COBRA coverage would pay 35% of any COBRA premiums to the employer or employer’s health plan.  The employer or health plan would pay 65%, the remainder of the premium. Any payments made by employers pursuant to this provision could be deducted from their payroll taxes.  If the COBRA expense is greater than the amount of any payroll taxes, then the employer would be reimbursed by the Secretary of the Treasury.

According to the Act, employees who were involuntarily terminated on or after September 1, 2008, but before the enactment of ARRA and who did not elect COBRA coverage, must receive notices regarding their ability to elect COBRA coverage.  These employees must receive 60 days from the date of this notice to accept or reject COBRA coverage.  Furthermore, if an employee elects COBRA after receiving the notice regarding the subsidy, coverage attaches on February 13, 2009, the date of the signing of the Act, and not the initial qualifying event.  However, the coverage will not extend beyond the period that COBRA would have remained in place had it been initially elected.

Pursuant to current COBRA provisions, a former employee may only continue coverage at the level currently being provided before his separation from employment.  Under ARRA, unemployed persons who are eligible for the COBRA premium subsidy can elect a lower-cost health plan option available under the employer’s plan.

Finally, ARRA provides that terminated employees who lose coverage and who are age 55 or older, or who have completed at least ten years of service with their employer at the time of their separation from employment, can elect to remain on COBRA.  Essentially, ARRA extends the COBRA continuation period for these individuals and their spouses or dependents who are qualified beneficiaries until Medicare entitlement, failure to pay a required premium, or becoming covered under another group health plan.

All plan documentation and notices regarding COBRA must be updated to notify employees of the availability of the COBRA subsidy.  Model notices are due from the DOL on March 12, 2009.

Increased Unemployment Benefits

In addition to retroactive COBRA subsidies, ARRA also gives unemployed workers increased unemployment benefits.  The Unemployment Compensation Act of 2008 temporarily expanded unemployment compensation, but was scheduled to terminate on March 31, 2009.  ARRA extends the termination date to December 31, 2009, with no compensation payable after May 31, 2010.  Instead of funding these benefits through the Federal Unemployment Tax Act (FUTA) levied on business, the proceeds will come from the Treasury.

In addition to extending the length of benefits, ARRA also increases the amount of unemployment benefits by $25 per week for states that agree to abide by the terms proposed by the U.S. Labor Secretary.

States interested in modernizing their unemployment systems also would be eligible for a portion of the $7 billion ARRA sets aside in an unemployment insurance trust fund.  To receive one-third of its allotted funds, a state must adopt an “alternative base period” allowing workers to meet eligibility requirements by counting their most recent wages.  To receive the remainder of the money, states would need to comply with two of six requirements outlined by ARRA:

• Family Related Needs: providing unemployment compensation for workers who have resigned voluntarily due to illness or disability of an immediate family member, the relocation of a spouse or immediate family member or domestic violence.
• Job Training: providing training benefits to unemployed workers laid off from a “declining” occupation who enroll in a state-approved training program for entry into a high-demand occupation.
• Part-Time Work: providing unemployment compensation benefits to employees seeking part-time work.
• 26 Week Payouts: raising maximum compensation caps to 26 weeks for all unemployed workers.
• Child Assistance: paying unemployed workers at least $15 more per week for each of the worker’s dependents.

Health Information Technology

Although largely aimed at doctors and hospitals, ARRA includes provisions accelerating the use of electronically transmitted health care information.  The Act establishes a timetable of 2010 to implement standards allowing the secure transfer of health information.  At the same time, ARRA expands federal privacy protection for health information.  Among the key privacy provisions: a ban on the sale of health information, measures aimed at ensuring the security of audit trails, encryption and rights of access, improved enforcement mechanisms, and support for groups who advocate for patient privacy to participate in the regulatory process.

“Making Work Pay”

ARRA also includes a “Making Work Pay” tax credit of $800 for couples making less than $150,000 per year and $400 for individuals earning less than $75,000 per year.  Taxpayers may choose to reduce their withholdings by the amount of the credit or claim the credit on their tax returns.

Work Opportunity Tax Credit

The Work Opportunity Tax Credit currently provides employers with a tax break for hiring employees in one or more of nine groups.  ARRA creates two additional groups, unemployed veterans and “disconnected youth” who begin employment from December 31, 2008-December 31, 2010.

Trade Adjustment Assistance

Employees who lose their jobs due to increased off-shoring of jobs or through increased imports from certain foreign countries will now be eligible for up to two years of government assistance.

Limits on Executive Compensation

Organizations accepting money from the Troubled Asset Relief Program (TARP) are now obliged to limit the pay of their top executives.  The pay ceiling is directly indexed to the amount of TARP aid the organization receives.  Additionally, bonuses are restricted to one-third of the executive’s salary, “golden parachute” provisions are nixed, and there are limits on corporate expenditures such as vacations and office redecorating.  ARRA also forces TARP recipients to hold a shareholder vote approving executive compensation.

Restrictions on H-1B Visas

ARRA also provides that organizations receiving TARP funds may not obtain H-1B visas for 2 years, unless they can submit evidence of a good faith effort to recruit U.S. workers for the job at issue.

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