IRS Notice 2021-31 provides details on what is considered an “involuntary” termination for COBRA subsidy purposes.
The American Rescue Plan Act (ARP) provides a COBRA premium subsidy for certain individuals whose qualifying event was a reduction in hours or involuntary termination of employment and who are not eligible for other health coverage. The premium subsidy is available for assistance-eligible individuals with continuation coverage between April 1, 2021 and September 30, 2021. Read our article on the ARP premium subsidy by clicking here.
Many employers have questions about whether an employee’s exit from the workforce is voluntary or involuntary. The IRS addresses these questions in Notice 2021-31.
For purposes of the ARP COBRA premium subsidy, an involuntary termination of employment means a severance from employment due to the “independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” Basically, if the employee was willing to continue to work but the employer no longer is offering the employee a position, an involuntary termination may have occurred.
In some cases, an involuntary termination may occur when the employee initiates the departure. A termination is involuntary if the employee leaves employment because of a material negative change in the employment relationship (known as constructive discharge). Likewise, if an employer offers a severance/window program to encourage employees to stop working, that action may result in an involuntary termination. Retirement, on the other hand, is considered a “voluntary” departure, as is an employee leaving employment because the employee needs to care for a child.
The determination of whether a termination of employment is voluntary or involuntary is made based on the individual facts and circumstances. There are many situations and employers should review each one carefully to determine if it was involuntary and the individual may be eligible for the ARP COBRA premium subsidy.
