Some companies will be laying-off staff after Christmas and believe those laid off will get the subsidy. 

 

This will not be the case if:

·Health care continues to the end of December and the employee would first be eligible for COBRA on January 1, 2010, or

·If the employee is laid off on December 31st.
 
Here's why, if a worker is involuntarily terminated on December 31, but the individual's COBRA continuation starts on January 1, 2010, the worker is not eligible for the 65% subsidy.  Both the termination and the first day of eligibility for COBRA must occur before or on December 31 to be eligible for the nine-month subsidy. Keep in mind, the subsidy does not end on December 31, what ends is the eligibility to receive the subsidy, any person who becomes eligible on December 31 (not January 1st) for the subsidy would continue to receive the subsidy for the full nine months.
 
What to do When the COBRA Premium Subsidy Exceeds the Employer's Payroll Tax Liability:
 
Under the American Recovery and Reinvestment Act of 2009 (ARRA), assistance eligible individuals pay a reduced COBRA premium equal to 35% of a plan's COBRA premium.  For COBRA coverage provided under federal law, the employer pays the other 65% and then is reimbursed for the subsidy by the federal government through a payroll tax credit.  For comparable continuation coverage provided under state law, the insurer is reimbursed rather than the employer.  (For more information click here)
 
A distressed small employer that was subject to the federal COBRA requirements asked the IRS if it could transfer its liability for 65% of the COBRA premium to the insurer.  The IRS responded in IRS Information Letter 2009-0173:  it didn't have the authority to make the insurer, rather than the employer, responsible for the payment.  The IRS pointed out, however, that if the employer's 65% premium payment (and resulting credit) exceeds its payroll tax liability, it would be considered an overpayment, which would be refunded to the employer.  In this way, the IRS explained, the employer will be reimbursed for its premium payment even if it exceeds its payroll tax liability.  (To read the letter in its entirety go to www.irs.gove/pub/irs-wd/09-0173.pdf)
 
ARRA's rule that permits reimbursement through the insurer is only available for comparable continuation coverage under state law and is not available for employers, such as this one, that are subject to federal COBRA.
 
Will COBRA Subsidy Be Extended?
 
In September, House lawmakers approved a bill granting workers in 27 states another 13 weeks of unemployment insurance benefits.  For employers, the move may signal that Congress is willing to extend the December 31 eligibility date for the COBRA subsidy program if lawmakers fail to agree on health care legislation by the end of the year.  If the unemployment rate continues to rise, lawmakers will probably extend the eligibility date for the program.  If Congress, however, passes the health care reform bill by the end of the year then there is less reason to extend the COBRA program.
 
Mandated Automatic IRA
 
Look for the future establishment of a system of automatic workplace pensions if President Obama has his way.  A proposal in President Obama's 2010 budget envisions an effort to enroll all employees in their company's workplace pension, with a provision to opt out, and a mandate for employers without a retirement program to enroll their employees in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems.  Combining universal enrollment with a direct-deposit IRA account is a mandated automatic IRA.
 
The need for some sort of mandated automatic retirement savings is clear, considering that about half of the U.S. labor force lacks access to an employer-sponsored retirement plan, and Americans on their own do not save enough for either retirement or financial emergencies. 
 
Under the Current Proposal:
Companies without a retirement plan would have to offer, at a minimum, a 100%-enrollment automatic IRA with a withdrawal provision.  Companies with fewer than 10 employees and ones that have been in business less than two years will be exempt.

Employees would be able to choose how much and where to invest.

A temporary tax credit to employers would offset any administrative costs of setting up the program.

A default savings option of 3% and a default investment option in safe securities (e.g. Treasury paper or money market mutual funds) would be available for employers and employees who fail to select a specific automatic IRA.

A federally created web site would encourage employees to stay enrolled in their automatic IRA.

The self-employed (or independent contractor) would be able to contribute to an automatic IRA through various payment mechanisms.

Employers covered by the mandate:

1.cannot make matching contributions (although tax credits may apply to low tax bracket individuals as incentive to save), 
2.are not subject to ERISA rules and regulations,
3.do not need to set up employee retirement accounts and
4.are not responsible for determining employee eligibility to contribute to an IRA.

Employers doing payroll by hand would be exempt.

A federally created website would provide enrollment forms and procedures for employers.

 
Companies with a defined contribution plan or companies considering offering one might be tempted to switch to this mandated automatic IRA, but three features of the mandated automatic IRA would discourage this move:
 
1.The maximum permitted contributions to an IRA ($6,000 if you're age 50 or older and $5,000 if under age 50) is less than what business owners can contribute under the 401(k) rules.
2.The mandated automatic IRA tax credit would be less than the tax benefit a business receives from adopting a new retirement plan.
Matching is not allowed under the mandated automatic IRA.  Companies that want to match will have to adopt a 401(k) or some other retirement plan.