The Recovery Act’s Impact on HR

A colleague consulting firm of ours (Brockman, Coats and Gedelian in Akron, Ohio) has sent the following and asked that we alert our clients to the HR implications embedded in the Federal Recovery Act provisions. We are passing this along in case you are unaware of these implications.

The Recovery Act's Impact on HR

On Tuesday, President Obama signed into law the American Recovery and Reinvestment Act (the Recovery Act). This act will have immediate and possibly long term impact on businesses and their HR functions. One of the areas addressed is the extension of unemployment benefits. The current program that offers an additional seven weeks of unemployment benefits has been extended by nine months. 

In addition, the Recovery Act includes temporary changes to the COBRA law. The Act includes a program that offers employees that were involuntarily terminated between September 1, 2008 and December 31, 2009 assistance in paying their benefit premiums.  Qualified individuals will receive a 65% subsidy for their COBRA premiums. Employers will pay for this subsidy initially and then be reimbursed through a credit against their payroll taxes. This assistance will be available for the first nine months of the usual 18 month benefit.

These changes will impose a considerable administrative burden. Employers and their COBRA administrators will need to implement significant changes in a short timeframe. The following are some of the administrative processes that will have to be reviewed for potential change:

• Employers or their COBRA administrator will need to craft a specific Qualifying Event Election Notice to send to all employees who terminated employment since September 1, 2008. These employees will then have 60 days to elect COBRA with the new premium subsidy.
• Employers or their COBRA administrator will need to notify existing COBRA participants of the new premium subsidy and their new premiums going forward.
• Administrative procedures must be implemented to manage the changes (e.g., new premium rates @35%, new notices, and calculating the amount of the subsidy actually utilized each month so the proper amount can be credited against the employer's payroll taxes).
• A new COBRA Event Notice must be created to inform COBRA participants when they reach the maximum subsidy limit, and that their premium will revert to the full cost of the health coverage.
• The existing COBRA Initial Notice and Qualifying Event Notice will need to be modified to include the new subsidy rules going forward.

At this point, the subsidy provisions apply only to terminations through December 31, 2009. After that date the Notices and tracking will have to be changed again, to go back to previous rules.

About the Author
Jim Coats is a manager in the firm's human resources consulting practice, under its affiliate, BCG Resources, Inc. His specialized expertise gives our clients customized, cost-effective solutions to human resource-related projects and issues. With over 13 years of related experience, Jim's extensive HR background includes work as an HR manager in both the manufacturing and construction industries. Jim holds the SPHR (Senior Professional in Human Resources) certification and earned a BSBA in Management from The University of Akron. He is an active member of the national and local chapters of the Society for Human Resources Management (SHRM) and is chairman of the Governmental Affairs Committee for Akron SHRM and is also a member of the Business Development Committee with the Medina Chamber.