Reduction in Hours Some employers are employing the tactic of reducing employee hours (and commensurately their pay) rather than resorting to layoffs or furloughs. A reduction in hours must be carefully orchestrated to assure the desired impact on employee benefits. • Less than Benefits Eligibility Threshold: If the hours are reduced to a new regular schedule that is less than the threshold for benefits eligibility, the reduction in hours will trigger a COBRA qualifying event for health plan benefits (medical, dental, vision, FSA, and EAP). Other benefits such as life insurance and disability insurance are not eligible for continuation under COBRA, and these benefits will be terminated, assuming the benefits eligibility threshold is the same for life and disability benefits. Be sure to confirm the eligibility threshold for each benefit policy. • Greater than Benefits Eligibility Threshold: If hours are reduced to a new regular schedule that is greater than the threshold for benefits eligibility, the reduction in hours will NOT trigger a COBRA Qualifying Event, and the employee will be able to remain on the benefit plans as a fully eligible employee. Once again, it is important to confirm the eligibility threshold for each benefit contract. • Partial Furlough: While it is not always standard practice, given the unique circumstances of the COVID-19 pandemic, some carriers are considering a reduction in hours to be treated as a partial furlough. As such, some are making exceptions to the standard eligibility rules for short term reduction in hours (when the intention is to bring the employee back to full time as business allows) and the furlough is documented. In this case, the employee would remain eligible, and the employer would continue to pay premiums as if the employee had maintained eligibility. It is important to clarify the maximum allowable duration of such a partial furlough as well as confirm any exceptions to standard contractual provisions in writing.
Life and Disability Policies Life and disability benefits are not subject to COBRA continuation, so these benefits typically terminate in a layoff or a reduction in hours below the eligibility threshold. Some state laws require conversion privileges in life and disability contracts, and some policies include them. Take COBRA Seriously Most employers understand the importance of letter-of-the-law compliance with COBRA notifications and regulations. However, it is worth stating that COBRA lawsuits are among the most prevalent in the employee benefits sphere, and compliance errors are among the most costly. DOL penalties are substantial, and liability for uncovered medical expenses can be essentially unlimited.
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