Example 5. (i) Selling Group S provides group health plan coverage to
employees at each of its operating divisions. S sells the assets of one of
its divisions to Buying Group P. Under the terms of the group health plan
covering the employees at the division being sold, their coverage will end on
the date of the sale. P hires all but one of those employees, gives them the
same positions that they had with S before the sale, and provides them with
coverage under a group health plan. Immediately before the sale, there are
two qualified beneficiaries receiving COBRA continuation coverage under a
group health plan of S whose qualifying events occurred in connection with a
covered employee whose last employment prior to the qualifying event was
associated with the assets sold to P.
(ii) These two qualified beneficiaries are M&A qualified beneficiaries with
respect to the asset sale to P. Under these facts, a group health plan of S
retains the obligation to make COBRA continuation coverage available to these
two M&A qualified beneficiaries. In addition, the one employee P does not
hire as well as all of the employees P hires (and the spouses and dependent
children of these employees) who were covered under a group health plan of S
on the day before the sale are M&A qualified beneficiaries with respect to
the sale. A group health plan of S also has the obligation to make COBRA
continuation coverage available to these M&A qualified beneficiaries.
Example 6. (i) Selling Group S provides group health plan coverage to
employees at each of its operating divisions. S sells substantially all of
the assets of all of its divisions to Buying Group P, and S ceases to provide
any group health plan to any employee on the date of the sale. P hires all
but one of S's employees on the date of the asset sale by S, gives those
employees the same positions that they had with S before the sale, and
continues the business operations of those divisions without substantial
change or interruption. P provides these employees with coverage under a
group health plan. Immediately before the sale, there are 10 qualified
beneficiaries receiving COBRA continuation coverage under a group health plan
of S whose qualifying events occurred in connection with a covered employee
whose last employment prior to the qualifying event was associated with the
assets sold to P.
(ii) These 10 qualified beneficiaries are M&A qualified beneficiaries with
respect to the asset sale to P. Under these facts, P is a successor employer
described in paragraph (c) of this Q & A-8. Thus, a group health plan of P
has the obligation to make COBRA continuation coverage available to these 10
M&A qualified beneficiaries.
(iii) The one employee that P does not hire and the family members of that
employee are also M&A qualified beneficiaries with respect to the sale. A
group health plan of P also has the obligation to make COBRA continuation
coverage available to these M&A qualified beneficiaries.
(iv) The employees who continue in employment in connection with the asset
sale (and their family members) and who were covered under a group health
plan of S on the day before the sale are not M&A qualified beneficiaries
because P is a successor employer to S in connection with the asset sale.
Thus, no group health plan of P has any obligation to make COBRA continuation
coverage available to these continuing employees with respect to the
qualifying event that resulted from their losing coverage under S's plan in
connection with the asset sale.
Example 7. (i) Selling Group S provides group health plan coverage to
employees at each of its two operating divisions. S sells the assets of one
of its divisions to Buying Group P1. Under the terms of the group health plan
covering the employees at the division being sold, their coverage will end on
the date of the sale. P1 hires all but one of those employees, gives them the
same positions that they had with S before the sale, and provides them with
coverage under a group health plan.
(ii) Under these facts, a group health plan of S has the obligation to make
COBRA continuation coverage available to M&A qualified beneficiaries with
respect to the sale to P1. (If an M&A qualified beneficiary first became
covered under P1's plan after electing COBRA continuation coverage under S's
plan, then S's plan could terminate the COBRA continuation coverage once the
M&A qualified beneficiary became covered under P1's plan, provided that the
remaining conditions of Q & A-2 of section 54.4980B-7 were satisfied.)
(iii) Several months after the sale to P1, S sells the assets of its
remaining division to Buying Group P2, and S ceases to provide any group
health plan to any employee on the date of that sale. Thus, under Q & A-1 of
section 54.4980B-7, S ceases to have an obligation to make COBRA continuation
coverage available to any qualified beneficiary on the date of the sale to
P2. P1 and P2 are unrelated organizations.
(iv) Even if it was foreseeable that S would sell its remaining division to
an unrelated third party after the sale to P1, under these facts the
cessation of S to provide any group health plan to any employee on the date
of the sale to P2 is not in connection with the asset sale to P1. Thus, even
after the date S ceases to provide any group health plan to any employee, no
group health plan of P1 has any obligation to make COBRA continuation
coverage available to M&A qualified beneficiaries with respect to the asset
sale to P1 by S. If P2 is a successor employer under the rules of paragraph
(c) of this Q & A-8 and maintains one or more group health plans after the
sale, then a group health plan of P2 would have an obligation to make COBRA
continuation coverage available to M&A qualified beneficiaries with respect
to the asset sale to P2 by S (but in such a case employees of S before the
sale who continued working for P2 after the sale would not be M&A qualified
beneficiaries). However, even in such a case, no group health plan of P2
would have an obligation to make COBRA continuation coverage available to M&A
qualified beneficiaries with respect to the asset sale to P1 by S. Thus,
under these facts, after S has ceased to provide any group health plan to any
employee, no plan has an obligation to make COBRA continuation coverage
available to M&A qualified beneficiaries with respect to the asset sale to
P1.
Example 8. (i) Selling Group S provides group health plan coverage to
employees at each of its operating divisions. S sells substantially all of
the assets of all of its divisions to Buying Group P. P hires most of S's
employees on the date of the purchase of S's assets, retains those employees
in the same positions that they had with S before the purchase, and continues
the business operations of those divisions without substantial change or
interruption. P provides these employees with coverage under a group health
plan. S continues to employ a few employees for the principal purpose of
winding up the affairs of S in preparation for liquidation. S continues to
provide coverage under a group health plan to these few remaining employees
for several weeks after the date of the sale and then ceases to provide any
group health plan to any employee.
(ii) Under these facts, the cessation by S to provide any group health plan
to any employee is in connection with the asset sale to P. Because of this,
and because P continued the business operations associated with those assets
without substantial change or interruption, P is a successor employer to S
with respect to the asset sale. Thus, a group health plan of P has the
obligation to make COBRA continuation coverage available to M&A qualified
beneficiaries with respect to the sale beginning on the date that S ceases to
provide any group health plan to any employee. (A group health plan of S
retains this obligation for the several weeks after the date of the sale
until S ceases to provide any group health plan to any employee.)
Q-9: Can the cessation of contributions by an employer to a multiemployer
group health plan be a qualifying event?
A-9: The cessation of contributions by an employer to a multiemployer group
health plan is not itself a qualifying event, even though the cessation of
contributions may cause current employees (and their spouses and dependent
children) to lose coverage under the multiemployer plan. An event coinciding
with the employer's cessation of contributions (such as a reduction of hours
of employment in the case of striking employees) will constitute a qualifying
event if it otherwise satisfies the requirements of Q & A-1 of section
54.4980B-4.
Q-10: If an employer stops contributing to a multiemployer group health plan,
does the multiemployer plan have the obligation to make COBRA continuation
coverage available to a qualified beneficiary who was receiving coverage
under the multiemployer plan on the day before the cessation of contributions
and who is, or whose qualifying event occurred in connection with, a covered
employee whose last employment prior to the qualifying event was with the
employer that has stopped contributing to the multiemployer plan?
A-10: (a) In general, yes. (See Q & A-3 of section 54.4980B-2 for a
definition of multiemployer plan.) If, however, the employer that stops
contributing to the multiemployer plan establishes one or more group health
plans (or starts contributing to another multiemployer plan that is a group
health plan) covering a significant number of the employer's employees
formerly covered under the multiemployer plan, the plan established by the
employer (or the other multiemployer plan) has the obligation to make COBRA
continuation coverage available to any qualified beneficiary who was
receiving coverage under the multiemployer plan on the day before the
cessation of contributions and who is, or whose qualifying event occurred in
connection with, a covered employee whose last employment prior to the
qualifying event was with the employer.
(b) The rules of Q & A-9 of this section and this Q & A-10 are illustrated by
the following examples; in each example, each group health plan is subject to
COBRA:
Example 1. (i) Employer Z employs a class of employees covered by a
collective bargaining agreement and participating in multiemployer group
health plan M. As required by the collective bargaining agreement, Z has been
making contributions to M. Z experiences financial difficulties and stops
making contributions to M but continues to employ all of the employees
covered by the collective bargaining agreement. Z's cessation of
contributions to M causes those employees (and their spouses and dependent
children) to lose coverage under M. Z does not establish any group health
plan covering any of the employees covered by the collective bargaining
agreement.
(ii) After Z stops contributing to M, M continues to have the obligation to
make COBRA continuation coverage available to any qualified beneficiary who
experienced a qualifying event that preceded or coincided with the cessation
of contributions to M and whose coverage under M on the day before the
qualifying event was due to an employment affiliation with Z. The loss of
coverage under M for those employees of Z who continue in employment (and the
loss of coverage for their spouses and dependent children) does not
constitute a qualifying event.
Example 2. (i) Employer Y employs a class of employees covered by a
collective bargaining agreement and participating in multiemployer group
health plan M. As required by the collective bargaining agreement, Y has been
making contributions to M. Y experiences financial difficulties and is forced
into bankruptcy by its creditors. Y continues to employ all of the employees
covered by the collective bargaining agreement. Y also continues to make
contributions to M until the current collective bargaining agreement expires,
on June 30, 2001, and then Y stops making contributions to M. Y's employees
(and their spouses and dependent children) lose coverage under M effective
July 1, 2001. Y does not enter into another collective bargaining agreement
covering the class of employees covered by the expired collective bargaining
agreement. Effective September 1, 2001, Y establishes a group health plan
covering the class of employees formerly covered by the collective bargaining
agreement. The group health plan also covers their spouses and dependent
children.
(ii) Under these facts, M has the obligation to make COBRA continuation
coverage available from July 1, 2001 until August 31, 2001, and the group
health plan established by Y has the obligation to make COBRA continuation
coverage available from September 1, 2001 until the obligation ends (see Q &
A-1 of section 54.4980B-7) to any qualified beneficiary who experienced a
qualifying event that preceded or coincided with the cessation of
contributions to M and whose coverage under M on the day before the
qualifying event was due to an employment affiliation with Y. The loss of
coverage under M for those employees of Y who continue in employment (and the
loss of coverage for their spouses and dependent children) does not
constitute a qualifying event.
Example 3. (i) Employer X employs a class of employees covered by a
collective bargaining agreement and participating in multiemployer group
health plan M. As required by the collective bargaining agreement, X has been
making contributions to M. The employees covered by the collective bargaining
agreement vote to decertify their current employee representative effective
January 1, 2002 and vote to certify a new employee representative effective
the same date. As a consequence, on January 1, 2002 they cease to be covered
under M and commence to be covered under multiemployer group health plan N.
(ii) Effective January 1, 2002, N has the obligation to make COBRA
continuation coverage available to any qualified beneficiary who experienced
a qualifying event that preceded or coincided with the cessation of
contributions to M and whose coverage under M on the day before the
qualifying event was due to an employment affiliation with X. The loss of
coverage under M for those employees of X who continue in employment (and the
loss of coverage for their spouses and dependent children) does not
constitute a qualifying event.
Section 54.4980B-10 Interaction of FMLA and COBRA.
The following questions-and-answers address how the taking of leave under the
Family and Medical Leave Act of 1993 (FMLA) (29 U.S.C. 2601-2619) affects the
COBRA continuation coverage requirements:
Q-1: In what circumstances does a qualifying event occur if an employee does
not return from leave taken under FMLA?
A-1: (a) The taking of leave under FMLA does not constitute a qualifying
event. A qualifying event under Q & A-1 of section 54.4980B-4 occurs,
however, if --
(1) An employee (or the spouse or a dependent child of the employee) is
covered on the day before the first day of FMLA leave (or becomes covered
during the FMLA leave) under a group health plan of the employee's employer;
(2) The employee does not return to employment with the employer at the end
of the FMLA leave; and
(3) The employee (or the spouse or a dependent child of the employee) would,
in the absence of COBRA continuation coverage, lose coverage under the group
health plan before the end of the maximum coverage period.
(b) However, the satisfaction of the three conditions in paragraph (a) of
this Q & A-1 does not constitute a qualifying event if the employer
eliminates, on or before the last day of the employee's FMLA leave, coverage
under a group health plan for the class of employees (while continuing to
employ that class of employees) to which the employee would have belonged if
the employee had not taken FMLA leave.
Q-2: If a qualifying event described in Q & A-1 of this section occurs, when
does it occur, and how is the maximum coverage period measured?
A-2: A qualifying event described in Q & A-1 of this section occurs on the
last day of FMLA leave. The maximum coverage period (see Q & A-4 of section
54.4980B-7) is measured from the date of the qualifying event (that is, the
last day of FMLA leave). If, however, coverage under the group health plan is
lost at a later date and the plan provides for the extension of the required
periods (see paragraph (b) of Q & A-4 of section 54.4980B-7), then the
maximum coverage period is measured from the date when coverage is lost. The
rules of this Q & A-2 are illustrated by the following examples:
Example 1. (i) Employee B is covered under the group health plan of Employer
X on January 31, 2001. B takes FMLA leave beginning February 1, 2001. B's
last day of FMLA leave is 12 weeks later, on April 25, 2001, and B does not
return to work with X at the end of the FMLA leave. If B does not elect COBRA
continuation coverage, B will not be covered under the group health plan of X
as of April 26, 2001.
(ii) B experiences a qualifying event on April 25, 2001, and the maximum
coverage period is measured from that date. (This is the case even if, for
part or all of the FMLA leave, B fails to pay the employee portion of
premiums for coverage under the group health plan of X and is not covered
under X's plan. See Q & A-3 of this section.)
Example 2. (i) Employee C and C's spouse are covered under the group health
plan of Employer Y on August 15, 2001. C takes FMLA leave beginning August
16, 2001. C informs Y less than 12 weeks later, on September 28, 2001, that C
will not be returning to work. Under the FMLA regulations, 29 CFR Part 825
(sections 825.100-825.800), C's last day of FMLA leave is September 28, 2001.
C does not return to work with Y at the end of the FMLA leave. If C and C's
spouse do not elect COBRA continuation coverage, they will not be covered
under the group health plan of Y as of September 29, 2001.
(ii) C and C's spouse experience a qualifying event on September 28, 2001,
and the maximum coverage period (generally 18 months) is measured from that
date. (This is the case even if, for part or all of the FMLA leave, C fails
to pay the employee portion of premiums for coverage under the group health
plan of Y and C or C's spouse is not covered under Y's plan. See Q & A-3 of
this section.)
Q-3: If an employee fails to pay the employee portion of premiums for
coverage under a group health plan during FMLA leave or declines coverage
under a group health plan during FMLA leave, does this affect the
determination of whether or when the employee has experienced a qualifying
event?
A-3: No. Any lapse of coverage under a group health plan during FMLA leave is
irrelevant in determining whether a set of circumstances constitutes a
qualifying event under Q & A-1 of this section or when such a qualifying
event occurs under Q & A-2 of this section.
Q-4: Is the application of the rules in Q & A-1 through Q & A-3 of this
section affected by a requirement of state or local law to provide a period
of coverage longer than that required under FMLA?
A-4: No. Any state or local law that requires coverage under a group health
plan to be maintained during a leave of absence for a period longer than that
required under FMLA (for example, for 16 weeks of leave rather than for the
12 weeks required under FMLA) is disregarded for purposes of determining when
a qualifying event occurs under Q & A-1 through Q & A-3 of this section.
Q-5: May COBRA continuation coverage be conditioned upon reimbursement of the
premiums paid by the employer for coverage under a group health plan during
FMLA leave?
A-5: No. The U.S. Department of Labor has published rules describing the
circumstances in which an employer may recover premiums it pays to maintain
coverage, including family coverage, under a group health plan during FMLA
leave from an employee who fails to return from leave. See 29 CFR 825.213.
Even if recovery of premiums is permitted under 29 CFR 825.213, the right to
COBRA continuation coverage cannot be conditioned upon the employee's
reimbursement of the employer for premiums the employer paid to maintain
coverage under a group health plan during FMLA leave.
Robert E. Wenzel
Deputy Commissioner of Internal Revenue