On March 2, 2010, the president signed into law H.R. 4691, the Temporary Extension Act of 2010 ("TEA of 2010"), which provides a short-term extension of the COBRA subsidy initially established under the American Recovery and Reinvestment Act of 2009 ("ARRA") and set to expire February 28, 2010. As a result of the extension, individuals who become qualified beneficiaries because of an involuntarily termination of employment on or before March 31, 2010, will be eligible for the COBRA subsidy.

The TEA of 2010 also expanded the ARRA qualifying events. Prior to the TEA of 2010, a qualified beneficiary who became eligible for COBRA continuation coverage as a result of a reduction in hours of employment generally could not become eligible for the COBRA subsidy. As a result of the TEA of 2010, an involuntary termination of employment that occurs on or after March 2, 2010, and that follows a reduction in hours of employment that constituted a COBRA qualifying event that occurred between September 1, 2008 and March 31, 2010, will now be treated as an ARRA qualifying event eligible for the COBRA subsidy. Additional notices will need to be provided to affected qualified beneficiaries.

In addition, if the Department of Labor ("DOL") determines an event to be an ARRA qualifying event, failure of the employer to provide the subsidy within 10 days of the determination can result in a penalty of $110 per day for each failure.

Employers also may now rely on their determinations regarding eligibility for the COBRA subsidy without fear of challenge by the IRS of the employment tax credit. The TEA of 2010 provides that if an employer reasonably makes a determination of an involuntary termination for ARRA subsidy purposes, and the employer maintains supporting documentation, the event will be deemed to be an involuntary termination of employment for purposes of the credit.

Unknown at this time is whether the Department of Labor will modify its model ARRA COBRA notices as a result of the TEA of 2010. Regardless of whether revised notices are issued by the DOL, employers should update their ARRA COBRA notices to reflect the new law.