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Pensions, Benefits and Compensation

Federal and state laws mandate that an employer must provide certain benefits to employees, such as Social Security, workers' compensation, and unemployment compensation or reemployment insurance. In addition, while federal and state law generally do not require that an employer provide health or disability insurance to employees, or that it establish a pension plan, once an employer has provided these benefits, federal and many state laws regulate how the employer must administer these plans, and whether and when the employer can terminate them.

Social Security is a federal government program that provides benefits for retired workers. Although originally publicized in the 1930's as a savings account for each employee, in fact, the money that is deducted from each employee's pay, in addition to any matching contribution by the employer, is deposited into a general fund whose proceeds are used to pay benefits to current retirees. A worker gains the right to Social Security payments after retirement by working in covered employment (almost any employment) for a certain number of fiscal quarters. Both the employer and the employee must contribute to Social Security, and if a worker is self-employed or an independent contractor, he or she must make both the employee and the employer contributions.

Workers' compensation programs are administered by the individual states, and their terms vary from state to state. In general, workers' compensation provides benefits to any employee who is injured in the workplace, and provides death benefits to the employee's survivors if the employee is killed. Workers' compensation statutes typically preempt the common-law right to sue, meaning that an employee who is injured on the job cannot sue his or her employer or coworkers, but instead must seek workers' compensation benefits. On the other hand, an employee is usually entitled to benefits whether or not the employer or anyone else in the workplace was negligent in causing the injury. Benefits will vary depending upon the severity of the injury, but generally include medical expenses as well as lost or reduced pay.

Unemployment compensation or reemployment insurance is also administered by the individual states. Such programs typically require the employer to contribute to a state fund, and the state will then pay an employee benefits for a set period of time after he or she is fired, laid off, or forced to leave his or her job. An employee who believes that he or she is entitled to such benefits should apply to the state after leaving the job. The state will typically request a reason for the end of employment, and will then contact the employer to verify this reason. An employee who is fired for misconduct generally will not be entitled to benefits; if, on the other hand, the employee voluntarily leaves, but leaves because of intolerable workplace conditions, then he or she may receive benefits. A state will often require that an employee actively look for work and accept any appropriate job offer, in order to receive benefits.

Health and disability insurance is governed by the federal and state laws that require the employer and the insurer to administer such plans fairly. Plans are also covered by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), which requires that, should an employee leave, be terminated, suffer a cut in hours which makes him or her ineligible for coverage under the workplace health or disability plan, or suffer another such qualifying event, he or she has the right to continue coverage under the employer's group plan for eighteen months, potentially up to thirty-six months. The employer or plan administrator must notify the employee of these rights, and the employee has sixty days to elect to continue the coverage. If he or she does so, the employee becomes responsible for both the employee and employer shares of the monthly premium payment. If the employee continues to make timely payments, the plan must be continued for at least eighteen months; this continuation period may be increased if the employee or a dependent becomes disabled, or the employee or a dependent will soon be eligible for Medicare.

Finally, employer-offered pension plans are governed by the Employee Retirement Income Security Act (ERISA), which provides rules for the participation, vesting, and funding of pension plans, directs how an employer or plan administrator may invest plan funds, and mandates that an employer administer a pension plan fairly.

Know Your COBRA Rights

What is COBRA?

COBRA is a federal law, the Consolidated Omnibus Budget Reconciliation Act of 1985. Under COBRA, employees, their spouses, and their dependent children usually cannot lose their employer health insurance coverage when a worker loses a job, dies, divorces, or experiences certain other life changes. Instead, these individuals may elect to continue an employer-provided health plan for up to eighteen months, as long as they personally pay the premiums.

Who is eligible for COBRA coverage?

COBRA protects three types of people, known as beneficiaries, employees or former employees, their spouses, and their dependent children. The beneficiaries must be covered under an employer health plan. In order to trigger COBRA coverage, one of several qualifying events must occur, such as employment termination, reduction in work hours, death, employee becoming entitled to Medicare coverage, divorce, legal separation, and a child losing dependent status.

COBRA is available to employees in the private sector, in state and local government, and working as independent contractors. However, employees of the federal government, the District of Columbia, some church-related organization, and firms employing less than twenty people are exempt. Some states have adopted similar laws covering exempt employers.

Once a qualifying event happens, how long does COBRA eligibility last?

COBRA eligibility may last as long as eighteen months, potentially up to thirty-six months, depending on the circumstances. Coverage will end either on the last day of the maximum coverage period, when it lapses for nonpayment, the employer stops offering any group health plan, the beneficiary obtains coverage through another employer group health plan that does not limit or exclude coverage for the beneficiary's pre-existing condition, or the beneficiary becomes entitled to Medicare benefits.

What does COBRA coverage cost?

Unfortunately, an employer does not pay for any part of COBRA premiums. Therefore, a beneficiary must pay the full amount of the group insurance's monthly premiums plus an administrative fee of up to two percent. Cost can be a major deterrent to taking advantage of COBRA, since many privately held health policies cost less than group health policies.

The main reason for paying the high premiums is that some people have pre-existing conditions-medical problems that existed before buying a policy. Many insurers will not cover them, or will exclude the condition from coverage. Therefore, paying the premiums for COBRA coverage may be the only way that a beneficiary can continue certain needed health care when a qualifying event happens. The Health Insurance Portability and Accountability Act (HIPAA) guarantees that people who have continuous health coverage cannot be denied insurance even if they have pre-existing conditions. Therefore, using COBRA at least long enough to get other insurance would ensure HIPAA protection. If a beneficiary's coverage lapses completely, causing a gap in insurance, he or she would completely lose the benefits of HIPAA.

The first COBRA payment may be a big one, because it covers the entire period retroactive to the qualifying event. Under the notification scheme, this could easily be seventy-five days, or even more, plus the next month's coverage-at least three months of premiums all at once. A beneficiary must also keep payment dates in mind, since neither the employer nor the insurer must send premium notices.

Some beneficiaries might like to change to a less expensive plan offered by the employer, but COBRA will not allow that. The COBRA coverage must be identical to the coverage the beneficiaries had before. However, some employers may allow beneficiaries to drop certain extra benefits such as dental care. In addition, if an open enrollment period occurs, the employer must also give the beneficiaries a chance to change health plans at that time.

How is COBRA initiated?

Within either thirty or sixty days after certain qualifying events, the employer must notify its health plan administrator of the event. Within fourteen days, the administrator must alert the employee and family members, in person or by first class mail, of their right to elect COBRA. The only exceptions, if the health plan allows them, are: (1) the time limit for both notifications may be extended, and (2) it may be left up to plan administrators to determine whether an employee quit or reduced work hours, or whether a qualifying event occurred.

Beneficiaries have sixty days to decide whether to buy COBRA coverage. This period starts from the date that eligibility notification is sent by the plan administrator, or the date that the beneficiary lost the health insurance, whichever comes later. The COBRA coverage will be retroactive to the date that insurance benefits were lost.

A beneficiary may initially decide not to buy coverage, waving his or her right to it. However, beneficiaries may change their minds during the election period. COBRA coverage would then start on the date the waiver was revoked.

If a beneficiary moves, relocating out of the COBRA plan's coverage area, the beneficiary will simply lose the coverage. The employer is not required to offer a plan in the new area.

Meeting with Your Employment Law Attorney

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Meeting with Your Employment Law Attorney

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