Lately, I’ve been hearing from more HR leaders who are working through a potential or upcoming reduction in force (RIF). Many companies aren’t doing large, sweeping reductions. Instead, they’re making smaller adjustments more often, taking a more measured approach than we saw in the hyper‑growth years.
Even when the reductions are small, they raise a lot of questions about coverage, timing, compliance, and communication. And because most teams don’t go through RIFs often, it’s completely normal to feel unsure about where to start.
Below are the questions I hear most often, and how I walk HR and people leaders through them.
Should we offer COBRA subsidies?
There’s no universal answer here. Start with your organization’s values and how you want people to feel when they leave.
A quick refresher: COBRA allows former employees to stay on your group health plan by paying the full premium. A COBRA subsidy means you cover some or all of that cost for a set period. Here’s how I approach this with clients.
Think about whether the decision aligns with your culture. If you’ve built a reputation for taking care of people, that shouldn’t stop the moment employment ends. Support offered during offboarding often shapes your brand as much as the experience people have while working for you.
Understand the difference between a subsidy and severance. A true COBRA subsidy requires direction to the COBRA administrator to bill the employee a lower amount (or nothing). Severance with the intent of covering COBRA is just money. You can’t control how it’s used, which is sometimes a feature and sometimes a drawback.
Look at your funding arrangement. If you’re level‑funded or self‑funded, plan for higher claims usage from people who stay on COBRA, especially if you’re covering the premiums. People tend to catch up on care while on COBRA, especially when new coverage is uncertain.
You’re not required to offer subsidies. Many HR teams assume a COBRA subsidy is expected, but it truly depends on your philosophy, financial situation, and the employee experience you want to create.
What happens to employees’ FSA balances after a RIF?
This is one of the trickiest and most emotional parts of offboarding. FSA access ends on the employee’s termination date, and any unused funds are forfeited.
Here’s what you need to know:
FSAs are employer-owned funds. Employees repay their elections over the year, but the employer fronts the full amount at the beginning. That’s why remaining balances can’t simply be “returned.”
FSA COBRA is possible, but almost no one elects it. It’s technically COBRA‑eligible, but very few people sign up because they’d be paying a premium to access money they could have used earlier.
Clear communication matters. So many issues arise simply because employees didn’t realize their FSA coverage would end immediately. If possible, give impacted employees advance notice and remind them what they can still claim or spend before their termination date.
Do a quick internal review of balances. If someone elected $3,000 and contributed almost nothing before being included in the RIF, encouraging full spend-down could create losses for the company. It’s not a reason to hold back, but important context to understand.
Could a RIF trigger re‑rating or mid‑year changes to our benefits plans?
Possibly. And especially if the reduction happens close to your renewal window.
A carrier may choose to re‑rate (update your premiums) if your headcount drops enough to affect your risk profile. Many carriers start to consider this when the drop is around 10% or more.
Here’s how it plays out:
- Renewals and market quotes are based on your census at the time they’re requested.
- If you go through a RIF shortly after receiving quotes, carriers may revisit pricing based on the smaller group.
- This can create unexpected cost increases and, in some cases, the need to re-open enrollment.
Small-group fully insured plans (generally under 100 employees) are the exception. Those rates are set and can’t be re-rated mid-year.
The best thing you can do is involve your benefits consultant early. We can talk to carriers proactively and avoid surprises.
Do compliance requirements change when our headcount drops?
Not immediately. Benefits compliance thresholds almost always rely on averages over time, not a moment-in-time snapshot.
For example:
- ACA Applicable Large Employer (ALE) status is based on a 12‑month average of 100 or more full-time employees
- Dropping from 101 to 99 employees mid-year doesn’t necessarily change your status for the current year.
Similar rules apply to ERISA filings and other benefits compliance triggers. A RIF today usually affects next year’s obligations, not today’s.
What’s the best way to communicate benefits information to departing employees?
This is where you can make a tough situation feel more manageable for everyone involved.
Here’s what I always recommend:
Have your offboarding materials reviewed by your consultant. Even the best HR teams miss timing details or language that creates confusion later. A quick review often saves a lot of frustration.
Keep COBRA guidance high-level. Your COBRA administrator should handle specifics. If a former employee asks anything beyond basic expectations, direct them back to the administrator. That’s their job, and it reduces your legal exposure.
Provide a simple “what to expect” summary. Employees appreciate a clear, friendly FAQ before they receive the more formal vendor packets.
Make sure internal teams are aligned. Managers, HR, payroll, and your consultant should all be working from the same playbook.
How should we support remaining employees after a RIF?
Once the reductions are complete, it’s important to think about how you’ll support the team that’s still in place. Your remaining employees will look to you for stability, and benefits play a bigger role here than many people realize.
Leave eligibility and contributions unchanged mid-year. Any adjustments can wait for renewal, but updated headcount should inform your long-term strategy.
Promote mental health resources. Most companies have access to an embedded EAP through life or disability insurance, or emotional wellbeing tools through their health carrier. If the RIF is substantial, consider a standalone EAP. These can be deployed quickly and offer more robust, hands-on support.
Remind employees what’s already available. People forget how many resources are built into their plans. A simple message that rounds up available support can make a difference.
How can we avoid administrative errors during a RIF?
When multiple employees are being termed at once, small misses can snowball quickly. Here are key steps:
Begin with a dialogue that includes your consultant and COBRA administrator. Clarify exactly what data moves automatically and where manual updates are needed, especially around subsidies.
Know your retro-termination windows. Most carriers allow up to 60 days. After that, corrections get difficult.
Double-check every system. Make sure your HRIS, payroll, and benefits platforms are in sync to avoid overbilling, coverage gaps, or incorrect COBRA notices.
If you’re new to this, ask for guidance. RIF administration isn’t intuitive the first time you go through it, and your consultant can walk you through the nuances.
When should we bring our benefits advisor into planning a RIF?
As early as possible. Even if you’re still in the exploratory stage, looping in your consultant helps you:
- Understand financial impacts
- Avoid compliance pitfalls
- Prepare for higher claims activity from COBRA users
- Set up communication and admin workflows
- Prevent avoidable mistakes
We keep everything confidential and only share internally when needed. Early involvement gives you better information, clearer timelines, and fewer surprises later.
Not sure where to start?
If you’re planning a RIF or want support thinking through your approach, our team is here to help. Connect with a Sequoia advisor to talk through your options and get guidance tailored to your situation.
More articles by Tanner Herpst:
- Benefits Renewal Costs Are Surging: Here’s How Smart Employers Stay Ahead
- Open Enrollment: Double Down on Communication as Costs Rise
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