COBRA Compliant? Are You Sure?

COBRA complianceMany employers are out of COBRA compliance but don’t realize it. Are you sure your company is following all the rules?

Is your company meeting its COBRA obligations in compliance with all applicable rules and regulations? Chances are, you’re not, at least if you are self-administering them. In fact, the IRS estimates that 90% of employers who self-administer COBRA are not compliant.

Self-administering COBRA comes with a huge responsibility. In addition to being one of the federal government’s most complex laws, COBRA regulations are among the most rigid. Requirements must be met exactly. Many employers who self-administer COBRA obligations and believe they are fully compliant wind up facing stiff penalties when audited.

COBRA Compliance Actions

Here are some common errors by employers who self-administer COBRA but are out of  compliance:

  • Distributing Initial Notices via new-hire packets
  • Handing out Election Notices during exit interviews
  • Using notices that contain outdated language or otherwise do not reflect current laws and regulations
  • Accepting late payments, or worse, accepting them inconsistently (e.g., accepting late payments from some qualified beneficiaries, but not others)

The Costs of Non-Compliance

The costs for failing to comply with COBRA regulations can be staggering. They can include multiple, stacking penalties from governmental agencies, and civil lawsuits from qualified beneficiaries. Different consequences flow from different compliance failures. Of course, the amount of damages in any particular case depends on the circumstances of the qualified beneficiary (or beneficiaries) in the case.

Qualified beneficiaries under non-governmental plans may sue to recover COBRA coverage under ERISA. Those under governmental plans may sue for recovery under PHSA. Such suits carry the potential for large damages, which, in the case of an insured plan, might not be covered by the plan’s insurance.

COBRA Laws and Regulations

The COBRA laws and regulations that most often result in non-compliance issues for self-administering employers include, but are not limited to:

  • ERISA §502(c)(1)(a). Statutory penalties of up to $110 per day may be recovered under ERISA for failures by nongovernmental plans to provide an initial COBRA notice or an election notice on a timely basis under COBRA. The daily penalty amount originally was $100, but was later increased to $110. (DOL Reg. §2575.502c-1.)
  • ERISA §502(c)(1)(a). A plan administrator “who fails to meet the requirements of paragraph [(a)] (1) or (4) of section 606 … with respect to a participant or beneficiary … may in the court’s discretion be personally liable to that participant or beneficiary in the amount of up to [$110] per day.”
  • ERISA §606(a)(1). The group health plan must provide a notice of COBRA rights at the time of commencement of coverage under the plan.
  • ERISA §606(a)(4). The plan administrator must notify each qualified beneficiary who has had a qualifying event (and who has given any required notice of that event to the plan administrator) “of such beneficiary’s rights under [COBRA].”
  • BIRKHEAD V. ST. ANNE’S-BELFIELD, INC., 384 F.Supp. 2d 962 (W.D. Va.2005). Court held that ERISA §606(a)(4) requires a plan administrator to provide a qualified beneficiary a notice of COBRA rights following the administrator’s receipt of a notice of second qualifying event, and the court refused to dismiss action for statutory penalties.
  • IRS Code §4980B(e)(2)(B). Excise tax penalties of up to $200 per day may be assessed by the IRS for each day on which a plan fails to comply with COBRA. Excise taxes must be self-reported on IRS Form 8928.

In addition to these standard ERISA penalties, failure to provide adequate Initial and Election notices by a non-governmental plan can create exposure to “other relief,” including extra-contractual damages. As in all suits under ERISA, the court is also permitted to award attorney’s fees and interests to the prevailing party.

Let Us Help

Every detail of COBRA administration must be handled correctly the first time and every time. Even one small mistake can spell disaster. Partnering with DataPath Administrative Services can help you ensure that your company’s COBRA obligations are met in compliance with all applicable laws and regulations.

For more information on COBRA compliance and regulations, visit