COBRA Compliance

COBRA Compliance: Are You Sure?

COBRA ComplianceMany employers are unknowingly out of COBRA compliance. Are you sure your company is following all the rules?

Are you meeting your company’s COBRA obligations in a manner that is compliant with all applicable COBRA rules and regulations? Chances are, you’re not. In fact, the IRS estimates that 90% of employers who self-administer their COBRA obligations are not compliant.

Choosing to self-administer 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 their COBRA obligations believe they are fully compliant, only to be faced with stiff penalties when audited.

COBRA Compliance Actions

Common actions by self-administering employers that are out of COBRA compliance include:

  • Initial Notices distributed via new-hire packets
  • Election Notices handed out during exit interviews
  • Notices that contain outdated language or otherwise do not reflect recent changes in laws and regulations
  • Acceptance of 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 failure to comply with COBRA can be staggering. This can include multiple, stacking penalties from governmental agencies as well as civil lawsuits from qualified beneficiaries. Different consequences flow from different compliance failures and, of course, the amount of possible damages awarded 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, and those under governmental plans may sue for similar 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

COBRA laws and regulations that 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 the standard ERISA penalties outlined above, the 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.

COBRA Administration

When it comes to COBRA, every single detail must be handled correctly the first time, every time. Since even one small mistake with COBRA compliance can spell disaster, many employers retain the services of a third-party administration company. Partnering with a professional administrator can help ensure that COBRA obligations are met in compliance with all applicable laws and regulations.

 

For more information on COBRA compliance and regulations, visit https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra