The Consolidated Omnibus Budget Reconciliation Act (“COBRA”) enables employees and their dependents to extend health coverage under an employer’s group health plan when coverage would otherwise be lost due to termination of employment or other “qualifying events.” Under COBRA, employees must receive specific notices explaining their COBRA rights.
Recently, there has been an increase of class action lawsuits under the Employee Retirement Income Securities Act (“ERISA”) against employers for allegedly failing to include all of the information required by the COBRA notice regulations. More than 20 class action lawsuits have been filed in 2020 for alleged COBRA notice deficiencies against companies of all sizes. The cases generally allege that the COBRA notices were missing details included in the model notice provided by the Department of Labor (“DOL”), such as the name and contact information of the plan administrator.
The DOL issued a revised model notice on May 1, 2020 and a set of Frequently Asked Questions (“FAQs”) to assist employers in better understanding the notice requirements. The model notice and FAQs can be found here: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra. The DOL considers use of the model notice to be good faith compliance with the general notice content requirements of COBRA. Because recent lawsuits have targeted COBRA notices that do not mirror the model notices, employers should closely review the revised model notices.
Failure to comply with the details of COBRA notice requirements may have significant consequences if not remedied. In addition to the damages asserted by individuals, the Department of Labor can impose civil penalties of $110 per day per person and the IRS can impose an excise tax of $100 a day per beneficiary and $200 a day per family. The court also has the discretion to award legal fees to the plaintiff’s counsel. Significantly, a Fortune 500 company settled a class action lawsuit, relating to deficient COBRA election notices, for $1.6 million dollars.
COBRA election notices must be written in a manner calculated “to be understood by the average plan participant” and include:
- The name of the plan and the name, address, and telephone number of the plan’s COBRA administrator;
- Identification of the qualifying event;
- Identification of the qualified beneficiaries (by name or by status);
- An explanation of the qualified beneficiaries’ right to elect continuation coverage;
- The date coverage will terminate (or has terminated) if continuation coverage is not elected;
- How to elect continuation coverage;
- What will happen if continuation coverage isn’t elected or is waived;
- What continuation coverage is available, for how long, and (if applicable), how it can be extended for disability or second qualifying events;
- How continuation coverage might terminate early;
- Premium payment requirements, including due dates and grace periods;
- A statement of the importance of keeping the plan administrator informed of any new addresses of qualified beneficiaries; and
- A statement that the election notice does not fully describe COBRA or the plan and that more information is available from the plan administrator and in the summary plan description.
Even if an employer engages a third party administrator to handle COBRA compliance, the employer could still be subject to statutory penalties in the event of noncompliance.
Employers should familiarize themselves with the requirements and review their COBRA notices to ensure compliance. Should you need any assistance please contact ALG.