Under the current economic climate, many employers are considering various options for reducing costs, including reducing the number of employees in their workforce. For an employer who sponsors a group health plan (as defined in section 607(1) of the Employee Retirement Income Security Act of 1974 (ERISA) and section 4980B(g)(2) of the Internal Revenue Code of 1986 (Code)) subject to the continuation coverage rules of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), workforce reductions trigger the employer’s obligation to issue notices to the plan’s administrator or to covered employees and their dependents.
Two different COBRA notices come into play when an employer reduces its workforce: (1) the Qualifying Event Notice and (2) the Election Notice. The employer is obligated to send one of the two notice types, depending upon whether the employer is also the administrator of the group health plan.
Where the employer is not also the group health plan’s administrator, the employer is required to issue a Qualifying Event Notice to the group health plan’s administrator upon the occurrence of one of the following qualifying events: (a) death of a covered employee; (b) termination (other than for gross misconduct) of a covered employee; (c) entitlement of a covered employee to Medicare benefits; or (d) bankruptcy of the employer. The Qualifying Event Notice generally must be sent within 30 days of the qualifying event. Upon receiving the Qualifying Event Notice, the plan’s administrator has 14 days from the receipt date to issue an Election Notice to any qualified beneficiaries (as defined in ERISA section 607(3) and Code section 4980B(g)(1)).
Where the employer is the group health plan’s administrator, the employer need not issue a Qualifying Event Notice. Instead, the employer must furnish an Election Notice to any qualified beneficiaries. The employer must do so within 44 days of the qualifying event.
Notice is considered furnished on the date of mailing, if the notice is sent via first class mail, certified or express mail; on the date the electronic communication is sent, if the notice is furnished electronically; or on the date delivered, if hand delivered. It is important that the employer/plan administrator retain documentation proving that the notices were furnished in a timely manner and that the content of the notices was adequate. ERISA and the Code discuss the required content of the notices. (Read the March 2009 Human Resources Bulletin at: http://www.bricker.com/publications/articles/1425.pdf, discussing the content requirements of notices associated with the American Recovery and Reinvestment Act of 2009). Failure to prove that timely and adequate notices were sent can result in the imposition of penalties under ERISA and in the inability to enforce deadlines against qualified beneficiaries. More importantly, many insurance or stop-loss carriers will not cover medical expenses if the employer/plan administrator fails to provide timely Election Notices. In this event, an employer and/or plan administrator may be liable for the payment of medical expenses incurred by qualified beneficiaries who were not given adequate notice of the opportunity to elect COBRA continuation coverage.