COBRA notices may not be something employers spend a lot of time reviewing or worrying about. However, a recent increase in litigation involving COBRA notice deficiencies is good reason for employers to start taking a closer look at notices.
What may seem like a minor or technical deficiency can amount to a large penalty. The statutory penalty under ERISA for deficient or untimely notices can be as much as $110 per day per person, at the discretion of the court, plus attorneys’ fees and medical expenses incurred by the qualified beneficiary. In addition, the IRS can impose an excise tax in the amount of $100 per qualified beneficiary ($200 per family) for each day of COBRA noncompliance, which includes notice deficiencies. For unintentional failures for single employer plans, penalties are capped at the lesser of: 10% of the amount paid or incurred by the employer for its group health plan during the preceding tax year or $500,000. IRS penalties are not imposed for failures due to reasonable cause and not willful neglect and that are corrected within 30 days.
The good news is that many of the errors alleged in these lawsuit are easy to prevent. Employers can protect themselves by knowing some of the common deficiencies, carefully reviewing their COBRA notices, and quickly correcting any deficiency. Even if an employer uses a vendor, the employer should review notices, procedures for sending notices, and its contract with the vendor to ensure it includes appropriate representations and indemnity provisions.
Below is a list of some of the errors alleged in recent litigation, which are also items employers should check for in their own COBRA notices and procedures:
- Failure to send notice to or notice never received by the qualified beneficiary. Employers are not required to prove that notice was received by a qualified beneficiary, but employers must be prepared to prove that notice was sent. Employers have successfully defended against these claims by producing evidence of routine procedures reasonably calculated to ensure actual receipt and that such procedures were followed. If contracting with a vendor, an employer should ask how the vendor would show proof of mailing.
- Failure to provide the name, address, and telephone number of the party responsible for administering the continuation of coverage benefits. The notice must properly identify the COBRA administrator (which may be the same as the plan administrator or contracted out to another service provider) and include adequate contact information.
- Failure to include required information such as a general description about coverage, how to elect coverage, coverage dates, and payment requirements. The Department of Labor (DOL) requires specific information to be included in COBRA notices, which is listed at 29 CFR § 2590.606-4(b)(4). Although the DOL provides a model election notice, it’s important to note that the model is not as detailed as the requirements in the regulations. Even if an employer is using the DOL’s model election notice, it should ensure the notice contains all required information and supplement the model where necessary.
- Notice was not written in a manner calculated to be understood by the average plan participant. Some of these claims involve participants who speak English as a second language. In one case, a court determined that the plaintiff, whose native language was Spanish, failed to provide sufficient evidence to establish that the average plan participant could not understand the notice. Although there is no requirement for employers to provide COBRA notices in translated languages, if a significant portion of employees speak another language, an employer may want to consider providing translated notices. In addition, employers should ensure notices are easy to read and avoid using technical terminology.
- For more information about COBRA or to have COBRA materials reviewed for compliance, please contact Ashley Cross in Stinson’s Employee Benefits division.