United States: DOL Issues Final COBRA Notice Regulation

The Department of Labor ("DOL") has issued a final regulation regarding COBRA notice requirements for plan administrators, employers, and qualified beneficiaries. The final regulation is effective for plan years beginning on or after November 26, 2004 (i.e., for most plans, January 1, 2005). This new regulation will require plan sponsors to update their COBRA notices and summary plan descriptions ("SPDs"). Plan sponsors should take action promptly, as there can be significant penalties for not complying with COBRA, and failure to satisfy COBRA notice requirements may have substantial impact on the ability to defend against claims for COBRA coverage in specific circumstances.

This article provides a brief overview of the final regulation and does not attempt to cover every aspect of the detailed regulation.

The final regulation addresses six types of COBRA notices, including two new notice requirements for plan administrators:

The initial COBRA notice must be furnished to a covered employee and his or her spouse, if applicable. There is no obligation to furnish a separate initial notice to the covered employee’s dependents. The regulation provides a model form of initial COBRA notice. Plan sponsors will want to use the model form, which can be accessed at Goodwin Procter’s website http://www.goodwinprocter.com/casestudies/EB_mod_cobra_continuation.pdf.¹ The initial notice requirement can be satisfied by separately providing the model notice or by including the model notice in the plan’s SPD. Including the model notice in the SPD will provide most, but not all, of the COBRA information required to be included in the SPD.

The initial notice must be furnished to the covered employee (and his or her spouse, if applicable) no later than 90 days after coverage under the plan begins. The initial notice may be delivered by hand, regular mail, and, in certain instances, through approved electronic delivery procedures. A single notice sent by regular mail to the covered employee and his or her spouse is permissible if they reside at the same address and both become covered under the plan at the same time. If the initial notice is included in the SPD, the SPD must be delivered to the covered employee and his or her spouse, if applicable, no later than 90 days after coverage begins.

Under COBRA, an employer that is not the plan administrator is required to notify the plan administrator of qualifying events that are terminations of employment or reductions of hours, Medicare entitlement, and bankruptcy of the employer. The final regulation requires the employer to furnish this notice to the plan administrator within 30 days after the later of (i) the qualifying event or (ii) the loss of coverage under the plan. This notice must contain sufficient information to identify the plan, the covered employee, the qualifying event and the date of the qualifying event.

Under COBRA, qualified beneficiaries are required to notify the plan administrator of the following qualifying events: divorce, legal separation, a child losing dependent status, or a second qualifying event after becoming entitled to COBRA continuation coverage with an 18- month coverage period. In addition, qualified beneficiaries are required to notify the plan administrator of any determination by the Social Security Administration that the qualified beneficiary was disabled during the first 60 days of an 18-month period of COBRA coverage.

The final regulation requires a plan to establish reasonable procedures for the furnishing of these notices. These procedures must be described in the SPD, must specify who is designated to receive the notice on behalf of the plan administrator, and must state how the notice is to be furnished to that person, as well as the required content of the notice. Importantly, if the plan fails to establish reasonable procedures, then any written or oral statement communicated by a covered employee or a qualified beneficiary in a manner reasonably calculated to provide information to parties that would customarily be considered responsible for the plan will be deemed to satisfy the qualified beneficiary’s notice requirement.

The final regulation also permits the plan to establish a time period during which a qualified beneficiary’s notice must be given to the plan administrator; however, this period must last at least until 60 days after the later of the qualifying event or the loss of coverage under the plan.²

The plan may also establish reasonable content requirements for the qualified beneficiary notice, including use of a specific form of notice. However, a beneficiary cannot be denied COBRA coverage for failing to provide all of the required information if the notice is timely and the plan administrator can determine basic information from the notice.

COBRA requires the plan administrator to provide an election notice to qualified beneficiaries after a qualifying event. This notice generally must be provided by the plan administrator within 14 days after its receipt of notice of the qualifying event. However, if the employer is the plan administrator and the qualifying event is termination of employment or reduction of hours or death, the notice must be furnished no later than 44 days after the later of the qualifying event or loss of coverage under the plan. The election notice may be delivered by hand, by regular mail, and, in certain instances, through approved electronic delivery procedures. A single notice mailed to the covered employee and his or her spouse is permissible if they reside at the same address. The election notice may be provided to a dependent child of a covered employee by furnishing a single notice to the covered employee or his or her spouse so long as the child resides with the person to whom notice is sent.

The final regulation includes a model form of election notice. It is expected that employers will want to use the model form, which can be accessed at Goodwin Procter’s website http://www.goodwinprocter.com/casestudies/EB_mod_cobra_election.pdf.

Under the final regulation, plan administrators are required to provide written notice to an individual if COBRA coverage is denied. This notice must be provided within 14 days of the plan administrator’s receipt of the notice of qualifying event and must include an explanation of why the individual is not eligible for COBRA. The notice may be delivered in the same manner as described in section (d) above.

Under the final regulation, plan administrators are required to provide written notice of termination of COBRA coverage whenever COBRA coverage ends before the maximum coverage period expires. This notice must be provided as soon as practicable after the plan administrator determines that COBRA coverage will terminate, although it need not be provided before the effective date of the termination. The notice must explain the reason for the termination, specify the date of termination, and give notice of conversion rights. The notice may be delivered in the same manner as described in section (d) above.

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