United States: Department of Labor Department Issues Final COBRA Notice Regulations

On May 26, 2004, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) published final regulations implementing the various notice requirements for health care continuation coverage arising under the Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA), as set out in section 606 of the Employee Retirement Income Security Act of 1974, as amended (ERISA).¹ The final regulations will apply to COBRA notice obligations on or after the first day of the first plan year beginning on or after November 26, 2004 (January 1, 2005 for calendar year plans). Until then, plan administrators may either immediately apply the final regulations or continue to rely on the proposed regulations that were released in May, 2003.²

The final regulations contain a number of changes from the proposed regulations in response to comments received by the EBSA. The final regulations also revise the model COBRA notices that plan administrators can use to provide the General Notice and Election Notice described below, and provide further guidance on other notices that must be provided by employers, covered employees and qualified beneficiaries. Use of the model notices is not required, but the models provide helpful guidance and can be adapted to conform to the design features of particular plans. Links you can use to download Word versions of the revised model COBRA notices are provided later in this article.

COBRA Notice Requirements Under ERISA § 606

COBRA’s continuation coverage provisions, embodied in ERISA §§ 601 through 608, require that any group health plan offer qualified beneficiaries the opportunity to elect continuation coverage following certain events (qualifying events) that would otherwise result in the loss of plan coverage. ERISA § 606 describes COBRA’s notice requirements with respect to continuation coverage, which are as follows:

• General Notice: ERISA § 606(a)(1) requires group health plans to provide written notice to each covered employee and his or her spouse of their COBRA rights at the time coverage under the plan commences.

• Employer Notice: ERISA § 606(a)(2) requires the employer of an employee covered by a group health plan to provide notice to the plan administrator within 30 days after the date of certain qualifying events, including the death, termination, reduction in hours or Medicare entitlement of a covered employee and institution of bankruptcy procedures that, but for COBRA, would result in a loss of coverage.

• Covered Employee and Qualified Beneficiary Notices: ERISA § 606(a)(3) requires (i) covered employees and qualified beneficiaries to notify the plan administrator within 60 days of certain other qualifying events, including the divorce or legal separation from the covered employee’s spouse and the covered employee’s dependent child ceasing to be a dependent child and (ii) qualified beneficiaries who are determined by the Social Security Administration to have been disabled at any time during the first 60 days of continuation coverage to notify the plan administrator within 60 days after the date of such determination and again within 30 days after any final determination that the qualified beneficiary is no longer disabled.

• Election Notice: ERISA § 606(a)(4) requires a plan administrator who has received notice of a qualifying event to provide each qualified beneficiary with a notice of his or her right to election COBRA continuation coverage with respect to such event.

Overview of Final COBRA Notice Regulations

The final regulations, which govern the timing, content and administration of each of the four ERISA § 606 notices, are intended to establish clearer standards for the administration of the COBRA notice requirement. The goal of this regulatory initiative, according to the EBSA, is to create certainty and uniformity in the notification process, while also improving the consistency and quality of information provided to participants and beneficiaries about their COBRA rights. Through these regulations, the EBSA hopes to facilitate compliance by plans and employers with COBRA notice requirements.

The following is an overview of the final regulations and the changes that have been made from the proposed regulations.

General Notice of Continuation Coverage

Group health plans covered under COBRA are required to provide to each covered employee and spouse (if any) of the covered employee written notice at the time of commencement of coverage of the right to continuation coverage provided under the plan. The final regulations establish the time frames and content requirements for the General Notice.

Timing of General Notice

The General Notice must be given to each employee and each employee’s spouse no later than the earlier of:

• either 90 days from the date on which such individual’s coverage under the plan commences, or, if later, the date that is 90 days after the date on which the plan first becomes subject to the continuation coverage requirements; or

• the first date on which the administrator is required to furnish an Election Notice to the covered employee or to his or her spouse or dependent.

To address the concern raised under the proposed regulations that furnishing a General Notice simultaneously with an Election Notice during the 90-day period would be duplicative and confusing, the final regulations new provide that where an individual is required to receive an Election Notice within the 90-day period for furnishing General Notices, the plan administrator may satisfy its General Notice obligation by furnishing just the Election Notice.

Contents of General Notice

The General Notice must be written in a manner calculated to be understood by the average participant and must contain, at the minimum, the following basic information:

• The name of the plan, and the name, address and telephone number of the persons from whom additional information regarding the plan and continuation coverage can be obtained;

• A general description of continuation coverage under the plan, including descriptions of who may become qualified beneficiaries, the types of qualifying events that would give rise to continuation coverage rights, maximum coverage periods, premium payment obligations, etc.

• A description the plan’s requirements for covered employee and qualified beneficiary notices (e.g., notice to plan administrator of a qualifying event such as divorce, separation, or a dependent becoming ineligible for coverage as a dependent, or of a determination by the Social Security Administration that the qualified beneficiary is disabled), and a description of the plan’s procedures for providing such notices;

• An explanation of the importance of updating addresses of participants and potential qualified beneficiaries on plan records; and

• A statement that the notice does not fully describe continuation coverage rights under the plan and that more detailed information may be obtained from the plan administrator or summary plan description (SPD).

The final regulations eliminated the requirement in the proposed regulations that the General Notice state how qualified beneficiaries who are receiving continuation coverage must provide notice of a second qualifying event. Such information should be included in the plan’s SPD and as part of the Election Notice, which would ensure that the information is furnished when it is more relevant to the qualified beneficiary.

General Notice in Summary Plan Description

Plan administrators may satisfy the requirement to provide General Notice by including the required content of the General Notice in the plan’s SPD, so long as the SPD is provided within the time period during which the General Notice must be provided, as described above.

Delivery of General Notice

The General Notice must be furnished in a manner that is consistent with the Department of Labor’s general ERISA disclosure regulations, including regulations relating to the use of electronic media for providing disclosure.

In-hand furnishing of the General Notice at the workplace to a covered employee is deemed adequate delivery to the employee, though it would not constitute adequate delivery to the spouse. There is no requirement to furnish a General Notice to dependent children, even if the General Notice requirement is triggered early by the occurrence of a qualifying event involving the dependent.

The final regulations allow the delivery of a single notice addressed to a covered employee and the covered employee’s spouse at their joint residence if the plan’s latest information indicates that both reside at the same address. However, if the spouse’s coverage under the plan begins at a different time from the covered employee’s coverage, unless the spouse’s coverage begins before the date notice must be given to the covered employee, a single notice is not allowed.

Employer Notice Requirements

Employers are required to provide notice to the group health plan administrator of the occurrence of a qualifying event that is either the employee’s death, termination of employment (other than by reason of gross misconduct), reduction in hours of employment, Medicare entitlement, or the commencement of a bankruptcy proceeding with respect to the employer. The final regulations establish the time frames and content requirements for the Employer Notice. These requirements are unchanged from the proposed regulations.

Timing of Employer Notice

Generally, an employer must furnish notice of a qualifying event to the administrator no later than 30 days after the date of the qualifying event. However, if the plan specifically provides that, with respect to a qualifying event, continuation coverage and the applicable period for providing the Employer Notice begins on the date of loss of coverage, the 30-day period for providing the Employer Notice begins on the date the qualified beneficiary loses coverage due to the qualifying event, rather than the date of the qualifying event.

Contents of Employer Notice

An employer must provide the plan administrator sufficient information to enable the administrator to determine the plan, the covered employee, the qualifying event, and the date of the qualifying event.

Special Rules For Multiemployer Plans

For multiemployer plans, where the qualifying event is either a covered employee’s termination of employment or reduction in hours, there is no Employer Notice requirement if the multiemployer plan specifically provides that the plan administrator is responsible for determining whether such qualifying event has occurred.

Notice Requirements for Covered Employees and Qualified Beneficiaries

Each covered employee or qualified beneficiary is required to notify the plan administrator of a qualifying event that is either the divorce or legal separation of the employee from his or her spouse or a dependent child becoming ineligible for coverage as a dependent. Covered employees and qualified beneficiaries must also give notice of the occurrence of a second qualifying event, a determination of disability by the Social Security Administration (SSA), and a determination by the SSA that a qualified beneficiary is no longer disabled. The final regulations establish the time frames and content requirements for these notices.

Reasonable Plan Procedures

Group health plans must establish "reasonable procedures" for furnishing the Covered Employee or Qualified Beneficiary Notices. Generally, a plan’s notice procedures will be deemed reasonable only if the procedures:

• are described in the plan’s SPD,

• specify who is designated to receive the notices and the means by which notice may be given,

• describe the information concerning the qualifying event or determination of disability that the plan deems necessary in order to provide COBRA continuation coverage, and

• comply with the final regulations’ timing and content requirements for the Covered Employee or Qualified Beneficiary Notices, as described below.

Plans may require the Covered Employee or Qualified Beneficiary Notices to be submitted using a specific form designed for this purpose if the form is easily available to covered employees and qualified beneficiaries free of charge. If a plan has not established reasonable procedures for providing the Covered Employee or Qualified Beneficiary Notices, notice will be deemed to have been provided when a written or oral communication identifying a specific event is made to any of the parties that would customarily be in charge of the plan.

The final regulations eliminated the requirement in the proposed regulations that a covered employee or qualified beneficiary give notice of an event to "any officer of the employer." It is reasonable to expect an employee or qualified beneficiary to give notice of an event to a party that customarily handles employee benefit matters (e.g., managers and supervisors of the employee).

Timing of Covered Employee or Qualified Beneficiary Notices

In general, the plan must allow an employee or qualified beneficiary at least 60 days to provide notice of a qualifying event. However, the plan’s time limit cannot begin to run unless the plan has satisfied its General Notice requirements.

In addition, if the plan is structured to begin continuation coverage with the date of loss of coverage, rather than the date on which a qualifying event occurs, the plan must provide that the 60-day period for Covered Employee or Qualified Beneficiary Notices begins with the date of loss of coverage.

A plan can require qualified beneficiaries to provide disability notice within 60 days of the date of the SSA’s determination of disability and before the end of the initial 18-month period of continuation coverage. To clarify the ambiguity surrounding individuals who receive a disability determination from the SSA at some time before a qualifying event occurs, the final regulations modify the proposed regulations to provide that the 60-day period begins to run from the latest of the date that :

• the SSA makes its disability determination,

• the qualifying event occurs,

• the qualified beneficiary loses coverage, or

• the qualified beneficiary is informed, through the plan's SPD or the General Notice, of his or her obligation to provide a Covered Employee or Qualified Beneficiary Notice and the procedure for providing such notice.

Failure to provide notice of a disability within the time limits could lead to the disallowance of the disability extension for COBRA continuation coverage. However, a plan must have notified qualified beneficiaries adequately and in advance of the notice obligation if it wishes to disallow the disability extension based on the qualified beneficiary’s failure to provide a timely disability notice. For the purposes of the final regulations, once a disability determination is issued, it should be considered to remain in continuing effect until the SSA makes a contrary determination.

Note: The statutory time limits for the Covered Employee or Qualified Beneficiary Notices are minimum time limits that can be extended by the plan. The final regulations specifically permit plans to provide for longer periods to furnish Covered Employee or Qualified Beneficiary Notices, and to the extent that a plan does provide for longer (but not shorter) notice periods, the terms of the plan will supersede the final regulations with respect to the time frame for the notices.

Contents of Covered Employee or Qualified Beneficiary Notices

A plan may establish reasonable requirements for the content of the Covered Employee or Qualified Beneficiary Notices. If, however, an incomplete Covered Employee or Qualified Beneficiary Notice is provided within the time limits described above for such notices and contains sufficient information to allow the plan administrator to identify the plan, the covered employee or qualified beneficiaries, the qualifying event or disability determination, and the date on which such event or determination occurred, then the plan may not reject an incomplete notice as untimely. If a timely Covered Employee or Qualified Beneficiary Notice fails to provide all the required information under the plan’s procedures, the plan administrators can require the covered employee or qualified beneficiary to furnish the missing information.

The EBSA asserts that nothing in the final regulation would preclude a plan, following a request for more complete information, from rejecting a Covered Employee or Qualified Beneficiary Notice if the covered employee or qualified beneficiary fails to provide the additional requested information within a reasonable period of time. The EBSA, however, also noted that both the plan and the plan’s participants and beneficiaries would benefit from a procedure that specifically enumerates when and under what circumstances, following a request for additional information, a Covered Employee or Qualified Beneficiary Notice would be rejected as deficient.

Who May Provide Notice

Any individual who is either the covered employee, a qualified beneficiary with respect to the qualifying event, or a representative acting on behalf of the covered employee or qualified beneficiary may provide the Covered Employee or Qualified Beneficiary Notice. The provision of notice by one individual will satisfy any responsibility to provide notice on behalf of all related qualified beneficiaries with respect to the qualifying event.

Waiver of Notice Requirement

The final regulations do not preclude a plan, in accordance with its terms, from offering COBRA continuation coverage to a qualified beneficiary whose Covered Employee or Qualified Beneficiary Notice fails to satisfy the notice requirements.

Election Notice Requirements For Plan Administrator

A plan administrator of a group health plan is required to provide notice to each qualified beneficiary of his or her rights to elect continuation coverage under the plan. The final regulations establish the time frames and content requirements for Election Notices.

Timing of Election Notice

Generally, the plan administrator must furnish an Election Notice to a qualified beneficiary within 14 days after receiving either an Employer Notice or a Covered Employee or Qualified Beneficiary Notice notifying the plan administrator of a qualifying event.

Where the plan administrator is also the employer that was required to furnish an Employer Notice with respect to the qualifying event, however, the Election Notice must be furnished to the qualified beneficiary no later than:

• 44 days after the date of the qualifying event, or

• if the plan specifically provides that, with respect to a qualifying event, continuation coverage and the applicable period for providing the Employer Notice begins on the date of loss of coverage, 44 days after loss of coverage.

Note: The final regulations clarify that the 44-day rule applies only where the employer is required to provide an Employer Notice. The final regulations also reflect the possibility that a plan may adopt different COBRA starting dates for different types of qualifying events.

For multiemployer plans, an election notice must be provided no later than the later of:

• 14 days after receiving either an Employer Notice or a Covered Employee or Qualified Beneficiary Notice notifying the plan administrator of a qualifying event, or

• the end of the time period provided in the terms of the plan for providing Election Notices.

Contents of Election Notice

The Election Notice must be written in a manner calculated to be understood by the average participant and must contain, at the minimum, the following information:

• The name of the plan, and the name, address and telephone number of the persons responsible for the administration of COBRA continuation coverage under the plan.

• Identification of the qualifying event.

• Identification of the qualified beneficiaries who are entitled to elect continuation coverage with respect to the qualifying event and the date plan coverage will terminate (or has terminated) unless continuation coverage is elected.

Note: The final regulations revised the proposed regulations to clarify that the identification of qualified beneficiaries may be achieved either by referring to their status (e.g., employee, spouse, dependent child covered under the plan prior to the qualifying event, etc.) or by name. In accordance with this revision, the final regulations now require sufficiently detailed identifying information that would permit the affected individuals to determine whether or not they are qualified beneficiaries. The model Election Notice has also been revised to reflect this change.

• A statement that each qualified beneficiary with respect to the qualified event has an independent right to elect continuation coverage.

• A statement that either a covered employee or a qualified beneficiary who is (or was on the day before the qualifying event) the spouse of a covered employee may elect continuation coverage on behalf of all other qualified beneficiaries with respect to the qualifying event.

• A statement that a parent or legal guardian may elect continuation coverage on behalf of a minor child.

• An explanation of the plan’s procedures for election continuation coverage, including applicable time periods and due dates.

• An explanation of the consequences of waiving or failing to elect continuation coverage.

• A description of the continuation coverage that will be made available under the plan, if elected, including commencement dates. (Note: This requirement can be satisfied by referencing a description contained in the plan’s SPD).

• An explanation of the maximum continuation coverage period, the continuation coverage expiration date and any events that might cause continuation coverage to end earlier than the maximum coverage period.

• A description of circumstances under which the maximum continuation coverage period can be extended (e.g., due to a second qualifying event or a determination of disability by the SSA) and the length of the extension.

• If continuation coverage is offered for only a maximum period of less than 36 months, a description of the plan’s requirements and procedures for providing Covered Employee or Qualified Beneficiary Notices of second qualifying events and/or SSA disability determinations.

• A description of the amount, if any, that each qualified beneficiary will be required to pay for continuation coverage and the due dates for payments, including descriptions of the qualified beneficiaries’ right to pay on a monthly basis, the grace period for payments, the address to which payments should be sent and the consequences of late or non-payment.

• An explanation of the importance of updating addresses of participants and potential qualified beneficiaries on plan records; and

• A statement that the notice does not fully describe continuation coverage rights under the plan and that more detailed information may be obtained from the plan administrator or the SPD.

The final regulations eliminate the requirement in the proposed regulations of including information concerning alternative coverage and conversion rights in the Election Notice. This change was justified on the basis that information on these matters is likely to be provided by the plan in other forms either in connection with offering the individual a choice between COBRA coverage and the plan's alternative coverage options, or at the time that COBRA continuation coverage ends.

Other Plan Administrator Notice Requirements

Notice of Unavailability of Continuation Coverage

The final regulations require the plan administrator to provide notice to individuals who have provided a Covered Employee or Qualified Beneficiary Notice of a qualifying event, a second qualifying event or an SSA disability determination, but are determined by the plan administrator to be ineligible to receive continuation coverage under the plan. The Notice of Unavailability of Continuation Coverage must:

• be furnished within the time frame for furnishing Election Notices, as described above,

• be written in a manner calculated to be understood by the average participant, and

• explain why the individual is not entitled to COBRA continuation coverage under the plan.

The final regulations clarify that the Notice of Unavailability of Continuation Coverage must be furnished regardless of the basis for the denial of continuation coverage and whether the notice involves a first qualifying event, second qualifying event, or a request for a disability extension.

Notice of Termination of Continuation Coverage

Under certain circumstances, such as when the employer ceases to offer group health coverage to its employees or when the required premium payment is not timely paid, early termination of continuation coverage is permitted under COBRA. In order to ensure that qualified beneficiaries whose continuation coverage terminates early are provided ample opportunity to take the appropriate steps to protect their access to health coverage , the final regulations require the plan administrator to provide notice to each qualified beneficiary whose continuation coverage under the plan terminates earlier than the maximum continuation coverage period for the applicable qualifying event. The Notice of Termination of Continuation Coverage must:

• be furnished as soon as practicable after the termination decision is made,

• be written in a manner calculated to be understood by the average participant,

• explain why the continuation coverage is being terminated earlier than the maximum period for the qualifying event,

• provide the date continuation coverage will terminate, and

• describe any right the qualified beneficiary has under the plan or applicable law to elect alternate group or individual coverage (e.g., a conversion right).

Delivery of Plan Administrator Notices

Like the General Notice, the Election Notice, Notice of Unavailability of Continuation Coverage and Notice of Termination of Continuation Coverage must be furnished in a manner that is consistent with the Department of Labor’s general ERISA disclosure regulations, including regulations relating to the use of electronic media for providing disclosure.

If the most recent information available to the plan indicates that a covered employee’s spouse lives at the same address as the covered employee, the plan administrator can satisfy its notice obligations to both individuals by providing a single notice addressed to the covered employee and the spouse. Likewise, if the most recent information available to the plan indicates that a dependent child of a covered employee lives at the same address as the covered employee or his of her spouse, then the plan administrator can satisfy its notice obligations to the dependent child by furnishing a single notice addressed to the parent with which the dependent child resides.

Model COBRA Notices

The final regulations include a revised Model General Notice and Model Election Notice.

Note: These model notices have been designed for use primarily by single-employer plans, and not other types of group health plans such as multiemployer plans or plans sponsored by unions for their members, which often contain special rules or practices.

Model General Notice

To facilitate customization, the final Model General Notice has been revised from the model found in the proposed regulations to allow placement of plan-specific identification information at the end of the notice. In addition, it has eliminated the requirement of identifying both the plan administrator and the COBRA administrator. As modified, the Model General Notice requires only the name, address, and phone number of a party or parties who will provide information about the plan and COBRA upon request.

The final Model General Notice has eliminated references to COBRA coverage beginning dates to avoid confusion. Note, however, that nothing in the final regulations or Model General Notice precludes a plan administrator from including such information in a plan's General Notice.

A Word version of the revised Model General Notice can be accessed by clicking on the following link: http://www.dol.gov/ebsa/modelgeneralnotice.doc

Model Election Notice

The Model Election Notice now includes an optional paragraph to assist plan administrators who wish to notify individuals who are potentially eligible for certain rights under the Trade Act of 2002, particularly the rights to a 65% health coverage tax credit and second COBRA election under that Act.

The Model Election Notice does not impose any specific disclosure requirements regarding the rights and duties that may arise due to the Trade Act.

A Word version of the revised Model Election Notice can be accessed by clicking on the following link: http://www.dol.gov/ebsa/modelelectionnotice.doc

If you wish to obtain a more detailed explanation of the final regulations and their ramifications or seek assistance in drafting COBRA notices compliant with the new rules, please contact one of the members of the Pillsbury Winthrop executive compensation and benefits team. Questions regarding this alert may be directed to the authors of this article.

Footnotes

1 69 Fed. Reg. 30,084, 30,112 (May 26, 2004) (to be codified at 29 C.F.R. pt. 2590). These regulations also govern the identical COBRA notice requirements contained in Section 4980B of the Internal Revenue Code of 1986, as amended. For ease of discussion, this Client Alert will refer only to the ERISA provisions.

2 The proposed regulations can be found at 68 Fed. Reg. 31832 (May 28, 2003).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.