O Labor issued final regulations that require separately to each - - PDF document

Employee Benefits Alert

June 2004

Final Regulations Require Changes To COBRA Notices and Procedures

By Andrew E. Graw , Esq. and Mark Seidel, Esq.

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n May 26, 2004, the U.S. Department of Labor issued final regulations that require employers to change their COBRA notices and procedures for administering COBRA

• benefits. The final regulations are substantially

similar to proposed regulations issued in 2003. For most employers, the final regulations will be effective January 1, 2005.

New Form of Model General Notice Issued

A new model COBRA General Notice form has been issued that is intended to provide employees and their spouses with general information about their COBRA rights. The model General Notice, as well as a model Election Notice (discussed below), may be viewed and downloaded at www .lowenstein.com. However, employers will need to modify these Notices to conform to the specific terms and costs

• f their group health plans.

In most cases the General Notice must be provided to each employee (and his or her spouse) within 90 days after becoming covered by the employer’s group health plan. However, if an Election Notice also must be provided to an individual within this 90-day period, then the Election Notice may be provided to the individual in lieu of the General Notice. The General Notice may either be distributed separately to each employee (and his or her spouse), or may be included in the summary plan description (SPD) of the group health plan (which also must be distributed to each covered employee and spouse within 90 days of participation). The notice requirement may be satisfied for both an employee and spouse by mailing a single General Notice (either alone, or incorporated into a single SPD) to the home of the employee, assuming that the employee and the spouse reside together. If an employee gets married and adds his or her new spouse to the group health plan, the General Notice should be distributed to the spouse within 90 days following the date the spouse’s coverage begins.

New Form of Model Election Notice Issued

A separate notice, called an Election Notice, must be provided to each individual who is eligible to elect COBRA coverage (called a “qualified beneficiary”). The Election Notice informs the qualified beneficiary of his or her right to elect COBRA coverage and the consequences of that

• election. If the employer is not the plan

administrator, the employer must notify the plan administrator of the qualifying event triggering

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COBRA coverage (e.g., the qualified beneficiary’s divorce or legal separation) within 30 days after the later of the date of the qualifying event or the loss

• f coverage; thereafter, the Election Notice must be

provided to the qualified beneficiary within 14 days after the plan administrator receives notice of the qualifying event. If the employer is the plan administrator, the Election Notice must generally be provided to the qualified beneficiary within 44 days after the qualifying event occurs or within 44 days after the loss of coverage, whichever period is longer.

New Notice Obligations for Plan Administrators

Two new notice obligations are created:

• 1. If a plan administrator receives a notice
• f a qualifying event (or a related notice, such as

a notice of a second qualifying event or a disability extension) from an individual who is not eligible for COBRA coverage, notice must be provided to the individual that explains why he

• r she is not eligible for such coverage. This

notice must be provided within the same time frame for providing an Election Notice.

• 2. If an individual’s COBRA coverage

terminates before the maximum COBRA coverage period expires (e.g., due to a failure to timely pay premiums or the discontinuance of the group health plan), written notice must be provided to the individual that specifies the reason for the termination, the date of termination, and any alternative coverage that may be available to the individual under the group health plan or applicable law (such as a conversion right). This notice must be furnished as soon as practicable following the plan administrator’s determination that coverage will terminate.

Notice Requirements for Covered Employees and Beneficiaries

Reasonable procedures must be established for covered employees and qualified beneficiaries to provide the following notices to the plan administrator:

· Notice of a qualifying event that is the

divorce or legal separation of the covered employee from his or her spouse;

· Notice of a qualifying event that is a

child ceasing to be covered as a dependent of a participant;

· Notice of a second qualifying event

• ccurring after a qualified beneficiary

becomes entitled to COBRA;

· Notice that a qualified beneficiary has

been determined by the Social Security Administration to be disabled at any time during the first 60 days of COBRA coverage; and

· Notice that a qualified beneficiary has

been determined by the Social Security Administration to no longer be disabled. Procedures for providing these notices are deemed to be reasonable if they are described in the SPD and specify the means to be used to give the notice, who is designated to receive the notice, and

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the required content of the notice. The procedures may require the notices to be submitted in a specified form, if the form is easily available and without cost. If no reasonable procedures are established for providing these notices, then notice generally is deemed to be provided when a written or oral communication (identifying a specific event) is made in a manner reasonably calculated to bring the event to the attention of the party responsible for group health plan-related matters (e.g., benefits personnel).

Recommended Steps

The final regulations apply to COBRA notice

• bligations arising on or after the first day of the

first plan year beginning on or after November 26, 2004 (i.e., the date that is six months after the date the final regulations are issued). Until that date, employers and plan administrators are required to

• perate in “good faith compliance” with either the

proposed or final regulations, and are also required to use the model notices set forth in the proposed

• r final regulations. Continued use of the original

model notices (issued by the Department of Labor in 1986) will no longer be considered to be “good faith compliance.” Accordingly, employers and plan administrators should promptly review COBRA forms and procedures and begin using notices that conform to the model notices in the final regulations as soon as possible. For more information about this or any other employee benefits issue, please contact Andrew E. Graw, Esq., Member of the Firm and Chair of Lowenstein Sandler’s Employee Benefits and Executive Practice Group at 973.597.2588 or agraw@ lowenstein.com, or Mark Seidel, Esq., associate in the Employee Benefits Practice Group at 973.597.6190 or mseidel@ lowenstein.com.

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