AN EMPLOYEE QUIT LAST YEAR AND YOU’RE PRETTY CERTAIN THAT YOU SENT HIM A COBRA NOTICE, BUT CAN’T PROVE IT. YOU WANT TO KNOW YOUR POTENTIAL LIABILITY? IT COULD BE STAGGERING!
An employer is required to notify an employee and qualified beneficiaries of their rights to continue their group health plan benefits within 14 days from the date notified of a Qualifying event.@ 26 U.S.C.
A qualifying event is an event which disqualifies an employee or a qualified beneficiary from further participation in the employer=s group health plan. The employer can treat a notice sent to an employee=s spouse as notice to all of the dependent children residing with that spouse.
The Internal Revenue Code imposes an excise tax on any employer maintaining a group health plan who fails to meet COBRA requirements. The IRS can assess a penalty of $100 per day during the noncompliance period for each qualified beneficiary affected by the failure to comply. If it affects two or more qualified beneficiaries in the same family, the maximum is $200 per day.
When computing the noncompliance period, it commences on the date the employer=s failure to comply with COBRA first occurs and ends on the earlier of: (1) the date the failure is corrected, or (2) six months after the last day the qualified beneficiary COBRA continuation coverage could have been terminated not including terminations for failure to make payment. For failure to provide coverage, however, the noncompliance period does not commence until 45 days after COBRA coverage is requested.
If an employer inadvertently fails to comply with COBRA, the noncompliance period does not commence until the employer knew or should have known of its noncompliance with COBRA.
An employer will be deemed to have inadvertently failed to comply with COBRA if it can prove that it did not know and had no reason to know that it was in noncompliance with COBRA requirements. Yeah, good luck with that!
An employer is afforded a 30 day grace period for correcting its failure to comply with COBRA. The grace period begins on the date when the employer knew or should have known that the failure existed.
Provided that the employer=s compliance failure was the result of reasonable cause and not willful neglect, the IRS cannot impose the excise tax on an employer who corrects the violation within the grace period.
A COBRA compliance failure is deemed corrected if (1) the failure is retroactively undone to the extent possible, and (2) the qualified beneficiary is placed in a financial position as good as the position which he would have enjoyed had the employer not failed to comply with COBRA.
Moreover, the beneficiary must be treated in the manner which he would have enjoyed had he elected the most favorable continuation coverage available under the plan.
ERISA also subjects employers, who fail to provide the required COBRA notices to qualified beneficiaries, to a $100 a day fine for each participant to whom the employer fails to provide the statutorily required notice.
ERISA penalties apply to all group health plans except small employer plans (less than 20 employees); church plans; government plans; and other non-ERISA plans.
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