On May 26, 2004, the Department of Labor (DOL) issued final regulations on COBRA notice requirements. The final regulations largely follow the proposed regulations with minor changes and a few clarifications.

The final regulations consist of four parts: (1) requirements for the general COBRA notice; (2) requirements for the employer to provide notice to the plan administrator of certain COBRA qualifying events; (3) requirements for qualified beneficiaries to provide notice of certain COBRA events to the plan administrator; and (4) requirements for COBRA notices that the plan administrator must provide to qualified beneficiaries, which include two new notices-the notice of unavailability and the notice of early termination. The regulations provide a model general and election notice, which if appropriately completed and furnished will be deemed by the DOL to comply with the requirements in the final regulations.

The final regulations apply to notice obligations arising in plan years beginning on or after November 26, 2004. This means that calendar year plans must comply beginning on January 1, 2005.

Action Items for Employers
Now that final regulations have been issued, employers should consider taking the following actions:

  • Revise current COBRA notices to comply with requirements of the final regulations. Most employers will want to use the model general and election notices provided in the final regulations. Customization of the model notices will be required.
  • Decide whether to use the summary plan description to satisfy the general notice requirement. Employers that decide to use the summary plan description will need to revise the COBRA language in the summary and review the distribution procedures for the summary to ensure that they meet the requirements for distribution of the general notice.
  • Establish reasonable procedures for participants and beneficiaries to provide notice of qualifying events and disability determinations.
  • Revise summary plan description for plans subject to COBRA to be consistent with the final regulations. For example, the summary will need to be amended to include the notification procedures for participants and beneficiaries.
  • Develop model notices of unavailability and early termination.

Highlights of the Final Regulations
Below are the highlights of the final regulations, including where the final regulations differ from the proposed regulations.

Model General and Election Notices. The model general and election notices in the final regulations are substantially similar to the notices in the proposed regulations. The DOL made some modifications in response to comments submitted to it and other changes designed to make the notices easier to customize. The model general notice now contains an explanation of the special rule regarding extension of coverage due to Medicare entitlement which was absent from the model general notice in the proposed regulations. The model general and election notices also reflect the position taken by the IRS in Revenue Ruling 2004-22 that an event is a second qualifying event only if the event would result in loss of coverage had the first qualifying event not occurred.

Deadline to Provide the General Notice. The final regulations, like the proposed regulations, require the plan administrator to provide the general notice to covered employees and their covered spouses within 90 days after coverage begins. However, for individuals who experience a qualifying event within that 90-day period, the final regulations only require that the plan administrator send the individual an election notice and not a general notice as well.

Distribution of a Single General Notice. The final regulations follow the proposed regulations in allowing a plan administrator to send a single general notice to both the covered employee and the employee’s covered spouse if they reside at the same location, except when they become covered at different times. The final regulations clarify that plan administrators are not required to provide a separate notice to dependent children who reside with the employee or spouse.

Distribution of General Notice via Summary Plan Description. Just as with the proposed regulations, the final regulations permit a plan administrator to use a summary plan description to satisfy the general notice requirement. To satisfy the general notice requirement, the summary plan description must contain all the information required to be in the general notice and must comply with the distribution requirements for the general notice including delivery to both the covered employee and covered spouse. Hand delivery of a summary plan description to a covered employee at work does not satisfy the distribution obligation with respect to the covered employee’s spouse.

Employer Notice of Qualifying Event. The final regulations largely adopt the requirement that an employer generally has 30 days after a qualifying event to notify the plan administrator in the case of the covered employee’s termination of employment, reduction in hours, death, Medicare enrollment or, for retirees, commencement of the employer’s bankruptcy proceedings.

Qualified Beneficiary Notice of Qualifying Event. A qualified beneficiary is responsible for notifying the plan administrator of a qualifying event in the case of divorce, legal separation, or loss of dependent status, a second qualifying event, and determinations of disability and cessation of disability. The final regulations eliminate a conflict between the proposed regulations and COBRA regulations issued by the Department of Treasury by providing that a plan must allow at least 60 days for a qualified beneficiary to provide notice of the qualifying event and that the 60-day period runs from the latest of (1) the date of the qualifying event, (2) the date of loss of coverage, or (3) the date on which the qualified beneficiary is informed of the obligation to provide notice.

Notice Procedures. The final regulations adopt the requirement from the proposed regulations that a plan have reasonable procedures by which qualified beneficiaries provide notice of qualifying events for which they are responsible to provide notice, second qualifying events, and determinations of disability or cessation of disability. The procedures must be set out in the summary plan description. If the plan does not have reasonable procedures, notice will be deemed to be provided if the qualified beneficiary communicates the event in a manner reasonably calculated to bring the information to the attention of the person or entity that customarily handles the employer’s employee benefit matters. The proposed regulations had provided that deemed notice could also occur upon communication of the event to any officer of the employer, but the final regulations eliminated the deemed notice provision for officers.

Notice of Disability. The final regulations modify the rule for when a qualified beneficiary must notify the employer of a disability. The COBRA statute provides that a qualified beneficiary must notify the plan of a disability determination within 60 days of that determination and during the first 18 months of COBRA coverage in order to qualify for the disability extension. Based on this, a qualified beneficiary whose disability determination occurred more than 60 days prior to the date of the qualifying event could never satisfy the requirement because it would be impossible to provide notice both within 60 days of the determination and during the first 18 months of COBRA coverage. Notwithstanding the statutory language, the final regulations allow a qualified beneficiary to provide notice of disability within 60 days of the latest of: (1) the date of the Social Security Administration disability determination, (2) the date on which the qualifying event occurs, (3) the date on which the qualified beneficiary loses coverage, or (4) the date on which the qualified beneficiary is informed of the obligation to provide disability notice.

Distribution of Election Notice. The plan administrator must provide the election notice to each qualified beneficiary within 14 days after receipt of notice of the qualifying event. The final regulations retain the rule from the proposed regulations that if the employer is the plan administrator, then notice must be provided within 44 days after the date of the qualifying event.

Notice of Unavailability. The final regulations retain the requirement for a new notice to be provided in the event COBRA is unavailable. If a plan administrator receives a notice of a qualifying event, a second qualifying event or a disability determination, and determines that the individual is not entitled to COBRA or the disability extension, the plan administrator must provide a notice to the individual explaining why the individual is not entitled to COBRA or the disability extension. The unavailability notice requirement does not apply to those qualifying events for which the employer, as opposed to the individual, is required to notify the plan administrator (e.g., termination of employment, reduction of hours, death, or enrollment in Medicare). Thus, a notice of unavailability would not need to be sent to an individual who is being denied COBRA on the basis of termination for misconduct. The DOL did not provide a model notice of unavailability.

Notice of Early Termination. The final regulations also retain the other new notice requirement for early termination of COBRA. The plan administrator must provide a written notice to qualified beneficiaries when COBRA coverage terminates before the end of the applicable coverage period. The final regulations permit this notice to be furnished with a certificate of creditable coverage. The DOL did not provide a model notice of early termination.

Conclusion
The deadline to comply with the final regulations is approaching. If you have questions relating to complying with the final regulations, please contact the attorney you work with for assistance.