October 20, 2017
Question: As a large company with operations in many states, we’re the administrator of several medical plans. When we provide a COBRA election notice to a qualified beneficiary, we retain a copy of the notice along with a certificate of mailing showing when and to whom the notice was mailed.
How long should we keep these records?
Question: Our company (as plan administrator of our health plan) recently mailed a COBRA election notice by first-class mail, but it was returned as undeliverable. What should we do?
Answer: This can be a difficult decision. COBRA requires only that the plan administrator mail the notice to the qualified beneficiary’s last-known address. But courts have applied “inquiry notice” and “fiduciary responsibility” theories to impute to plan administrators knowledge that a qualifying event has occurred, and those theories could be extended to a returned election notice when a plan administrator knows that a notice has not been received. It seems that plan administrators should, at a minimum, consider the possibility that the notice was sent to the wrong address and confirm that the last-known address on file was used. You may also want to do one or more of the following:
To protect against a related COBRA lawsuit, create a written record of whatever steps you take (for example, a descriptive memo to the file or copies of written inquiries and responses). In addition, your plan’s summary plan description, COBRA initial notice, and other benefits and HR communications — including termination letters — should conspicuously remind qualified beneficiaries to keep you informed of any address changes and include specific directions for doing so.
Answer: We recommend retaining COBRA election notice records for at least three years from the date of the initial qualifying event (three years being the maximum COBRA coverage period available to any qualified beneficiary), plus the longer of:
1. The statute of limitations for excise taxes (for plans subject to Code § 4980B) or
2. The statute of limitations for COBRA coverage (which will depend on the jurisdictions in which your plans operate).
Determining the length of the retention period requires an understanding of the applicable statutes of limitation (that is, the period during which excise taxes may be assessed or COBRA claims may be filed in court), as well as the legal rules that determine when the limitations period starts to run.
Determining the limitations period can be complex, but here is a summary:
You should also be aware that the limitations period for a COBRA coverage claim doesn’t necessarily start to run when the election notice is (or should have been) provided. Rather, the general rule is that the period does not start until the individual knew (or had reason to know) that he or she had a claim for COBRA coverage.
Someone who actually receives an election notice should have reason to know of COBRA coverage claims at the time of receipt. But an individual may not focus on COBRA coverage until a medical claim arises, and at that point, may dispute the receipt or adequacy of COBRA notices.
Because the longest possible COBRA coverage period is three years, it’s a good idea to retain election notice records for three years from the date of the initial qualifying event plus the applicable limitations period. And, because calculating limitation periods isn’t an exact science and involves so many variables, you may want to tack on a few extra years to give yourself additional leeway.