Sending COBRA Notices to Qualified Beneficiaries

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:

• Ask the insurer or third-party administrator (TPA) if a different address is on file. Recent claims may have triggered correspondence between the insurer or TPA and the qualified beneficiary showing that the qualified beneficiary has a new address.
• Check with other departments (such as payroll or human resources) or pension benefits administrators to see if they have a more recent address for the qualified beneficiary.
• Call the home or cellular telephone number last given by the qualified beneficiary.
• Check with co-workers of the former employee if the qualifying event was a termination of employment.
• And, of course, if the qualified beneficiary contacts you about not receiving the notice, get current contact information and send the notice again.

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:

• Excise Tax Statute of Limitations. The IRS may assess excise taxes for COBRA violations within three years after the later of the due date or actual filing date of Form 8928. (Persons or entities liable for excise taxes must self-report liability on Form 8928) As a result, records related to the COBRA election notice — including mailing records — should be retained for at least three years from the Form 8928 due date or filing date, as applicable.Although law and practice is still developing, it appears that Form 8928 is rarely filed, and, without a filed Form 8928, there is no statute of limitations — the IRS can arguably assess taxes for compliance failures at any time. In connection with income taxes, the IRS has advised that records should be kept indefinitely when no return is filed, but there may be logistical obstacles to permanent retention of COBRA records. For years in which your company determines that no Form 8928 is required, you should consult with experienced legal counsel about how long to retain records that support non-filing of the Form and demonstrate compliance with COBRA’s requirements.
• COBRA Lawsuit Statutes of Limitation. Claims for COBRA coverage filed after the limitations period has run are unenforceable. Because there is no specific COBRA statute of limitations, courts look to the most analogous state-law period, which varies from state to state. In suits for COBRA coverage, some courts have applied the relatively short two-year period for unfair insurance practices, but others have applied longer periods of six years or even more. You should consult with your legal counsel about what periods are likely to apply in the jurisdictions in which your plans operate.Plans operating in more than one state may be subject to more than one statute of limitations and should likely use the longest possible limitations period for COBRA recordkeeping purposes.

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.

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