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Announcement

New COBRA Notices Required

August 2004

The U.S. Department of Labor (DOL) recently finalized regulations implementing new timing and content rules for notices required by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). COBRA applies to your group health plan for a given year if you had 20 or more employees during the preceding calendar year. If COBRA applies to your plan, you will have to revise your existing COBRA notices and you may have to change your plan's summary plan description (SPD) to comply with the new rules. The rules also will require you to provide two new types of COBRA notices, non-eligibility and early termination notices, in certain situations.

The new rules apply to COBRA notice obligations that arise on or after the first day of the first plan year beginning on or after November 26, 2004.  For example, if you have a calendar year plan, then the new rules apply to COBRA notice obligations that arise on or after January 1, 2005.

Summary of Required Notices
Previously, COBRA required four types of notices:

  1. The initial general notice, describing COBRA continuation rights under the plan, which the plan administrator provided to employees and their spouses when plan coverage began;

  2. The notice of certain qualifying events, such as an employee's termination of employment, reduction of hours, or death, which the employer provided to the plan administrator when one of those events occurred;

  3. The notice of certain other qualifying events (the qualifying event notice), which an employee or other COBRA qualified beneficiary provided to the plan administrator when certain other qualifying events occurred, such as an employee's divorce or legal separation or a child's loss of dependent child status; and

  4. The notice of the right to elect COBRA coverage (the election notice), which the plan administrator provided to employees and qualifying beneficiaries when the plan administrator received notice that a qualifying event had occurred.

Summary of Changes
  1. General Notice. The new rules describe the information that your plan's general notice must contain, and clarify how that notice may be delivered.  You must include most of the general notice information in your plan's SPD as well.  The most efficient way to satisfy the general notice requirement in most cases is to update your plan's SPD to include all of the required information and timely mail it to each new eligible employee and spouse in an envelope addressed to both.  This approach also will satisfy ERISA's SPD delivery requirement. 

    Otherwise, you can furnish the general notice and SPD separately and use a model general notice that the DOL has made available at www.dol.gov/ebsa/modelgeneralnotice.doc, or use a non-model notice.  If you use the model notice, you will need to customize it for your plan.

  2. Qualifying Event Notice. Your plan must establish "reasonable procedures" for employees and qualifying beneficiaries to use to provide the qualifying event notice (described in 3., above) to the plan administrator. These procedures must be described in your plan's general notice and SPD, and must specify the individual or entity your plan has designated to receive this notice. Your plan can require that employees and qualified beneficiaries use a specified form to provide the qualifying event notice, if the form is easily available and free of charge, and you can impose a reasonable deadline by which they must return the form. If your plan does not have reasonable procedures in place, then any oral or written communication from the employee or qualified beneficiary might be treated as meeting the qualifying event notice requirement, and could trigger unforeseen COBRA continuation coverage obligations for your plan.

  3. Election Notice. The new rules clarify the information that election notices must contain, and provide a model election notice at www.dol.gov/ebsa/modelelectionnotice.doc which you can customize for your plan.  You are not required to use the model election notice, but using it is highly recommended.

  4. New Notices. The new rules also impose two new notice obligations on your group health plan.

a. Non-Eligibility Notice. The first new notice obligation will arise if your plan administrator receives a qualifying event notice from a covered employee, qualified beneficiary or other individual, but determines that the individual is not entitled to COBRA continuation coverage under your plan. In this case, the plan administrator must provide the individual with a non-eligibility notice explaining why he or she is not entitled to COBRA continuation coverage.

 b. Early Termination Notice. The second new notice obligation will arise if a qualified beneficiary's COBRA coverage ends before the close of the applicable maximum COBRA continuation coverage period. In this case, the plan administrator must provide a notice-called an early termination notice-to the qualified beneficiary stating why the COBRA continuation coverage will end early, the date the coverage will end, and any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage.

The DOL has not provided model notices for either of the two new notices described in 4. above.

If you have any questions, or if you need help bringing your plan into compliance with the new DOL rules, please contact any member of Godfrey & Kahn's Employee Benefits Team.

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