Compliance April 17, 2009

Employer's Timely Correction Averts Additional COBRA Penalties

April 17, 2009 (PLANSPONSOR.com) - An employer that issued a former employee an incorrect COBRA election notice, although late, avoided additional statutory penalties for issuing the late notice by timely correcting and reissuing it.
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The U.S. District Court for the Eastern District of Kentucky agreed that the notice was late and awarded statutory penalties at the rate of $100 per day for the 20-day period beginning 44 days after the employee’s termination (the deadline for providing notice) and ending on the date of the first notice, according to an EBIA news report. However, the court declined to award penalties for the period between the first notice and the corrected notice, concluding that the first notice
was adequate and noting in its opinion that “upon discovering the mistake, [the employer] sent a revised notice and extended the election period.”

The court determined the employee was not prejudiced by the lack of notice during this time period because, except for the coverage termination date, the two notices were identical.

The news report said the employee was sent a COBRA election notice more than two months after being terminated. The employer, which was also the plan administrator, determined that the coverage termination date on this first notice was incorrect and sent another notice that contained a revised date, as well as extended the employee’s election period to end 60 days after the date of the second notice.

The employee later elected COBRA, but coverage was denied on the basis that it had been elected after the end of the election period provided in the second notice.

The case is Fiveash v. Commerce Lexington Inc., 2009 WL 331387 (E.D. Ky. 2009).

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