DOL Issues Final COBRA Notice Regulations

Executive Summary
On May 26, 2004, the U.S. Department of Labor ("DOL")
issued final regulations governing the notice requirements of the health care continuation coverage (COBRA)
provisions of ERISA. The final regulations become effective January 1, 2005 for calendar year group health plans. These regulations are a modified version of the May 2003 proposed regulations, and will require employers who sponsor group health plans to do all of the following: 

• Revise their current initial and qualifying event COBRA forms. 
• Implement two new types of COBRA notices, the "unavailability" notice and the "termination" notice. 
• Implement procedures for accepting employee and qualified beneficiary notices of qualifying events. 
• Revise the plan's summary plan description to reflect these new rules.

Over the next several months, every employer who sponsors a group health plan will need to modify its current COBRA notices and procedures to ensure compliance with these new regulations.

Overview of Changes
DOL Finally Weighs In
The DOL has waited almost 19 years to provide group health plan sponsors with guidance on COBRA notice requirements. Previous COBRA guidance has come primarily from the Internal Revenue Service ("IRS"), which also has responsibility for enforcement of COBRA obligations. The DOL and IRS have informally divided COBRA responsibilities, and now the DOL has provided guidance on COBRA's notice obligations.

Employers and Plan Sponsors Must Modify Their Forms
The new regulations will require that sponsors of
COBRA-covered group health plans: 

• Revise the initial COBRA notice that is provided to participants and covered spouses and dependents when they first become covered under the plan (the "general notice") to comply with extensive content requirements spelled out in the regulations. 
• Adhere to strict time deadlines for providing the general notice-generally, within 90 days of the date coverage begins. 
• Revise the qualifying event COBRA notice that is provided to participants and covered spouses and dependents when a qualifying event occurs (the "election notice") to comply with extensive content requirements spelled out in the regulations. 
• Create and begin using two new notices, the "unavailability" notice (to be provided when COBRA coverage or additional COBRA coverage is requested but unavailable) and the "termination" notice (to be provided when COBRA coverage ends before the maximum COBRA coverage period ends). 
• Establish a procedure for qualified beneficiaries to follow when notifying the plan of certain qualifying events and social security disability determinations. 
  
• Revise the plan's summary plan description to include the new notification procedure.

Availability of Model Notices
The DOL has made available a model general notice and a model election notice that may be adapted for use by single-employer plans. These model notices are available on the internet at the DOL's website www.dol.gov/ebsa. Employers should be aware that earlier proposed regulations included earlier versions of model notices, but the final regulations have substantially revised those models. There are no models for the unavailability notice or the termination notice, so employers will need to create these notices without the DOL's assistance.

Participants and Qualified Beneficiary Notice Requirements
The new rules require covered participants and qualified beneficiaries to follow the plan's established procedure for notifying the plan of: 

• Certain initial qualifying events (divorce, legal separation or a dependent child's ceasing to be a dependent). 
• Second qualifying events that extend the maximum COBRA coverage period up to 36 months. 
  
•  A qualified beneficiary's disability, entitling all
  qualified beneficiaries to up to an 11-month extension of the maximum COBRA coverage period. 
• The end of a disabled qualified beneficiary's disability, cutting short the 11-month disability extension.

Compliance Date for Final Regulations
The new regulations apply to COBRA notice obligations that arise on or after the first day of the plan's first plan year that begins on or after November 26, 2004. For calendar year plans, the new rules first apply on January 1, 2005. However, the Department of Labor will view compliance with these rules before they apply as good faith compliance with the law then in effect.