COBRA Penalty Cost Employer $1.85 Million

Paying $1.85 million in COBRA penalties would certainly be a wake-up call for most companies.  It was in the case of Pierce v. Visteon Corp., No. 1:05-cv-01325-LJM-DKL (S.D. Ind., June 25, 2013), where an Indiana federal court ordered Visteon to pay $1.85 million to former employees who did not receive COBRA notices in a timely manner (some never received notices).  Visteon will also be paying for the cost of the lawsuit; attorney’s fees have yet to be determined.

You might be using a Third Party Administrator (TPA) to manage your company’s COBRA administration, so you figure you’re covered, so did Visteon.  Visteon had outsourced their COBRA administration to a TPA.  However, utilizing a TPA does NOT relieve a company of its responsibility as plan administrator of their company’s health plan.

The court cited three main reasons for the COBRA notice failure.

  1. The COBRA notice system was not reasonably designed to ensure that it complied with the law.
  2. There was no written policy or training program for HR personnel on handling COBRA questions, complaints, and administration.
  3. The employer did not audit or review the TPA on a regular basis to ensure notices were being sent and compliance was maintained.

There is nothing wrong with outsourcing COBRA administration to a TPA; however it’s important to be aware that you are still responsible for auditing the process to ensure compliance and maintenance of records.  It’s a good reminder for companies, even if you handle the process internally, to run a systems check:

  1. Are you training personnel on the fundamentals of COBRA administration?
  2. Is there effective communication between employees and HR personnel?
  3. Are you performing an audit once a month to ensure all notices have been sent?

If you answered “no” to any of the questions above it might be time to re-evaluate your company’s COBRA administration system.  If you have questions regarding COBRA compliance or would you like to learn more about managing COBRA administration, please feel free to reach out to your Account Manager or contact us at 408-434-9101.

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