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Guest Article

From Mandated Health Benefits--The COBRA Guide, published by Thompson Publishing Group, Inc.

DOL's Final Electronic Distribution Rules Encompass COBRA Notices

Summary: Plan administrators will be able to furnish COBRA notices electronically to plan participants and beneficiaries inside and outside of the workplace under final rules issued April 9 by the Pension and Benefit Welfare Administration (PWBA) of the U.S. Department of Labor (DOL). However, there may be several limitations for COBRA administration.

(April 12, 2002) - Although final electronic distribution rules will allow plan administrators to furnish COBRA notices electronically to plan participants and beneficiaries inside and outside of the workplace, their practical application to COBRA administration is unclear.

The final rules were issued April 9 (67 F.R. 17264) by the Pension and Benefit Welfare Administration (PWBA) of the U.S. Department of Labor (DOL). They finalize and expand earlier interim and proposed rules that allowed ERISA plans to electronically disclose, and retain, certain plan records and documents. Generally, the final rules made two key expansions from the earlier rules:

Although the earlier rules only covered summary plan descriptions (SPDs) and summary annual reports, the final rules provide that all ERISA-required disclosure documents can be sent electronically -- this includes COBRA notices as well as certificates of creditable coverage under the Health Insurance Portability and Accountability Act (HIPAA).
Although the earlier rules limited to electronic distributions to worksite locations, the final rules allow for such distribution "beyond the workplace to participants, beneficiaries, and other persons entitled to disclosures under Title I of ERISA."

Generally, depending on the type of documents in question and the availability of electronic media, the ERISA documents can be furnished via e-mail, a company's Web site, CD-Rom, DVD or similar media. To ensure that plan participants and beneficiaries understand these new requirements, pension and welfare plans will have to provide explanatory information and obtain some type of consent (including electronic consent) to the electronic means of distribution.

The final rules become effective Oct. 9, 2002, and will apply to plan years beginning on or after that date.

Implications for COBRA Administration

While the final rules specifically provide that COBRA notices may be provided electronically, several practical limitations are likely to limit the usefulness of electronically distributing many types of COBRA notices. To consider the impact of these new rules, the basic types of COBRA notices must be analyzed.

Initial COBRA notices. Under COBRA, a plan administrator must notify covered employees and their spouses of their COBRA rights when they first become covered by a group health plan. Here, the electronic distribution rules will help disseminate this notice to employees. For example, an employer could include the COBRA notice as part of an electronically distributed SPD and fulfill the SPD disclosure requirements as well as COBRA's initial notice requirements, at least regarding employees.

However, this initial COBRA notice also must be provided to spouses of covered employees when they first become covered by a group health plan subject to COBRA. This requirement is not met by notifying covered employees. In this instance, the electronic distribution rules will not be of much practical use because the spouse must contemporaneously consent to the delivery method. If the administrator goes to the trouble of obtaining the spouse's consent to electronically receive the initial COBRA notice, the administrator might as well have simply provided the spouse with the initial COBRA notice through regular mail delivery.

Notice of qualifying events. Upon the occurrence of a qualifying event, either the employer (in the case of a termination or reduction of hours of employment or the covered employee's death) or the qualified beneficiaries (in the case of other qualifying events) must notify the plan administrator within a prescribed period. The electronic distribution rules do not apply to these notices. Rather, the rules only apply to the notices that are required to be provided by the plan, not by any other individuals. Certainly, if a plan administrator is notified through electronic means of a qualifying event, it would have to respond with the appropriate COBRA notices accordingly. However, the electronic distribution rules simply do not apply to these events.

Notices from plan administrators. Once the plan administrator is notified of a qualifying event, it must notify the affected qualified beneficiaries of their COBRA rights within 14 days. Here again, several practical limitations will limit the feasibility of using the electronic distribution rules:

The qualified beneficiaries must consent to the delivery of these notices through electronic media. However, this consent will most likely have to be obtained after the qualifying event occurs -- this is the only time that the plan administrator will know for sure who the qualified beneficiaries are, and is just before the electronic communication would be provided.
The COBRA notification period is only 14 days. Moreover, to avoid adverse selection risk to the plan, it is advisable to provide these notices as soon as possible. The process of obtaining the necessary consents before providing the electronic COBRA notices could take longer than 14 days. This will force the plan administrator to provide the non-electronic notice or risk late notice penalties.
As a practical matter, this administrative work of obtaining consents could be difficult to comply with when individuals have just lost their jobs or been divorced, for example. Often, it will be easier (and legally sufficient) to mail the COBRA notices to the last known address by first class mail without any further inquiries. If this is done, and records are kept to prove that the procedures were followed, plan administrators generally will avoid COBRA liability to individuals claiming non-receipt of the COBRA notices.
Even if one could resolve all of the consent issues in order to provide electronic COBRA notices, electronic distribution methods still may not be as good as regular first class mail. For example, electronic systems (servers, etc.) can crash on the sending or receiving end, in which case, the administrator will know that the notice was not delivered. If that happens, what is a plan administrator's obligation?

Given these practical difficulties, it remains to be seen whether and the extent to which plan administrators will develop electronic distribution methods for delivery of COBRA notices.

Excerpted from the May 2002 supplement to Mandated Health Benefits -- The COBRA Guide, ©Thompson Publishing Group, Inc., 2002. All rights reserved.

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