Late Employee Notice of Divorce - Options under COBRA and Change in Status

[rocknrolls2]

An employer maintains a cafeteria plan for its employees under which, among other benefits, employees may elect from among various medical coverages. An employee and his spouse have elected medical coverage during 2007. In October, 2007, the couple becomes divorced. However, the employee fails to notify the employer of the divorce until March 2008. In addition, the plan has a requirement that employees provide notice within 30 days of the occurrence of a change in status event. It appears to me that there are a number of options available to the employer in this situation:

(1) Drop the former spouse's medical coverage and deny the former spouse COBRA rights as permitted by the IRS Regulations at 54.4980B-6, Q&A-2. The employer could also impute into the employee's gross i ncome its portion of the premium attributable to the former spouse's coverage and treat the employee portion fo the premium attributable to the ex-spouse as if it were made on an after-tax basis.

(2) Treat the employee as if timely notice were provided and that the former spouse elected COBRA coverage. The employer could then impute its portion of the portion attributable to the ex-spouse into the employee's gross income and treat the employe's portion of the premiums attributable to the ex-spouse as being made on an after-tax basis. On the basis of the 7th Circuit decision in Trustees of AFTRA Health and Welfare Fund v. Biondi, the employer could also seek to recover the portion of the COBRA coverage equal to 2% of the administrative fee.

Under either scenario, this presupposes that the employer is waiving the 30-day notice requirement for notification of a change in status event. Does anyone have any other options?

[Chaz]

Does anyone have any thoughts on this?  I have come across virtually the same circumstances and had the same thoughts and questions that rocknrolls2 had 12 years ago.  Any help is appreciated.

[sharonfoster]

There is no specific guidance on this topic. As a plan sponsor, before I took any action I would first make sure that the required COBRA notices are being sent properly and you were 'auditing' your process periodically to ensure procedures are followed. Also, does your health plan summary plan description address COBRA coverage, when notice is required and to whom notice must be given. Also, did HR receive notice of the divorce in some other way (QDRO, QMCSO, employee coming in to remove spouse from life insurance, etc.)? If the plan sponsor/administrator has taken care to fulfill its responsibility, then if a late notice is received, the plan administrator should send a 'Notice of Unavailability of COBRA' explaining the basis for deny the spouse COBRA rights. If not, you may have to make an accommodation and make an offer of COBRA. If the error is on the part of the plan, to avoid penalties you need to restore the individual to a position at least as good had the error not occurred. That is a judgement call. Whatever you do, document the basis for the decision and keep it with your plan document.