Grouphealthflorida.com provides complete COBRA compliance and administration to our clients at no cost through our partnership with Ceridian
Grouphealthflorida.com provides complete COBRA compliance and administration to our clients at no cost through our partnership with Ceridian .
What is the effect of noncompliance with the COBRA continuation coverage requirements?
Statutory Penalties
The penalty for failure to make continuation coverage available is an excise tax of $100 per day during the noncompliance period with respect to each qualified beneficiary (limited to $200 per day in the case of more than one qualified beneficiary in the same family.) Attorney’s fees may also be available. Where a covered employee’s wife and children were not participants on the date of the qualifying event, the award was limited to penalties and attorney’s fees based on the covered employee only.[1]
The noncompliance period begins on the date when the failure first begins and continues until (1) the failure is corrected or (2) the date that is six months after the last date on which the employer could have been required to provide continuation coverage to the beneficiary.[2]
But no tax is imposed for the period during which it is shown that none of the persons liable for the tax knew (or, by exercising reasonable diligence, would have known) that the failure existed. Generally, too, there is no tax if the failure was due to reasonable cause, not willful neglect, and is corrected within the first 30 days of the noncompliance period.[3]
Normally, the employer is liable for the tax, except in the case of a multiemployer plan, where the excise tax is imposed directly on the plan. In addition, a person responsible for administering the plan (or providing benefits under it pursuant to a written agreement) is liable if that person causes the failure by failing to perform one or more of its responsibilities. A person may also be liable if he fails to comply, within 45 days, with a written request of the employer, the plan administrator, or, in limited situations, a qualified beneficiary, to provide the benefits that the person provides to similarly situated active employees. Further, this excise tax may be imposed on a third party, such as an insurer or third party administrator, if the third party assumes certain responsibilities.[4]
In the case of single employer plans, the maximum excise tax for failures due to reasonable cause, not willful neglect, is 10% of the aggregate amount paid by the employer during the preceding tax year for medical care coverage, or, if less, $500,000. The maximum excise tax in the case of a person other than the employer is limited to $2,000,000 with respect to all plans.
In the case of a failure due to reasonable cause, the Secretary of the Treasury may waive part or all of the tax to the extent it is excessive relative to the failure involved. The determination of the excessiveness of the excise tax is to be made based on the seriousness of the failure, not on a particular taxpayer’s ability to pay the tax.[5]
Failure to make continuation coverage available will be treated as corrected if it is retroactively undone to the extent possible, and the qualified beneficiary is placed in as good a financial position as he would have been in had the failure not occurred and had the beneficiary elected the most favorable coverage in light of the expenses he incurred since the failure first occurred.[6]
Other Remedies
In addition to the excise taxes discussed above, other civil remedies are available under ERISA.[7] Employees or other qualified beneficiaries can bring civil actions to obtain “other equitable relief” (e.g., injunction and restitution) and to recover additional penalties of up to $100 per day for failure to provide required notices or to furnish requested information.[8] Compensatory damages are not available.[9] ASRS, Sec. 67, ¶480.
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[1]
Wright v. Hanna Steel Corp., 270 F.3d 1336 (11th Cir. 2001).
[2]
IRC Sec. 4980B(b).
[3]
IRC Sec. 4980B(c).
[4]
IRC Sec. 4980B(e); Treas. Reg. §54.4980B-2, A-10. See Paris v. Korbel, 751 F. Supp. 834 (N.D. Cal. 1990).
[5]
IRC Sec. 4980B(c)(5).
[6]
IRC Sec. 4980B(g)(4).
[7]
ERISA Sec. 502.
[8]
ERISA Secs. 502(a)(1), 502(a)(3).
[9]
See Geissal v. Moore Med. Corp., 158 F. Supp.2d 976 (E.D. Mo. 2001).
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