The Stratford Financial Group has a simple goal in mind when it comes to COBRA Compliance - Keep the IRS out of your business and keep your business out of court.

Determining which employers need to comply with COBRA
      (Consolidated Omnibus Budget Reconciliation Act of 1985)

• All employers who had 20 or more employees on 50 percent of its typical business days during the preceding calendar year.
• To determine the count for the 20 employees, you must count all full-time and part-time employees on your payroll regardless of their eligibility for benefits.

The plans that must be offered to COBRA continues

• Medical and prescription
• Dental
• Vision
• Medical FSAs (Flexible Savings Accounts) and certain EAPs (Employee Assistance Programs)

The plans that cannot be offered to COBRA continues

• Life insurance
• Disability coverage

The required COBRA notifications of the employer
      (Event + Loss Of Coverage = COBRA Qualifying Event)

• Initial Notification - The purpose is to educate employees, spouses and dependents (if covered) with the COBRA law, their notification obligations and their possible rights to COBRA coverage in the future. This notice is to be mailed (1st class) to employees and qualified beneficiaries when they join the benefits plan.
• Qualifying Event Notice - If the employer and the administrator are one and the same, then the employer may only have fourteen (14) days from the qualifying event to generate the qualifying event notification.
• Extension Notice - There are three ways a qualified beneficiary can extend his/her COBRA coverage - Standard secondary event, Special Medicare event and Disability.
• Open Enrollment Notice - COBRA continuees have the same rights as active employees. This includes rights during open enrollment periods therefore continuees must be notified of their rights.
• Notification of Plan Change - Employee Retirement Income Security Act of 1974 (ERISA) requires that plan benefit changes, premium rate changes and other modifications to the plan be communicated to all plan participants, including COBRA continues.
• Conversion Notice - To notify COBRA continuees that their COBRA coverage is coming to an end and that they have the right to elect an individual conversion policy if such an option is available.
• Insignificant Premium Underpayment Notice - To notify qualifies beneficiaries of the amount of underpayment and the fact that coverage will be terminated if the balance of the payment is not received. The plan must give the qualified beneficiary(s) at least 30 days from the date of the notice to make the payment.

The qualifying events and coverage periods

      18 Month Qualifying Events

• Voluntary and In-Voluntary Terminations
• Reduction of Hours

• Death of an employee
• Employee's Medicare entitlement
• Divorce or Legal Separation
• Dependent child ceasing to be a dependent

TAMRA
(Technical and Miscellaneous Revenue Act of 1988)

TAMRA provides the IRS with the ability to judge and penalize employers for COBRA failure.

The Four TAMRA Criteria

• Proper training of the individuals responsible for your company's COBRA compliance.
• Prepared written instructions for the administration of COBRA (manual).
• Maintenance of a designed and updated program based upon professional advice (COBRA letters and documents).
• Monitoring of program by an independent auditor (ERISA attorney).

The IRS methods of judging COBRA Failure

• Reasonable Cause - If the TAMRA Criteria is incorporated AND violations are corrected within 30 days, the IRS can waive penalties.
• Willful Neglect - If the TAMRA Criteria is not incorporated OR violations are not corrected within 30 days, the IRS has no authority to waive penalties.

The IRS enforcement methods of COBRA Compliance

• Complaint-driven audits (former employees)
• Audits through the mail which request proof of the four TAMRA criteria.
• Package Audits

The IRS penalties and other COBRA penalties

• IRS can fine $100 per day, per violation for non-compliance with COBRA.
• IRS can fine $200 per day, per violation if more than one beneficiary in a family.
• ERISA Penalties $100 per qualified beneficiary
• Medical Claims Penalties
• Damages
• Attorneys Fees

Example of an "Initial Notification" violation:
Assume an employer, in the first year of business, has never sent the required Initial Notification Notice to any of the company's 25 employees.