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COBRA Conundrums
SPD Requirements – Are You Up to Speed?
The Employee Retirement Income Security Act (ERISA) requires all group health plans, except governmental and church plans, to furnish participants with a Summary Plan Description (SPD).

The SPD is a plain language summary of important plan terms, including COBRA.

Insured plans often rely only on the certificate of insurance or booklet which rarely, if ever, contains the required SPD information. Plans relying on these documents are out of compliance. The solution is to prepare a standalone SPD or a “wrap” document that includes all of the information required to be in the SPD but that may be missing from the insurance booklet. The wrap document is then distributed with the insurance booklet. This summer, review your documents and make sure your summaries are up to speed.

COBRA in the SPD

The Department of Labor (DOL) regulations list the information required to be contained in the SPD. The list includes COBRA information. Specifically, the SPDs of group health plans that are subject to COBRA must include “a description of the rights and obligations of participants and beneficiaries with respect to continuation coverage, including, among other things, information concerning qualifying events and qualified beneficiaries, premiums, notice and election requirements and procedures, and duration of coverage.”

More generally, the DOL regulations require the SPD to contain a description of circumstances that can lead to denial or loss of benefits. This general requirement expands the amount of COBRA information in the SPD requiring a description of circumstances where a qualified beneficiary might be ineligible for COBRA (for example, terminated due to gross misconduct), and situations where COBRA can terminate early.

As if that weren’t enough, the DOL COBRA regulations add requirements to the SPD content. COBRA requires covered employees and qualified beneficiaries to provide notice to the plan administrator in certain circumstances including: (1) notice of divorce, legal separation or a dependent ceasing to be a dependent; (2) the occurrence of a second qualifying event; and (3) notice of disability or cessation of disability. 

Plan administrators can establish notice procedures such as the requirement that notice be in writing and be provided to a specific person or department. The DOL COBRA regulations say that COBRA notice procedures are only reasonable if they are in the SPD. Plan administrators that do not include notice procedures in the SPD must accept oral notices and notice to any individual at the employer or insurer, even if the individual is not involved in COBRA administration.

All of these requirements lead to one conclusion: The SPD should contain as much information as is required in the initial notice and much of the election notice.      

Does the SPD satisfy the initial notice requirement? 

Because the SPD is required to include such a full range of COBRA information and is provided at the same time as the initial COBRA notice, can you save some headache and count the SPD as the initial COBRA notice?

The DOL COBRA regulations actually provide a clear answer. They say that an SPD that contains all of the information required to be in the initial COBRA notice and that is delivered to the covered employee and spouse can serve as the initial COBRA notice. This may sound like a great way to save time and money. However, combination of the SPD and COBRA initial notice is a potential compliance minefield. 

The COBRA initial notice must be sent to the covered employee and the spouse. Often the SPD is simply hand-delivered to the employee at orientation. This hand delivery does not satisfy delivery of the COBRA initial notice to the spouse. There are a couple of options. The plan administrator can send the spouse his or her own SPD. If the employee and spouse live at the same address, the plan administrator can mail one SPD so long as the envelope is addressed to both the employee and the spouse.

Combining the SPD and COBRA initial notice makes delivery to all required parties complicated. The COBRA information can also become buried in the SPD causing employees to be unaware of the plan’s notice requirements. For these and other reasons, the best practice remains to distribute an SPD containing all of the required COBRA information and a standalone COBRA initial notice.

Don’t forget the cafeteria plan SPD … Health FSAs get COBRA too.

Health Flex Spending Accounts (FSAs) are considered group health plans under ERISA. The requirement to have an SPD containing COBRA information also applies to Health FSAs. Many employers have a cafeteria plan document that covers the Health FSA. However, they might not have a document that satisfies the SPD content requirements.

Remember, when it comes to administering benefit plans and avoiding costly litigation, the one with the best documentation wins!

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