A Cautionary Tale on Fiduciary Responsibilities

Before you name a specific member of an organization as the fiduciary on a health plan subject to COBRA, consider this. You may want to avoid that if you don’t want that individual to become the responsible party to pay any COBRA fees should an audit occur. Here’s an example that helps illustrate why this should be a concern:

Fiduciary Acme, Inc maintains a health plan subject to COBRA. Susan, Acme, Inc’s CEO, is the named Plan Administrator and fiduciary of the plan. As required by COBRA, Acme, Inc has been extremely careful to send General COBRA Notices to employees and spouses within 90 days after they first become covered under the health plan. However, from December 1, 2012 until she learned the actual General COBRA Notice rule on March 30, 2013, Acme Inc’s new, in-house COBRA administrator failed to send General COBRA Notices to spouses within 90 days of becoming covered by the plan. One spouse became covered on December 1^st and did not receive his notice until April 1^st. Another spouse became covered on December 15^th, and again did not receive her General COBRA Notice until April 1^st. In this instance Acme Inc could be subject to a maximum of $3,000 in excise tax penalties with respect to the first spouse and a possible $1,500 in excise tax penalties with respect to the second spouse.

Under ERISA’s general fiduciary responsibility rules, Susan, in her capacity as the named fiduciary responsible for the plans’ compliance with COBRA, is personally liable for any excise tax that is actually imposed for the failure. To avoid the personal liability the HR person could have named Acme, Inc. as the fiduciary.

If you have any questions about your COBRA administration, please contact our COBRA department at (800) 761-1934.

The Author: Roger Jorgensen, RHU, REBC

Marketing - HSA/HRA/FSA & COBRA

abgncs.com/HSAFSAHRA

rjorgensen@abg-mn.com

Disclaimer: This blog is of an informative and educational nature, and should not be considered legal, financial or operational advice. Please contact the appropriate parties for those services.