An employer/plan administrator erred by thinking that because it automatically kept employees covered under its health plan when their hours were reduced, there was no need to provide a COBRA election notice, a federal district court in Maryland ruled. The fact that the reduction in hours resulted in an increase in their premiums constituted a “loss of coverage” for COBRA purposes. Also, the employer’s disclosures were inadequate in explaining this outcome. This resulted in both a COBRA notice failure and a breach of fiduciary duty under ERISA.
Two employees of the Baltimore City Public School System were recommended for termination and suspended without pay. When suspended, BCPSS kept them both on the employee roster, but maintained their workload at zero hours. As a result, they remained eligible for group health coverage and were billed for the full premium amount. As this occurred, the only explanation they received was in their suspension letter, which said they “may contact the Office of Benefits Management to discuss” continuation coverage options.
The former employees sued BCPSS for COBRA notice violations as well as breach of breach of fiduciary duty under ERISA. They argued a qualifying event occurred when they were suspended, had their hours set to zero and were required to pay both the full premium. This would mean that their election notices were late by more than six months.
BCPSS countered that they experienced “unique” qualifying events much later: when one sent an email to request an end to her coverage; and when another officially resigned. It also said that although a reduction in hours occurred, there was no loss of coverage.
The court disagreed, noting that IRS’ COBRA regulations indicate that a loss of coverage is triggered when there is a premium increase as a result of a qualifying event. Here, the two individuals had to pay 100 percent of premiums once they were suspended — prior to that, they only paid 5 percent and 18.5 percent of the premium, respectively. This increase of premiums was a loss of coverage for COBRA purposes that was a direct result of their reduction in hours, the court found. Therefore, their suspensions were qualifying events and BCPSS’ COBRA obligations were triggered at that time.
Furthermore, the court noted that BCPSS also violated COBRA’s notice rules when it failed to provide enough information to enable the individuals to make an informed COBRA election decision. In doing so, the court noted that, “The invitation in the suspension letter to ‘contact the Office of Benefits Management to discuss the options available’ fails to even hint that the terms and conditions of coverage were to change.” And as a plan fiduciary, BCPSS had a duty to communicate to plan participants and beneficiaries material facts affecting their interests that they are unaware of but need to know about for their protection. The suspension letter had an “incomplete” disclosure because it “failed to indicate the real financial obligation of automatically continuing health care coverage, a material fact that would bear directly on” their interests. Therefore, it held that BCPSS breached its fiduciary duty to disclose required information.
More information on the case, Green v. Baltimore City Board of School Commissioners, 2015 WL 302812 (D. Md., Jan. 22, 2015), can be found at http://hr.complianceexpert.com.