[Federal Register Volume 69, Number 102 (Wednesday, May 26, 2004)]
[Rules and Regulations]
[Pages 30084-30112]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11796]



[[Page 30083]]

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Part V





Department of Labor





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Employee Benefits Security Administration



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29 CFR Part 2590



Health Care Continuation Coverage; Final Rule

  Federal Register / Vol. 69, No. 102 / Wednesday, May 26, 2004 / Rules 
and Regulations  

[[Page 30084]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AA60


Health Care Continuation Coverage

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Final rules.

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SUMMARY: This document contains final rules implementing the notice 
requirements of the health care continuation coverage (COBRA) 
provisions of part 6 of title I of the Employee Retirement Income 
Security Act of 1974 (ERISA or the Act). The continuation coverage 
provisions generally require group health plans to provide participants 
and beneficiaries who under certain circumstances would lose coverage 
(qualified beneficiaries) the opportunity to elect to continue coverage 
under the plan at group rates for a limited period of time.
    The final rules set minimum standards for the timing and content of 
the notices required under the continuation coverage provisions and 
establish standards for administering the notice process. These rules 
affect administrators of group health plans, participants and 
beneficiaries (including qualified beneficiaries) of group health 
plans, and the sponsors and fiduciaries of such plans. These rules also 
provide model notices for use by administrators of single-employer 
group health plans to satisfy their obligation to provide general 
notices and election notices.

DATES: Effective date: These regulations are effective July 26, 2004.
    Applicability date: These regulations apply to notice obligations 
arising under the COBRA provisions of part 6 of title I of ERISA on or 
after the first day of the first plan year beginning on or after the 
date that is six months after May 26, 2004.

FOR FURTHER INFORMATION CONTACT: Lisa M. Alexander or Suzanne M. 
Adelman, Office of Regulations and Interpretations, Employee Benefits 
Security Administration, (202) 693-8500. This is not a toll-free 
number.

SUPPLEMENTARY INFORMATION:

A. Background

    The continuation coverage provisions, sections 601 through 608 of 
title I of ERISA, were enacted as part of the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (COBRA), which also promulgated 
parallel provisions that became part of the Internal Revenue Code 
(Code) and the Public Health Service Act (PHSA).\1\ See Code section 
4980B; PHSA, 42 U.S.C. 300bb-1 et seq. These provisions are commonly 
referred to as the COBRA provisions, and the continuation coverage that 
they mandate is commonly referred to as COBRA coverage. The COBRA 
provisions of title I of ERISA generally require that ``any group 
health plan'' \2\ offer ``qualified beneficiaries'' the opportunity to 
elect ``continuation coverage'' following certain events that would 
otherwise result in the loss of coverage (``qualifying events'').\3\ 
Continuation coverage is a temporary extension of the qualified 
beneficiary's previous group health coverage. The right to elect 
continuation coverage allows individuals to maintain group health 
coverage under adverse circumstances and to bridge gaps in health 
coverage that otherwise could limit their access to health care.
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    \1\ The Code and PHSA COBRA provisions, although very similar in 
other ways, are not identical to the COBRA provisions in title I of 
ERISA in their scope of application. The PHSA provisions apply only 
to State and local governmental plans, and the Code provisions grant 
COBRA rights to individuals who would not be considered participants 
or beneficiaries under ERISA. See PHSA, 42 U.S.C. 300bb-8; Code 
section 5000(b)(1).
    \2\ A group health plan is not subject to the COBRA provisions 
for any calendar year if all employers maintaining such plan 
normally employed fewer than 20 employees on a typical business day 
during the preceding calendar year. See ERISA section 601(b).
    \3\ Each of the quoted terms is specifically defined in the 
COBRA provisions. In particular, the term ``group health plan'' is 
defined in section 607(1) of the Act to mean an employee welfare 
benefit plan as defined in section 3(1) of the Act that provides 
medical care (as defined in section 213(d) of the Code) to 
participants or beneficiaries directly or through insurance, 
reimbursement, or otherwise. The Department notes that employee 
welfare benefit plans under ERISA include, inter alia, plans 
sponsored by unions for their members as well as plans sponsored by 
employers for their employees. Such union-sponsored plans would not 
involve employers in any sponsorship capacity, nor would they 
necessarily cover individuals all of whom are employees. Although 
the proposed regulations use the terms ``employer'' and 
``employee,'' as do the COBRA provisions, in assigning duties, they 
are intended to apply to all group health plans, as defined in 
section 607(1) of the Act, subject to COBRA.
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    COBRA, as enacted, provides that the Secretary of Labor (the 
Secretary) has the authority under section 608 of ERISA to carry out 
the provisions of part 6 of title I of ERISA. The Conference Report 
that accompanied COBRA divided interpretive authority over the COBRA 
provisions between the Secretary and the Secretary of the Treasury (the 
Treasury) by providing that the Secretary has the authority to issue 
regulations implementing the notice and disclosure requirements of 
COBRA, while the Treasury is authorized to issue regulations defining 
the required continuation coverage.\4\ Under its authority to interpret 
the COBRA provisions, the Treasury has issued final regulations that 
provide rules for determining which plans are subject to the COBRA 
provisions, who is or can become a qualified beneficiary, which events 
constitute qualifying events, what COBRA obligations exist in the case 
of mergers and acquisitions, and the nature of the continuation 
coverage that must be offered. See Treas. Reg. Sec. Sec.  54.4980B-1 
through 54.4980B-10.
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    \4\ H.R. Conf. Rep. No. 99-453 at 562-63 (1985). The Conference 
Report further indicated that the Secretary of Health and Human 
Services, who is to issue regulations implementing the continuation 
coverage requirements for State and local governments, must conform 
the actual requirements of those regulations to the regulations 
issued by the Secretary and the Treasury. Id. at 563.
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    On May 28, 2003, the Department of Labor (the Department) published 
in the Federal Register (68 FR 31832) proposed regulations governing 
the timing, content, and administration of the notice obligations 
arising under sections 601 through 608 of ERISA.\5\ In response to the 
proposed COBRA notice regulations, the Department received 26 public 
comments from an array of interested parties, including organizations 
representing employers, group health plans, plan administrators, 
persons specializing in COBRA administration, and participants and 
beneficiaries.
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    \5\ Prior to the development of proposed rules, the Department 
published a Request for Information (RFI) to assess public views on 
the advisability of developing regulations on the COBRA notice 
provisions. See 62 FR 49894 (Sept. 23, 1997). The Department 
received 15 comments, all of which were taken into account in 
developing the proposed rules.
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    The Department has made a number of changes to the regulations and 
model notices in response to the public comments received on the 
proposals. The following provides an overview of the final rules, 
public comments, and changes from the proposed regulations. These final 
rules implementing the notice requirements of the COBRA provisions of 
part 6 of title I of ERISA also apply for purposes of the COBRA 
provisions of section 4980B of the Code.\6\
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    \6\ As noted in footnote 1, above, certain COBRA provisions 
(such as the definitions of group health plan, employee and 
employer) are not identical in the Code and title I of ERISA. The 
Treasury has reviewed these rules and concurs that, in those cases 
in which the statutory language is not identical, Sec. Sec.  
2590.606-1 through 2590.606-4 would nonetheless apply to the COBRA 
provisions of Sec.  4980B of the Code, except to the extent that 
such regulations are inconsistent with the statutory language of the 
Code.

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[[Page 30085]]

B. Overview of Final Regulations

    The final COBRA notice rules, like the proposals, consist of four 
separate regulations. Section 2590.606-1 covers the general notice 
requirement. In an appendix to Sec.  2590.606-1, a model general notice 
is provided to facilitate compliance with the general notice 
requirements. Section 2590.606-2 creates rules for employer-provided 
notices of the occurrence of a qualifying event. Section 2590.606-3 
addresses the responsibilities of qualified beneficiaries to provide 
notice of a qualifying event or a disability. Section 2590.606-4 deals 
with the election notice and other notices that plan administrators 
must provide. In an appendix to Sec.  2590.606-4, a model election 
notice is provided to facilitate compliance with the election notice 
requirements.
    The model notices provided in the appendices to Sec. Sec.  
2590.606-1 and 2590.606-4 are intended to be used by single-employer 
plans. Other types of plans, such as multiemployer plans and plans 
sponsored by unions for their members, would have to modify the model 
notices to reflect the special rules or practices that apply in the 
case of such plans.\7\ The Department further notes that the use of the 
model notices is not required. The model notices included with these 
regulations are provided solely for the purpose of facilitating 
compliance with the applicable notice requirements. The furnishing of 
appropriately and accurately completed model notices, however, will be 
considered by the Department to constitute compliance with the 
requirements of the applicable notice regulation.
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    \7\ The model election notice is not designed to be used when 
bankruptcy is the qualifying event.
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Section 2590.606-1 General Notice

    Section 606(a)(1) of ERISA requires group health plans to provide 
written notice of COBRA rights to each covered employee and spouse (if 
any) ``at the time of commencement of coverage'' under the plan. 
Section 2590.606-1 establishes the time frames within which this 
general notice must be provided and describes the specific information 
that the general notice must contain.
    The final regulation retains the same general structure of the 
proposal. As discussed below, however, some changes to both the 
regulation and the accompanying model general notice have been made in 
response to public comments.
    Paragraph (b) of the final regulation addresses the timing 
requirements applicable to the general notice requirement of section 
606(a)(1) of the Act. Similar to the proposal, paragraph (b) 
establishes a 90-day period for furnishing the general notice. 
Generally, the notice must be furnished to each covered employee and to 
the employee's spouse (if covered under the plan) not later than the 
earlier of: (1) either 90 days from the date on which the covered 
employee or spouse first becomes covered under the plan or, if later, 
the date on which the plan first becomes subject to the continuation 
coverage requirements; or (2) the date on which the administrator is 
required to furnish an election notice to the employee or to his or her 
spouse or dependent.
    While a few commenters expressed concern about the timing of the 
general notice, the majority of commenters supported the provision as 
better reflecting current practice and fostering efficiency through its 
possible combination with the summary plan description (SPD). The 
Department continues to believe that the timing requirements of the 
regulation protect covered employees and their spouses during the first 
90 days of coverage by ensuring that they timely receive all the 
information they need to understand their rights. For this reason, the 
Department has retained the timing provisions as proposed. In response 
to several comments requesting clarification that the date for the 
furnishing of the general notice under the regulation is the 
``commencement of coverage'' date for purposes of section 606(a)(1) of 
the Act, the Department has added a new paragraph (Sec.  2590.606-
1(b)(2)), providing that a notice furnished in accordance with the 
timing requirement of the regulation is deemed to be provided at the 
time of commencement of coverage under the plan.
    A number of commenters questioned the need to furnish a general 
notice in addition to an election notice when the election notice must 
be given to an individual within the initial 90-day period of coverage. 
Having reviewed the information required to be contained in the general 
notice described in Sec.  2590.606-1(c), and the election notice 
described in Sec.  2590.606-4(b)(4), the Department believes that, 
given the comprehensive nature of the information in the election 
notice and its importance to a qualified beneficiary, the furnishing of 
a general notice simultaneously with an election notice during the 
initial 90-day period would be duplicative, if not confusing or 
distracting. To address this issue, a new paragraph (Sec.  2590.606-
1(b)(3)) has been added to the final regulation providing that, where 
an individual is required to be furnished an election notice within the 
90-day period for furnishing general notices, the plan administrator 
may satisfy its general notice obligation by furnishing an election 
notice in accordance with the final regulation (Sec.  2590.606-4(b)).
    Paragraph (c) of the regulation sets forth the required minimum 
content of a general notice. These content requirements cover basic 
information regarding COBRA and the rights and responsibilities of 
qualified beneficiaries that a participant or beneficiary would need to 
know before the occurrence of a qualifying event in order to be able to 
protect his or her COBRA rights.
    Several commenters argued that the proposed regulation and model 
notice should be modified to eliminate or reduce plan-specific 
information. These commenters generally argued that the use of 
``generic'' (non-plan specific) general notices could result in cost-
savings since the same notice could be used without customization by 
COBRA administrators for multiple plans. While the Department 
appreciates the arguments in favor of a ``generic'' notice, the 
Department believes that covered employees and spouses need to know the 
name of the plan and a plan contact for further continuation coverage 
and plan information. The Department notes that Technical Release 86-2 
(June 26, 1986), which provided a model general notice for use shortly 
after COBRA was enacted, required inclusion of plan-specific 
information for the same reasons. The Department, therefore, has 
retained these requirements in the regulation. However, in an effort to 
minimize the difficulty of customizing the general notice, the 
Department has modified the model general notice to allow placement of 
plan-specific identification information at the end of the notice. The 
Department also has modified the model general notice to eliminate 
identification of both the plan administrator and the COBRA 
administrator. As modified, the model general notice requires only the 
name, address, and phone number of a party or parties who will provide 
information about the plan and COBRA upon request.
    A number of commenters argued that the general notice should not be 
required to address the responsibilities of qualified beneficiaries to 
provide notice of second qualifying events, noting that such 
information is more appropriate for the SPD and election notices. The 
Department agrees with the commenters that the general notice

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should be as informative as possible without being unnecessarily 
complex. For this reason, the Department has modified paragraph (c)(4) 
to eliminate the proposed requirement that the notice describe how 
qualified beneficiaries who are receiving continuation coverage must 
provide notice of a second qualifying event. In addition to being 
included in plan SPDs, this information is included as part of the 
election notice required under Sec.  2590.606-4 and, therefore, will be 
furnished when it will be more relevant to the qualified beneficiary.
    Commenters also argued that, because different qualifying events 
under a single plan may produce different COBRA coverage start dates 
(since the plan may choose to begin COBRA coverage on either the date 
of the qualifying event or the date of loss of coverage), requiring 
that specific information to be described in the general notice makes 
the notice unnecessarily complicated, particularly since this 
information will be available in SPDs. The commenters assumed the 
regulation required such detail because the proposed model general 
notice provided for inclusion of this information. The Department 
agrees with the commenters that such information should not be required 
as part of the general notice if it will make the notice unnecessarily 
complicated. While no changes are required to the regulation, to avoid 
any confusion, the Department has modified the model general notice to 
eliminate references to COBRA coverage beginning dates. The Department 
notes, however, that nothing in the regulation or the model general 
notice precludes a plan administrator from including such information 
in a plan's general notice.
    A few commenters expressed concern that the proposal required the 
general notice to include a statement that more complete information 
about continuation coverage and other rights under the plan is 
available from the plan administrator and the plan's SPD. Because 
covered employees and spouses may need additional information about 
their rights under their plan, the Department believes that they should 
be reminded that there are sources for that information, namely the 
plan administrator and the plan's SPD. Therefore, this provision is 
retained in the final regulation.
    Paragraph (d) permits delivery of a single notice addressed to a 
covered employee and the covered employee's spouse at their joint 
residence, provided the plan's latest information indicates that both 
reside at that address. A single notice would not be permitted, 
however, if a spouse's coverage under the plan begins at a different 
time from the covered employee's coverage, unless the spouse's coverage 
begins before the date on which the notice must be provided to the 
covered employee, and a single notice is then timely sent to their 
joint address. In response to one commenter's request, paragraph (d) 
has been revised to clarify that there is no requirement to furnish a 
general notice to dependent children, even if the general notice 
requirement is triggered early by the occurrence of a qualifying event 
involving such an individual.
    As indicated in the preamble to the proposal, in-hand furnishing of 
the general notice at the workplace to a covered employee is deemed to 
be adequate delivery to the employee, although such delivery to the 
employee would not constitute delivery to the spouse. Except for minor 
editorial changes intended to make the provision more clear, this 
paragraph is being retained as proposed.
    Paragraph (e) of the final regulation permits plans to satisfy the 
general notice requirement by including the information described in 
paragraphs (c)(1), (2), (3), (4), and (5) in the SPD of the plan and 
providing the SPD at a time that complies with the timing requirements 
for the general notice. Some commenters argued that, given the 
importance of the information it contains, the general notice should be 
required to be furnished as a stand-alone notice, as well as being 
included in the SPD. The Department continues to believe that many, and 
perhaps most, plans would prefer to take advantage of the reduced cost 
and added efficiency of providing a single disclosure document that 
satisfies both the general notice requirement and the SPD requirement. 
Moreover, the Department believes that participants and beneficiaries 
are more likely to retain and have ready access to their SPD than a 
general notice furnished separate and apart from their SPD. The 
Department, therefore, has retained this provision without change. The 
Department emphasizes, however, that retention of this provision is not 
intended in any way to limit a plan's flexibility to provide other 
information in other forms to its employees and the spouses of its 
employees.
    As noted in the proposal, if a plan chooses to satisfy its SPD and 
general notice obligations by furnishing a single document, the plan 
must ensure that the document satisfies both the general notice content 
requirements and the SPD content requirements.\8\
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    \8\ The SPD content regulation, Sec.  2520.102-3, specifies 
other information, in addition to description of COBRA rights, that 
must be included in an SPD for a group health plan. See, e.g., Sec.  
2520.102-3(j), (l), (s).
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    Paragraph (f) provides that delivery of the general notice must be 
made in accordance with the standards of 29 CFR 2520.104b-1, including 
the standards for use of electronic media. There were no comments 
suggesting changes to this provision. Accordingly, the provision is 
being adopted without change. A discussion of general issues relating 
to the furnishing of notices is contained in section C, entitled 
``Miscellaneous.''
    The model general notice appended to Sec.  2590.606-1 has been 
revised to reflect the changes discussed above. The Department also has 
made a number of editorial changes in response to suggestions and 
recommendations to improve the clarity of the model general notice.

Section 2590.606-2 Employer's Notice of Qualifying Event

    Section 606(a)(2) of ERISA requires an employer to provide notice 
to the plan administrator of a qualifying event that is either the 
employee's termination of employment or reduction in hours of 
employment, the employee's death, the employee's becoming entitled to 
Medicare, or the commencement of a proceeding in bankruptcy with 
respect to the employer. Regulation Sec.  2590.606-2 addresses this 
notice obligation of employers.
    Paragraph (b) of the regulation provides that an employer shall 
notify the plan administrator of a qualifying event no later than 30 
days after the date of the qualifying event. However, paragraph (b) 
further provides that, for any plan under which continuation coverage 
begins, pursuant to section 607(5) of the Act, with the date of loss of 
coverage, the 30-day period for providing the notice of qualifying 
event must also begin with the date of loss of coverage, rather than 
the date of the qualifying event. Paragraphs (b) and (d) also recognize 
that multiemployer plans may have different notice periods, as 
permitted under sections 606(a)(2) and 606(b).
    Paragraph (c) of the regulation requires that an employer provide 
the plan administrator sufficient information to enable the 
administrator to determine the identity of the plan, the covered 
employee, the qualifying event, and the date of the qualifying event.
    The comments received by the Department on this regulation 
supported the approach taken in the proposal. The Department, 
therefore, is

[[Page 30087]]

adopting this section without modification.

Section 2590.606-3 Qualified Beneficiaries' Notices

    Under section 606(a)(3) of the Act, each covered employee or 
qualified beneficiary is responsible for notifying the plan 
administrator of a qualifying event that is either the divorce or legal 
separation of the employee from his or her spouse or a child's becoming 
no longer eligible to be covered as a dependent under the plan. 
Regulation Sec.  2590.606-3 provides guidance with respect to this 
notice obligation and other notice obligations of qualified 
beneficiaries, such as the notice of disability or second qualifying 
event. Except as noted below, the final regulation follows the 
framework of the proposal.
    Paragraph (a) describes the notices that covered employees and 
qualified beneficiaries may be required to provide to the 
administrator, which include notices of the occurrence of a qualifying 
event that is a divorce, legal separation, or a child's ceasing to be a 
dependent under the plan; the occurrence of a second qualifying event; 
a determination of disability by the Social Security Administration; 
and a determination by the Social Security Administration that a 
qualified beneficiary is no longer disabled.
    Paragraph (b) of the final regulation, like the proposal, requires 
plans to establish reasonable procedures for the furnishing of these 
notices and sets general standards for what will be considered 
reasonable.\9\ Under this provision, a plan's procedures generally will 
be considered reasonable if they are described in the plan's SPD, 
specify who is designated to receive notices, and specify the means 
qualified beneficiaries must use for giving notice and the required 
content of the notice. Paragraph (b) further provides that, if a plan 
does not have reasonable procedures for qualified beneficiaries' 
notices, notice will be deemed to have been provided when a written or 
oral communication identifying a specific event is communicated in a 
manner reasonably calculated to bring the information to parties that 
would customarily be considered to be responsible for the plan. The 
proposed regulation specified that, in the case of a single-employer 
plan that failed to adopt reasonable procedures, notice would be deemed 
provided if communicated either to the person or organizational unit 
that has customarily handled employee benefit matters of the employer 
or to any officer of the employer.
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    \9\ ERISA does not mandate that qualified beneficiaries provide 
notices of qualifying event or disability. A qualified beneficiary 
may not wish to elect or extend continuation coverage and may 
therefore decide to forgo providing the notice of qualifying event 
without violating the COBRA provisions.
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    While some commenters expressed concern that requiring plans to 
adopt qualified beneficiary notice procedures may force them into 
creating formal, inflexible procedures that will harm participants, 
most commenters recognized and supported the importance of establishing 
notice processes that are clearly communicated to the plan's 
participants and beneficiaries. With regard to plans that fail to adopt 
reasonable procedures, some commenters suggested that notice should 
also be deemed to have been provided if given to the managers and 
supervisors of the employee. Other commenters argued that recognizing 
oral notifications and notifications given to the officers of an 
employer would cause confusion and uncertainty as to when and if notice 
was provided. In response to these comments, the Department has decided 
to retain the default standards recognizing oral notifications, where a 
plan fails to adopt reasonable notification procedures. To restrict the 
default notice standards to recognize only written communications would 
allow plans that fail to adopt express notice procedures to rely on a 
de facto standard requiring written notice, which in the Department's 
view would be unfair to participants and beneficiaries. However, the 
Department recognizes that the breadth of the approach of the proposed 
regulation in this regard may have the potential for uncertainty and 
confusion. Since it is reasonable to expect an employee or qualified 
beneficiary, even in the absence of reasonable plan procedures, to give 
notice of an event to a party that customarily handles employee benefit 
matters, the Department has eliminated the reference, at Sec.  
2590.606-3(b)(4)(i), to ``any officer of the employer.''
    Like the proposal, paragraph (b)(3) of Sec.  2590.606-3 provides 
that plans may require qualified beneficiaries to provide specific 
information via a specific form, if the form is easily available to 
qualified beneficiaries without cost. One commenter objected to 
allowing plans to require use of a specific form for notice of 
qualifying event. The Department believes that employees and qualified 
beneficiaries may, in fact, benefit from a plan's use of specific 
forms, which would remove uncertainty about how to comply with the 
plan's requirements. The Department, therefore, has retained this 
provision in the final regulation without change.
    Paragraph (c) provides the time limits that may apply to qualified 
beneficiaries' notices. These limits are minimums that may be imposed 
by a plan. There is nothing in the regulation that prevents plans from 
providing longer periods for furnishing these notices. In general, a 
plan must allow an employee or qualified beneficiary at least 60 days 
to provide notice of a qualifying event that is divorce, legal 
separation, a child's ceasing to be a dependent under the plan, or a 
second qualifying event. As proposed, the starting date for the minimum 
60-day period was based, in part, on what the plan provided for the 
start of COBRA coverage pursuant to section 607(5) of the Act. At the 
suggestion of a commenter and for purposes of simplicity, the 
Department has restructured paragraph (c)(1) of Sec.  2590.606-3 to 
conform with Treasury regulations by providing that the 60-day period 
begins to run from the latest of: (1) The date of the qualifying event; 
(2) the date on which there is a loss of coverage; or (3) the date on 
which the qualified beneficiary is informed, through the plan's SPD or 
the general COBRA notice, of his or her obligation to provide notice 
and the procedures for providing such notice. See Treas. Reg. Sec.  
54.4980B-6, Q&A-2.
    One commenter questioned why the regulation requires the furnishing 
of an SPD or general COBRA notice before the 60-day period for notices 
of qualifying event may begin to run against a qualified beneficiary. 
Inasmuch as a qualified beneficiary might be denied continuation 
coverage because he or she failed to furnish timely notice of a 
qualifying event, the Department believes that disclosing the notice 
obligations and the procedures for providing such notice is critical to 
the exercise of statutory rights. The framework of the final 
regulation, like the proposal, is intended to ensure that qualified 
beneficiaries will not be adversely affected in efforts to exercise 
their COBRA rights by a plan's failure to provide adequate disclosure.
    Several commenters raised questions concerning the time limits, at 
Sec.  2590.606-3 (c)(2) of the proposed rule, for notices of disability 
determinations.\10\ Specifically, the

[[Page 30088]]

commenters suggested that the proposal was ambiguous with respect to 
individuals who receive a disability determination from the Social 
Security Administration (SSA) at some time prior to the occurrence of a 
qualifying event. Since the proposed regulation would permit plans to 
require qualified beneficiaries to provide a disability notice within 
60 days of the later of (1) the date of the SSA disability 
determination, or (2) the date on which the qualified beneficiary is 
notified of the obligation to provide the disability notice, the 
commenters requested that the Department clarify whether and how these 
rules would apply to individuals who received an SSA disability 
determination before receiving notice of the obligation to provide the 
disability notice. The commenters noted that the Treasury regulations 
create a rule for individuals who have been determined by SSA to be 
disabled prior to the occurrence of a qualifying event under which 
their disability is considered to continue to exist as of the 
qualifying event, provided SSA has not issued a subsequent 
determination that they are no longer disabled. Under the Treasury 
regulations, therefore, qualified beneficiaries who have a prior SSA 
disability determination are considered to meet the statutory 
requirement of being disabled ``within the first 60 days'' of COBRA 
coverage. See Treas. Reg. Sec.  54.4980B-7, Q&A-5(c).
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    \10\ The COBRA provisions require group health plans to provide 
certain qualified beneficiaries an 11-month disability extension of 
an 18-month period of COBRA coverage (resulting in a total of 29 
months of COBRA coverage), provided the qualified beneficiary (or 
any other qualified beneficiary who is a member of his or her 
family) is both determined by SSA to be disabled during the first 60 
days of COBRA coverage and also provides notice to the plan of SSA's 
disability determination within 60 days after the date of the 
determination. The notice must be provided before the end of the 
first 18 months of continuation coverage. See ERISA sections 
602(2)(A); 606(a)(3).
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    The Department agrees with the commenters that there is a need for 
further clarification in this area. Following a review of section 
606(a)(3) of the Act, the legislative changes to the COBRA provisions 
since 1986, and the Treasury regulations, the Department has concluded 
that, for purposes of section 606(a)(3) of the Act, an SSA disability 
determination, once issued, should be considered to remain in 
continuing effect until the SSA makes a contrary determination.\11\ For 
this reason, the Department believes that section 606(a)(3) is best 
interpreted to permit plans to require qualified beneficiaries to 
provide a disability notice within 60 days after the latest of: (1) The 
date of the SSA disability determination; (2) the date on which the 
qualifying event occurs; (3) the date on which the qualified 
beneficiary loses coverage; or (4) the date on which the qualified 
beneficiary is informed of the obligation to provide the disability 
notice. The final regulation reflects this interpretation in Sec.  
2590.606-3(c)(2). Under this interpretation, an individual who 
previously received an SSA disability determination and has not 
received a subsequent SSA determination that he or she is no longer 
disabled would have at least 60 days after the occurrence of a 
qualifying event to provide the plan with a disability notice in order 
to be entitled to the disability extension.\12\ There is nothing that 
precludes plans from allowing a longer period for providing this 
notice. For example, a plan may find it administratively more 
convenient to permit individuals who receive an SSA determination prior 
to a qualifying event to provide the notice of disability within the 
same time period within which the election notice is required to be 
provided.
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    \11\ Congress recognized the continuing effect of an SSA 
disability determination by including in the COBRA provisions both a 
provision requiring a qualified beneficiary who provides a 
disability notice to provide the plan with a subsequent notice if 
the SSA determines him or her to be no longer disabled and a 
provision permitting plans to terminate the 11-month disability 
extension one month after the SSA makes a determination that the 
qualified beneficiary is no longer disabled. See ERISA sections 
602(2)(E); 606(a)(3).
    \12\ The general notice requirement would also have to have been 
fulfilled with respect to that individual. Since the general notice 
is required to be furnished only to the covered employee and spouse 
(if also covered), the Department will consider furnishing the 
general notice to either of those two individuals adequate notice 
with respect to a disabled child of the covered employee for this 
purpose.
---------------------------------------------------------------------------

    Paragraph (d) of Sec.  2590.606-3, like the proposal, provides that 
a plan may not reject an incomplete notice as untimely if the notice is 
provided within the plan's time limits and contains enough information 
to enable the plan administrator to identify the plan, the covered 
employee and qualified beneficiar(ies), the qualifying event or 
disability determination, and the date on which such event or 
determination occurred. However, if a timely notice fails to supply all 
of the information required under the plan's procedures, the plan 
administrator can require qualified beneficiaries to supply the missing 
information. Several commenters asked for a clarification as to whether 
a plan could reject a deficient notice if, following a request to 
provide the information required by the plan's procedures, a covered 
employee or qualified beneficiary fails to provide the requested 
information. It is the view of the Department that there is nothing in 
the final regulation that would preclude a plan, following a request 
for more complete information, from rejecting a notice when an employee 
or qualified beneficiary fails to provide the requested information 
within some reasonable period of time. The Department believes that 
both the plan and the plan's participants and beneficiaries would 
benefit from a procedure that specifically defines when and under what 
circumstances, following a request for more complete information, a 
notice will be rejected due to a failure to provide the information a 
plan requires.\13\
---------------------------------------------------------------------------

    \13\ The plan's procedures must be reasonable in all respects, 
including the rules for what information is required, how much time 
an individual is given to provide the required information, and the 
bases for accepting or rejecting a notice.
---------------------------------------------------------------------------

    In view of the comments, paragraph (d) of the proposal is adopted 
without modification. Inasmuch as no comments were submitted on 
paragraphs (e) through (g) of the proposal, those paragraphs are also 
adopted as proposed.

Section 2590.606-4 Plan Administrator's Notice Obligations

    Section 606(a)(4) of ERISA requires a plan administrator to notify 
each qualified beneficiary who is entitled to elect continuation 
coverage of his or her COBRA rights. Section 606(c) requires a plan 
administrator to provide such notice within 14 days after the plan 
administrator is notified of a qualifying event. Regulation Sec.  
2590.606-4 provides guidance on the requirements of sections 606(a)(4) 
and 606(c). In general, the regulation describes timing and content 
requirements for election notices, requires administrators to notify 
individuals under certain circumstances if continuation coverage is 
determined not to be available, and requires plan administrators to 
provide notice when continuation coverage terminates before the end of 
the maximum period for such coverage.
    Paragraph (a) of the final regulation describes the obligation of 
the administrator of a group health plan to provide qualified 
beneficiaries with notice of their right to elect continuation coverage 
under the plan.
    Paragraph (b) of the final regulation addresses the specific timing 
and content requirements for the election notice.\14\ With regard to 
timing,

[[Page 30089]]

paragraph (b)(1) of the final regulation generally provides that the 
administrator shall furnish an election notice to qualified 
beneficiaries within 14 days after the receipt of notice of a 
qualifying event.
---------------------------------------------------------------------------

    \14\ The regulation requires an administrator to provide an 
election notice only when it has been determined that a qualified 
beneficiary is entitled to elect continuation coverage. In this 
regard, the Department notes that it is the administrator's 
responsibility to determine whether individuals who are named in a 
notice of qualifying event are entitled to continuation coverage and 
that disputes may arise over the correctness of the administrator's 
determinations. The Department further notes that determinations 
regarding eligibility for COBRA continuation coverage, like 
determinations involving eligibility for coverage under a group 
health plan, are not governed by ERISA's claims procedure regulation 
unless they relate to a specific claim for benefits. See preamble to 
Sec.  2560.503-1, 65 FR 70246, 70255 (Nov. 21, 2000).
---------------------------------------------------------------------------

    Paragraph (b)(2) provides a special timing rule in connection with 
qualifying events for which the employer must notify the plan, where 
the employer is also the administrator of the plan. Under the special 
rule, an election notice must be furnished not later than 44 days after 
the date of the qualifying event, or, if the plan provides that COBRA 
coverage starts on the date of loss of coverage, the date the qualified 
beneficiary loses coverage under the plan. The Department has revised 
the final regulation, as suggested by one commenter, to make clear that 
the 44-day rule applies only in those cases where the employer is 
required to provide notice of a qualifying event to the plan 
administrator. Paragraph (b)(2) has also been revised to reflect the 
possibility that a plan may adopt a different starting date for COBRA 
coverage for different types of qualifying events.
    Paragraph (b)(3) of the final regulation contains a special timing 
rule for multiemployer plans. No comments were received on this 
provision. Accordingly, paragraph (b)(3) is adopted without 
modification.
    Paragraph (b)(4) of the final regulation sets forth the content 
requirements for the election notice. The Department received several 
comments on this section and the corresponding model election notice.
    Several commenters argued that the regulation required too much 
information to be included in the election notice. In this regard, 
commenters suggested elimination of HIPAA information, information 
about alternative coverage and conversion rights, and plan contact 
information because much of that information is available in the SPD. 
Conversely, other commenters argued that the election notice did not 
include enough information and suggested that the content requirements 
be expanded in various ways.
    Following a careful review of these comments, the Department has 
decided to retain the requirements that HIPAA information and plan 
contact information be included in the election notice. The Department 
believes it is important that qualified beneficiaries understand that 
election or non-election of COBRA continuation coverage may have 
significant implications for their future exercise of HIPAA rights and 
their ability to obtain health care coverage. The Department is 
concerned that the significance of the HIPAA information may be lost if 
the election notice merely refers to the SPD for more information about 
plan rights. Similarly, the Department believes that qualified 
beneficiaries should have ready access to additional information about 
COBRA and their rights under the plan. Because all qualified 
beneficiaries may not have the plan's SPD, requiring that specific 
contact information be included in the election notice is the best way 
to ensure that all qualified beneficiaries have access to the available 
information.
    The Department is persuaded, however, that qualified beneficiaries 
would not be adversely affected by elimination of the requirement that 
information concerning alternative coverage and conversion rights be 
included in the election notice. Accordingly, the final regulation does 
not include those items in the list of required content for the 
election notice. In making these changes, the Department notes that 
information on these subjects is likely to be provided by the plan in 
some other form, either in connection with offering the individual a 
choice between COBRA coverage and the plan's alternative coverage 
options, or at the time that COBRA continuation coverage ends.\15\
---------------------------------------------------------------------------

    \15\ The COBRA provisions separately require plans to provide 
qualified beneficiaries who receive the maximum amount of COBRA 
coverage available to them the option of enrollment under a 
conversion health plan if such right is otherwise generally 
available under the plan. The option must be provided during the 
180-day period ending on the expiration date of the period of COBRA 
coverage. See ERISA section 602(5).
---------------------------------------------------------------------------

    Some commenters requested that the regulation and model election 
notice be modified to clarify that the election notice need not 
identify by name each qualified beneficiary entitled to elect 
continuation coverage. In response to this comment, paragraph 
(b)(4)(iii) has been revised to make clear that identification of 
qualified beneficiaries may be accomplished either by reference to 
their status (e.g., employee, spouse, dependent child covered under the 
plan prior to the qualifying event) or by name. The Department intends 
that identification by status must be sufficiently detailed to permit 
the affected individuals to determine whether they are qualified 
beneficiaries. The model election notice has been revised accordingly.
    As proposed, the model election notice included an optional 
paragraph describing the 65% health coverage tax credit (HCTC) created 
by the Trade Act of 2002 (the Trade Act) that may be used if an 
administrator believes employees might be eligible for trade adjustment 
assistance (TAA) and therefore eligible for the HCTC.\16\ Some 
commenters suggested that Trade Act model language be expanded to refer 
not only to individuals potentially eligible for the HCTC because of 
eligibility for TAA (TAA-eligibles) but also to individuals potentially 
eligible for the HCTC because they may be receiving payments from the 
Pension Benefit Guaranty Corporation (PBGC-eligibles). Other commenters 
requested that the Trade Act paragraph be expanded to include 
additional information on how the new second COBRA election period 
created by the Trade Act relates to preexisting condition exclusion 
periods under HIPAA and how to become certified for TAA. Other 
commenters requested that the Department make clear that the election 
notice is not required to contain any Trade Act information.
---------------------------------------------------------------------------

    \16\ As noted in the preamble to the proposed regulation, it is 
the view of the Department that information on the possible 
availability of a new second COBRA election period in the event of 
TAA eligibility should, pursuant to Sec.  2520.102-3(o), be included 
in the summary plan description of a group health plan as part of 
the discussion of the continuation coverage provisions of the plan. 
See 68 FR 31831, 31833 (May 28, 2003).
---------------------------------------------------------------------------

    As with the proposed regulation, the final regulation does not 
impose any specific disclosure requirement regarding rights and duties 
that may arise as a result of the Trade Act. Nonetheless, the 
Department has included an optional Trade Act paragraph in the model 
election notice to assist administrators who wish to notify potentially 
eligible individuals of their rights under the Trade Act as they relate 
to continuation coverage. In this regard, the Department has modified 
the model election notice Trade Act language to reference both PBGC-
eligibles and TAA-eligibles. With regard to including more detailed 
information about Trade Act, the Department believes that the 
governmental sources identified in the model election notice represent 
the best sources for detailed information on Trade Act-related rights 
and procedures.
    In addition to the aforementioned comments, the Department received 
a number of comments suggesting modifications to the model election 
notice to improve its clarity and readability. In finalizing the model 
election notice, the Department has taken into account all of these

[[Page 30090]]

suggestions and has made a variety of revisions intended to improve, 
clarify, and simplify the model notice.
    The Department received a number of comments on the notice 
requirements set forth in paragraphs (c) and (d) of proposed Sec.  
2590.606-4. Under paragraph (c) of the proposed Sec.  2590.606-4, if a 
plan administrator receives a notice of a qualifying event pursuant to 
Sec.  2590.606-3 from an individual not eligible to receive 
continuation coverage under the plan, the administrator would be 
required to provide notice to the individual(s) explaining why he or 
she is not entitled to such coverage. This unavailability notice was to 
be provided within the same time frame for providing an election 
notice, i.e., within 14 days after receipt of the notice of a 
qualifying event. Under paragraph (d) of the proposal, the 
administrator would be required to provide notice to qualified 
beneficiaries in the event that continuation coverage terminates before 
the end of its maximum duration. This early termination notice was to 
be provided as soon as practicable following the administrator's 
determination that continuation coverage shall terminate.
    A number of commenters argued that the notice provisions of 
paragraphs (c) and (d) should be eliminated entirely. These commenters 
generally argued that these notices are not required by statute, that 
the notices create serious administrative concerns, that they duplicate 
information already required to be disclosed in plan SPDs or election 
notices, and that they increase the risk of civil penalties and 
litigation for plan sponsors. At the same time, commenters indicated 
that many plans already provide similar notifications. A number of 
commenters supported these notice requirements, but suggested changes 
or clarifications.
    With regard to the unavailability notice of paragraph (c), some 
commenters suggested that administrators should be required to provide 
the notice ``as soon as possible,'' although not later than 14 days 
after receiving the notice of qualifying event. Another commenter 
argued that the time frame for furnishing the unavailability notice 
should conform to the time frame for furnishing notice of a benefit 
claim denial. Other commenters requested clarification concerning the 
circumstances that would trigger the notice requirement.
    After consideration of the comments, the Department has decided to 
retain the requirement that notice of unavailability of continuation 
coverage be provided, with some modification. It is the view of the 
Department that when a participant or beneficiary submits a request to 
the plan administrator for COBRA continuation coverage, the individual 
has an expectation of coverage unless (or until) he or she is notified 
to the contrary. The Department continues to believe that furnishing 
the unavailability notice in such circumstances will avoid 
misunderstandings in this area. The Department also believes that the 
proposed time frame of 14 days, paralleling the time frame for 
providing an election notice after receiving a notice of qualifying 
event, is appropriate for the unavailability notice. Therefore, the 
final regulation retains the time frame of the proposal.
    Commenters questioned whether the unavailability notice is required 
only after receipt of ``a notice of a qualifying event furnished in 
accordance with Sec.  2590.606-3,'' as stated in the proposal, or 
whether the unavailability notice must also be provided after receipt 
of any qualified beneficiary's notice furnished in accordance with 
Sec.  2590.606-3. There appears to be little basis for distinguishing 
among the various qualified beneficiary notices that may be required to 
be furnished in accordance with Sec.  2590.606-3 on the basis of the 
expectations of the individual furnishing the notice. Accordingly, the 
Department has modified the language of paragraph (c)(1) to clarify 
that the unavailability notice must be furnished when the plan 
administrator denies coverage after receiving a notice described in 
Sec.  2590.606-3, regardless of the basis of the denial and regardless 
of whether the notice involves a first qualifying event, a second 
qualifying event, or a request for a disability extension. For example, 
the unavailability notice would be required to be provided when a plan 
administrator denies continuation coverage because it has been 
determined that no qualifying event had occurred or because the 
qualified beneficiary did not furnish the notice of qualifying event 
notice in a timely manner or did not provide complete information.
    With respect to the early termination notice of paragraph (d) of 
the proposal, in addition to those commenters opposing the notice 
obligation in its entirety, some commenters suggested changes. One 
commenter suggested that plan administrators be required to provide an 
early termination notice in advance of terminating COBRA coverage and 
that plan administrators should not be allowed to combine the early 
termination notice with the notice of creditable coverage required to 
be provided under HIPAA. Another commenter objected to the proposal's 
adoption of the requirement that the early termination notice be 
furnished ``as soon as practicable,'' suggesting that a specific time 
frame would be more workable. One commenter suggested that the early 
termination notice be required only when coverage terminates 
``voluntarily'' or for lack of premium payment.
    Following consideration of the comments on paragraph (d), the 
Department has decided to retain the early termination notice 
requirements as proposed. As noted in the proposal, continuation 
coverage may be terminated earlier than the end of the maximum period 
for many different reasons. The Department continues to believe that 
providing a notice of early termination serves an important 
administrative function and permits qualified beneficiaries to take 
appropriate next steps to protect their access to health coverage, 
either on a group or individual basis.
    In retaining the notice of early termination of continuation 
coverage requirement, the Department is not requiring that the notice 
be furnished before COBRA coverage can be terminated or within a 
specified time frame. To require notification to be made in advance of 
an otherwise permissible early termination of continuation coverage 
would extend COBRA continuation coverage beyond the statutory periods, 
which would be beyond the Department's interpretive and regulatory 
authority. In recognition of the fact that there may be instances when 
an administrator is able to furnish an early termination notice in 
advance of the early termination of COBRA coverage, the Department has 
retained the requirement that notice of an early termination be 
furnished as soon as reasonably practicable. The Department believes 
that this standard is in the best interest of the qualified 
beneficiaries.
    The Department further believes that allowing plans to combine 
furnishing the early termination notice with the certificate of 
creditable coverage required under HIPAA would benefit the qualified 
beneficiary by providing related benefit information in a single 
information package and would benefit the plan as a result of reduced 
administrative costs. For this reason, the Department reiterates the 
view expressed in the proposal that nothing in these regulations is 
intended to prevent a plan administrator from combining the furnishing 
of an early termination notice with the furnishing of the certificate 
of creditable coverage.

[[Page 30091]]

    One commenter recommended that the Department develop model notices 
for the unavailability notice and the early termination notice required 
under paragraphs (c) and (d) of Sec.  2590.606-4. The Department has 
not adopted this suggestion due to the event-specific nature of the 
required notices. In the Department's view, it would be difficult to 
develop a single model form for such notices that would serve 
adequately to cover every circumstance, or even the most frequent 
circumstances, under which COBRA continuation coverage might be denied 
or terminated before the end of its maximum period.

C. Standards for Furnishing Notices

    As discussed above, the final regulations provide standards for a 
variety of notices required to be furnished by and to qualified 
beneficiaries, employers, and plan administrators. Several commenters 
requested further guidance on the acceptable methods for furnishing the 
various notices addressed by the regulations. They also requested 
guidance on how to determine, for purposes of the various time limits, 
when a notice should be considered to be furnished.
    The Department generally recognizes that disclosures may be 
furnished through a number of different methods. See Sec.  2520.104b-
1(b) (describing generally appropriate methods for furnishing reports, 
statements, notices, and other documents required under title I to 
individuals). With regard to general notices, election notices, 
unavailability notices, and early termination notices, each of which is 
required to be furnished by the plan administrator, the final 
regulations expressly provide that such notices must be furnished in a 
manner consistent with the standards set out in Sec.  2520.104b-1(b). 
See Sec.  2590.606-1(f); Sec.  2590.606-4(f).
    Under the standards set by Sec.  2520.104b-1(b), and therefore 
under these regulations, a required notice generally should be 
considered ``furnished'' by a plan administrator as of the date of 
mailing, if mailed by first class mail, certified mail, or Express 
Mail; or as of the date of electronic transmission, if transmitted 
electronically.\17\ When hand delivery is the chosen method of 
delivery, however, a notice would not be considered furnished until 
actually received by the individual to whom the notice is directed.\18\ 
In the absence of written plan procedures to the contrary that are 
communicated to participants and beneficiaries, it is the view of the 
Department that the same standards would apply to notices of qualifying 
event furnished by an employer to the plan administrator and to COBRA 
notices provided by covered employees, qualified beneficiaries, and 
other persons acting on their behalf to plan administrators.
---------------------------------------------------------------------------

    \17\ See Sec.  2520.104b-1(c) (disclosure through electronic 
media). The Department recognizes that other methods of furnishing 
may be available that, under the actual facts and circumstances, 
should be accorded the same deference as electronic transmission and 
first class mail.
    \18\ The use of interoffice mail for purposes of providing a 
notice to an employee should be considered tantamount to hand 
delivery and governed by the same standards.
---------------------------------------------------------------------------

    The regulations contain one exception to this general rule. Section 
2590.606-4(b) expressly provides that the 14-day time limit applicable 
to plan administrators for furnishing an election notice will not begin 
to run until a plan administrator actually receives a notice furnished 
in accordance with the requirements of Sec.  2590.606-2 or Sec.  
2590.606-3.

D. Effective and Applicability Dates

    The Department received a number of comments expressing concern 
about the proposal's statement of the Department's intention to make 
final regulations effective and applicable as of the first day of the 
first plan year occurring on or after January 1, 2004. Commenters 
argued that such a short time period between publication and effective 
dates would not provide group health plans sufficient time for an 
orderly implementation of the changes necessary to accommodate the 
final COBRA continuation coverage notice regulations. The Department 
recognizes the importance of providing plans with an adequate period 
for making the changes to their COBRA processes required by these final 
COBRA notice regulations. It is in the public interest to enable plans 
to come into compliance smoothly and economically and to take advantage 
of the additional opportunities for administrative efficiency provided 
by these regulations. Accordingly, the Department has determined to 
provide a period of at least six months after publication of these 
final regulations before they will be applicable to notice obligations 
arising under group health plans.
    In order to avoid confusion concerning the applicability date of 
the final rules, each rule (Sec. Sec.  2590.606-1 through 2590.606-4) 
has been modified to add a new ``applicability'' paragraph. This 
paragraph provides that the regulation applies to notice obligations 
that arise on or after the first day of the first plan year beginning 
on or after the date that is six months after the date of publication 
of the final rules in the Federal Register.\19\ The regulations are 
scheduled to become effective sixty days after the date of publication 
in the Federal Register.
---------------------------------------------------------------------------

    \19\ In response to public concerns about the proposed effective 
date, the Department issued a press release expressing its intention 
to give group health plans six months after the adoption of final 
rules to implement administrative changes required by the new rules. 
Press Release, EBSA, Labor Department Announces Proposed Effective 
Date of COBRA Regulations Will Be Delayed (September 17, 2003).
---------------------------------------------------------------------------

    The preamble to the proposed regulations made clear that plans 
could no longer rely upon prior guidance issued by the Department 
shortly after the enactment of COBRA, which provided a model general 
notice to be used in connection with plans' first becoming covered by 
COBRA.\20\ The Department also stated in the proposal that, in the 
absence of final regulations, the Department would judge plan 
compliance with the COBRA statutory notice requirements under the 
standard set by the COBRA conference report: ``[E]mployers are required 
to operate in good faith compliance with a reasonable interpretation of 
these substantive rules, notice requirements, etc.''\21\ Several 
commenters have requested guidance from the Department on whether, in 
the interim between issuance of the proposed regulations and a future 
applicability date for new final rules, they could rely on the proposed 
regulations as a reasonable interpretation of the COBRA statutory 
notice requirements that would be viewed by the Department as good 
faith compliance. The Department has determined that it is in the 
public interest to encourage early compliance with these new standards 
and, therefore, will, pending the applicability of the final rules, 
view compliance with either the proposed rules or the final rules, 
including use of the model notices as proposed or as finalized, to 
constitute good faith compliance with the COBRA statutory notice 
requirements.
---------------------------------------------------------------------------

    \20\ The preamble to the proposed COBRA notice regulations 
explained that the early guidance and model general notice contained 
in Technical Release 86-2, issued June 26, 1986, no longer 
adequately reflected the COBRA provisions due to subsequent 
amendments and that use of that model notice would no longer be 
considered good faith compliance with the requirements of section 
606(a)(1) of the Act. See 68 FR 31832, 31834 n.13 (May 28, 2003).
    \21\ H.R. Conf. Rep. No. 99-453 at 563.
---------------------------------------------------------------------------

E. Regulatory Impact Analysis

Summary

    The regulatory standards promulgated in these regulations will 
benefit both

[[Page 30092]]

plan sponsors and participants. They will dispel plan administrators' 
uncertainty about how to comply with COBRA notice provisions and reduce 
the risk of inadvertent violations. They will help participants and 
beneficiaries understand how to exercise their COBRA rights, thereby 
averting costly disputes and lost opportunities to elect COBRA 
coverage. This will result in an increase in the number of COBRA 
elections by qualified beneficiaries. These benefits of the regulations 
are expected to outweigh their costs.
    New administrative costs imposed by these regulations are limited 
because plan sponsors and administrators already distribute notices 
pursuant to the COBRA statute, and many of their existing practices 
likely already satisfy the requirements of these regulations. The 
Department estimates the new administrative costs to be $2.6 million in 
the first year that the regulations are effective and $0.9 million 
annually in subsequent years. The $0.9 million ongoing annual cost is 
attributable to the new requirements to notify qualified beneficiaries 
when continuation coverage is unavailable or has been terminated before 
the maximum period of coverage has ended. The remaining $1.7 million 
first-year cost reflects the cost to plans to review existing notices 
and procedures, to make any necessary revisions, and to modify or 
develop newly required notices.
    The Department also expects the number of COBRA elections to 
increase slightly, by between 0.5 percent and 1.0 percent, which will 
increase costs to employers. Employers can charge COBRA enrollees the 
cost of coverage plus an administrative charge, but those electing 
continuation coverage tend to have higher costs and therefore as a 
group enjoy a subsidy from plan sponsors equal to about one-third of 
the cost of their coverage. If COBRA elections increase, the amount of 
the subsidy will increase by a similar proportion, or between $12 
million and $24 million annually.

Executive Order 12866

    Under Executive Order 12866, the Department must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule's (1) having an annual effect on the economy of $100 million 
or more, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, it has been 
determined that this action is ``significant'' within the meaning of 
section 3(f)(4) of the Executive Order and therefore subject to review 
by the Office of Management and Budget (OMB).
    Costs.--The administrative cost of these regulations is expected to 
be modest, primarily because COBRA's statutory provisions have been in 
effect since 1986. As a result, most group health plans, plan 
administrators, and health insurance issuers already have developed 
forms and procedures for the administration of COBRA notices. The 
Department estimates that the regulations will increase administrative 
costs by $2.6 million in the first year and $0.9 million annually in 
subsequent years.
    Commenters on the proposed regulations remarked in general terms on 
the importance of controlling costs in relation to the benefits 
achieved for qualified beneficiaries. One commenter indicated that 
revising automated systems that generate COBRA notices would be more 
costly than the Department had estimated in connection with the 
proposal because many COBRA administrators currently issue COBRA 
notices that narrowly target individual audiences, such as spouses or 
children. Although some COBRA administrators choose to include 
additional information in their notices for certain types of qualified 
beneficiaries, the Department continues to believe that few COBRA 
administrators will be required to make significant changes in order to 
comply with the basic requirements of these notice provisions. COBRA 
administrators have in place processes that are, in fact, flexible 
enough to provide notices that satisfy the need for a generic product 
suitable for use by multiple plans while remaining sufficiently 
adaptable to include detailed information unique to the plan or 
individual qualified beneficiary.
    Economies of scale also tend to moderate COBRA administrative costs 
because the majority of notice obligations are met through the purchase 
of COBRA administrative services from a number of COBRA administrators 
that is small relative to the number of group health plans they serve. 
In addition, not all COBRA administrators or plans will be required to 
make substantial changes. In estimating the impact of the proposed 
regulations and model forms, the Department assumed that many COBRA 
administrators and plans currently use notices that, for the most part, 
are in compliance with the requirements of the regulations. Comments 
received did not support a revision of that assumption for the estimate 
of the economic impact of the final rule. In response to comments, 
however, the Department has made certain clarifications to the proposed 
regulations with respect to content and format of the notices and has 
clarified the model notices accordingly. These changes, discussed more 
fully earlier in the preamble, will expand opportunities for COBRA 
administrators to fulfill plans' COBRA notice obligations within the 
context of their current practices. The clarification of the scope of 
applicability of the unavailability notice in Sec.  2590.606-4(c) has 
resulted in an increase in the estimated cost of the final regulations 
of $204,000.
    The Department expects the number of COBRA elections to increase 
slightly as a result of the implementation of these final regulations. 
Consequently, a portion of the cost of health care coverage will 
transfer from those new COBRA enrollees to plan sponsors, thereby 
increasing the subsidy from employers to COBRA enrollees. The transfer 
of costs arises because surveys indicate that although qualified 
beneficiaries that elect COBRA coverage pay a cost consisting of the 
applicable premium amount for group coverage plus an administrative 
charge, the actual average cost of continuation coverage is somewhat 
higher than the combined amount paid by the qualified beneficiary. 
Payment by a plan sponsor of the difference in these costs constitutes 
a subsidy of a qualified beneficiary's continuation coverage. As such, 
the transfer represents a cost to plan sponsors and a benefit to COBRA 
enrollees.
    In estimating the amount of the transfer, the Department observed 
that the number of inquiries the Department receives annually 
concerning COBRA, about 59,000, is equivalent to just more than 1 
percent of the estimated 5 million annual COBRA qualifying events. It 
is likely that some but not all of these inquiries reflect notice

[[Page 30093]]

inadequacies that these regulations would correct. The Department also 
noted that approximately 19 percent of qualifying events result in 
elections, and that the average annualized subsidy from plan sponsors 
to COBRA enrollees amounts to about $2,500 per enrollee. If between 0.5 
percent and 1.0 percent of qualifying events involve missed 
opportunities due to inadequate notice, and 19 percent of those events 
would have resulted in elections, then the regulations, by correcting 
notice deficiencies, would increase COBRA enrollees by between 4,750 
and 9,500 each year, and the aggregate subsidy by between $12 million 
and $24 million. Expressed in unit costs, for every one percent 
increase in the number of qualified beneficiaries who elect 
continuation coverage due to improved notices and procedures, there is 
an estimated incremental increase in cost of $24 million to plan 
sponsors or an average of approximately $58 per plan.
    Both the administrative cost and the transfer cost will be borne by 
the 411,000 group health plans, covering a total of about 111 million 
participants and their dependents, that are currently required to offer 
continuation coverage. Cost estimates recognize only the cost of 
changes to existing practices that are likely to be associated with 
these rules; they exclude the pre-regulation impact of the statute 
itself. Estimates are grounded in an assumption as to the entity 
expected to perform the needed work (e.g., a health insurer or 
professional administrator); the assumption should not be interpreted 
to bear on any party's legal responsibility for COBRA compliance. The 
costs of the regulations are equal to only one one-hundredth of 1 
percent or less of total group health plan costs to entities subject to 
COBRA. Because the magnitude of the overall increase in costs to plans 
is small, the Department believes that it will not have a consequential 
effect on the availability of health coverage for employees.
    Benefits.--The benefits of these rules arise from improved 
administrative efficiency, reduced exposure to risk, and from the 
potential avoidance of some unnecessary losses of group health plan 
coverage by qualified beneficiaries.
    Improvements in the consistency and quality of information provided 
to participants and beneficiaries will help them understand their 
rights and limit their risk of losing the opportunity to elect COBRA 
coverage. Inconsistent procedures and notices that are not adequate as 
to content, timing, and form are known to generate questions, delays, 
disputes, and duplications of effort that require the expenditure of 
additional resources by both plan administrators and participants and 
beneficiaries to resolve. Although the magnitude of the costs and 
potential savings associated with administrative inefficiencies is 
unknown, clearer and more uniform standards should serve to avoid the 
otherwise unnecessary expense associated with rectifying procedural and 
substantive notice inadequacies. Providing greater certainty to plan 
sponsors and plan administrators as to how their notice obligations can 
be met should also limit risks to both plans and qualified 
beneficiaries. Plan sponsors and plan administrators who comply with 
this guidance will be less likely to be subjected to costly disputes, 
litigation, or penalties as a result of their compliance with this 
guidance.
    The benefit to COBRA enrollees exceeds the financial value of the 
transfer insofar as the enrollees will gain access to high-value group 
coverage rather than having to choose between purchasing generally 
lower-value individual insurance, usually at a significantly higher 
rate than a group rate, or going without coverage altogether. 
Individual coverage is more costly and less efficient due in large part 
to significantly higher costs of individual policy administration. The 
uninsured are also known to seek preventive care less frequently and to 
delay or forgo treatment, which may lead to less favorable health 
outcomes and higher social costs for acute care at a later time. 
Interruptions in group health plan coverage can ultimately limit the 
portability of group coverage, as well. A reduction in the numbers of 
losses of coverage that result from notification failures results in 
efficiency gains to the extent that the qualified beneficiaries elect 
group health plan coverage rather than individual coverage.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520) (PRA 95), the Department submitted the information 
collection request (ICR) included in the Notice Requirements of the 
Health Care Continuation Coverage Provisions to the Office of 
Management and Budget (OMB) for review and clearance at the time the 
Notice of Proposed Rulemaking (NPRM) was published. In accordance with 
5 CFR 1320.11(c) of the PRA, OMB issued a Notice of Action, on June 6, 
2003, deferring action on the request for approval until the submission 
of the ICR in connection with the final rulemaking. Action was deferred 
in order to provide the Department with an opportunity to include 
changes resulting from comments on the proposed regulations. 
Accordingly, the Department has submitted the ICR included in the 
Notice of Final Regulations for review and clearance by OMB.
    The Department has issued these rules to set minimum standards for 
the timing and content of the notices required under the continuation 
coverage provisions of part 6 of title I of ERISA, and to establish 
uniform standards for administering the notice process. In very general 
terms, the statute requires that qualified beneficiaries be offered the 
opportunity to elect to continue group health coverage after losses of 
coverage due to death of the covered employee, termination of 
employment or reduction of hours of employment, divorce or legal 
separation of the covered employee from the employee's spouse, loss of 
dependent child status, the covered employee's becoming entitled to 
Medicare, or bankruptcy of an employer that affects covered retirees 
and their families. Qualified beneficiaries may include covered 
employees, spouses of covered employees, and dependent children of 
covered employees. Coverage generally extends for up to 18 or 36 
months, depending on the nature of the qualifying event.
    The regulations set standards for six types of notices and provide 
two model notices in the following sections: General Notice of 
Continuation Coverage; Notice Requirements for Employers; Notice 
Requirements for Covered Employees and Qualified Beneficiaries; and 
Notice Requirements for Plan Administrators. The last section covers a 
notice of right to elect continuation coverage, a notice of 
unavailability of continuation coverage, and a notice of early 
termination of continuation coverage. Each of the regulations includes 
one or more ICRs. It should be noted that this Paperwork Reduction Act 
analysis includes the cost of the statute (the COBRA provisions) as 
well as the cost of the discretion exercised in this rulemaking. These 
costs were developed in the manner described below.
    In order to develop estimates of the cost of the review, revision, 
development, and distribution of COBRA notices, it was first necessary 
to determine the numbers of participants and beneficiaries in plans 
that are required to offer COBRA coverage (generally, plans sponsored 
by employers with 20 or more employees), the numbers of beneficiaries 
who reside at addresses that are different from related covered 
employees, and the rates of occurrences of qualifying events that give 
rise to notice obligations. Also

[[Page 30094]]

required were estimates of the number of entities, such as group health 
insurance issuers and professional administrators, that would review 
COBRA notices; the number that would consequently revise COBRA notices; 
and the time required to do so for each type of notice.
    The Department derived its estimates of 55.8 million covered 
employees, 55 million beneficiaries, and 2.5 million COBRA enrollees 
from the February and March 2001 Current Population Survey (CPS; Census 
Bureau household surveys), the 2000 Medical Expenditure Panel Survey, 
Household and Insurance Components (MEPS comprises surveys of 
households and private establishments conducted jointly by the Census 
Bureau and the Agency for Healthcare Research and Quality), and the 
1996 Panel of the Survey of Income and Program Participation (SIPP; a 
Census Bureau longitudinal household survey). These data sources also 
indicate that 67,000 dependents live outside the household of related 
employees. Frequency rates for qualifying events were also developed 
from MEPS and SIPP.
    An estimate of the number of plans covering these employees and 
dependents was also needed. About 50,000 group health plans currently 
file the Form 5500-Annual Return/Report of Employee Benefit Plan each 
year, including 38,000 large plans, and 8,000 small plans, and a number 
of plans that may not be required to file. For the purpose of 
regulatory analysis, plans with fewer than 100 participants are 
considered to be small. Because the majority of small group health 
plans are not required to file Form 5500, the number of such plans must 
be estimated from other data sources. CPS and MEPS data were used to 
derive an estimate of the number of employers that offer group health 
coverage, and to exclude employers within that group that have fewer 
than 20 employees. This estimate indicates that these regulations will 
affect about 411,000 plans, 38,000 of which are large, and 373,000 of 
which are small. The number of participants in large plans is estimated 
at 43.5 million. The number of participants in small plans is estimated 
to be 12.3 million.
    The preparation and distribution of notices (discussed below) is 
accounted for as cost rather than hours because most COBRA 
administration is accomplished through the purchase of services for 
which fees are paid. Start-up costs that arise from these regulations 
pertain to the review and revision of existing forms and procedures and 
the development of the new early termination and unavailability 
notices. The costs for completing and distributing notices are ongoing 
operating costs.
    The Department has assumed that all COBRA administrators will 
review their existing forms and procedures in response to promulgation 
of this guidance, and that some of those plan administrators will need 
to revise their notices and procedures. In order to derive an estimate 
of the number of entities that will review forms and procedures, the 
Department looked at the number of health insurers offering group 
products and the number of professional administrators providing 
services to group health plans. This results in an estimate of about 
3,000 entities that perform COBRA administration for the majority of 
all plans. All of these entities are expected to review all of their 
notices and procedures in response to this regulatory guidance. The 
reviews are assumed to require 2 hours each for the general notice and 
the election notice. The reviews are expected to be conducted by 
professionals at the level of financial managers at a cost of $68 per 
hour.
    In order to estimate the number of service providers that would be 
required to revise their existing notices, the Department first 
examined its data pertaining to the nature of the telephone inquiries 
it receives. These data show that about 59,000 inquiries pertaining to 
COBRA are received each year. Although the portion of these inquiries 
that pertain to notice provisions is unknown, as is the number of COBRA 
notification issues that do not give rise to contact with the 
Department, this number provides the only available proxy for a rate of 
notice-related difficulties. Given the roughly 5 million COBRA election 
notices provided each year, the rate of notice inadequacies is assumed 
to be about 1%. Because some COBRA inquiries received by the Department 
pertain to issues other than notices, the number of inadequate notices 
may range from .5% to 1% but 1% has been used for purposes of these 
estimates.
    These regulations will require service providers to revise the .5% 
to 1% of notices that historically have been inadequate. The cost of 
these revisions will be driven in part by the number of service 
providers affected. The proportion of service providers affected may be 
larger than the proportion of notices that are inadequate. If 
inadequate notices are concentrated among smaller service providers, 
then the proportion of service providers affected will be more than .5% 
to 1%. The Department assumed that 3% of all service providers, or 90 
providers, will be affected.
    Modifications to the general notice and the election notice are 
assumed to require two hours per notice, at $68 per hour for a service 
provider. Additional start-up costs include the cost of four hours of 
professional time, at $68 per hour, to modify or develop the employer 
and employee notices and to develop the two newly required early 
termination and unavailability notices.
    Ongoing operating costs arise from completing a notice upon the 
occurrence of each event that gives rise to a notice obligation and 
from distributing the completed notice. The Department did not 
attribute any ongoing operating cost to the provision of the general 
notice to covered employees and their spouses who reside with them. 
Under this final rule, a plan administrator may satisfy the general 
notice requirement by including the required content in the SPD and 
furnishing a single notice addressed to both the covered employee and 
the covered employee's spouse. The Department did, however, attribute 
an ongoing operating cost to completing and distributing the general 
notice to a spouse of a covered employee who resides at a separate 
address.
    No burden is included for completing the employer's notice because 
it involves only information that the employer has at hand in its 
customary personnel practices. Similarly, no completion burden is 
calculated for the qualified beneficiaries' notices because this 
information is limited, readily available, and would be provided as a 
usual practice by only the qualified beneficiary who wishes to elect 
continuation coverage.
    No cost has been included for the completion or distribution of the 
notice of unavailability of continuation coverage because there is 
currently no basis for determining the number of these notices that 
might be sent. The Department has assumed, however, that due to the 
clear and consistent information provided in the general notice, plan 
administrators will distribute only a limited number of unavailability 
notices annually and that the associated cost will be very small.
    Finally, the cost for completing the election notice, at 4 minutes 
per notice, and the early termination notice, at 1 minute per notice, 
is estimated at $34 per hour. The 4 minutes required to complete an 
election notice represent a reduction from the 5 minutes originally 
calculated in the proposed regulation. The one minute saved as a result 
of clarifications in the final regulations regarding how plans may 
identify

[[Page 30095]]

qualified beneficiaries for purposes of the election notice, is 
expected to reduce the burden for completing election forms. As such, 
the estimated operating and maintenance costs for the ICR have been 
reduced by an estimated $2.7 million.
    In determining the cost for distribution of COBRA notices, the 
Department noted in the proposed regulations that due to the nature of 
the rights and obligations involved in COBRA notice requirements most 
plan administrators tend not to choose electronic distribution methods 
for COBRA notices. The Department further noted that plans are not 
precluded from using electronic distribution methods that comply with 
regulations at 29 CFR.104b-1(b) and (c) and specifically requested 
comment on the use of electronic technologies in COBRA notice 
administration. The Department received one comment attesting to the 
availability of electronic information systems that are capable of 
transmitting COBRA notices and disclosures, and that are efficient, 
legally protective, and cost effective. The Department recognizes that 
there may be cost savings when information is transmitted 
electronically and that some plans may choose to use electronic 
technologies to fulfill their requirements. For purposes of the PRA, 
however, the Department has conservatively estimated costs based on 
first-class mail, which is currently the most common method for 
delivery of COBRA information. Postage and materials for distribution 
are estimated at $0.38 per notice. No assumption has been made as to 
the number of these notices that will be distributed electronically. 
The application of these assumptions results in an estimated annual 
distribution of 66,900 general notices, 2,809,000 employer notices, 
651,000 qualified beneficiary notices, 4,699,000 plan administrator 
election notices, and 1,000,000 early termination notices. The number 
of unavailability notices is unknown.
    Type of Review: New collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Notice Requirements of the Health Care Continuation Coverage 
Provisions.
    OMB Number: 1210-0NEW.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Respondents: 411,000.
    Frequency of Response: On occasion.
    Responses: 9,225,900.
    Estimated Total Burden Hours: None.
    Total Annualized Capital/Startup Costs: 1,656,500.
    Total Burden Cost (Operating and Maintenance): $14,723,400.
    Total Annualized Cost: $16,379,900.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a rule will not have a 
significant economic impact on a substantial number of small entities, 
section 604 of the RFA requires that the agency present a final 
regulatory flexibility analysis at the time of the publication of the 
NFRM describing the impact of the rule on small entities. Small 
entities include small businesses, organizations, and governmental 
jurisdictions.
    For purposes of analysis under the RFA, EBSA proposes to continue 
to consider a small entity to be an employee benefit plan with fewer 
than 100 participants. The basis of this definition is found in section 
104(a)(2) of the Act, which permits the Secretary to prescribe 
simplified annual reports for pension plans that cover fewer than 100 
participants. Under section 104(a)(3), the Secretary may also provide 
for exemptions or simplified annual reporting and disclosure 
requirements for welfare benefit plans. Pursuant to the authority of 
section 104(a)(3), the Department has previously issued regulations at 
29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46, and 
2520.104b-10, providing for simplified reporting requirements and 
limited exemptions from reporting and disclosure requirements for small 
plans, including unfunded or insured welfare plans covering fewer than 
100 participants, that satisfy certain other requirements.
    Further, while some large employers may have small plans, in 
general most small plans are maintained by small employers. Thus, EBSA 
believes that assessing the impact of this rule on small plans is an 
appropriate substitute for evaluating the effect on small entities. The 
definition of small entity considered appropriate for this purpose 
differs, however, from a definition of small business based on size 
standards promulgated by the Small Business Administration (SBA) (13 
CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et 
seq.). At the time of the publication of the NPRM, the Department 
requested comments on the appropriateness of the size standard used in 
evaluating the impact of this rule on small entities. No comments were 
received.
    On the basis of this definition, EBSA estimates that the 
regulations will not have a significant impact on a substantial number 
of small entities. In support of this conclusion, the Department has 
conducted a final regulatory flexibility analysis, which is summarized 
below.
    These regulations provide plans and qualified beneficiaries with 
greater certainty as to how the notice obligations of COBRA can be met. 
Inquiries to the Department, as well as public comment in response to 
the 1997 RFI, indicated that service providers and plan administrators 
would welcome guidance that would provide greater administrative 
efficiency and reduce exposure to risk resulting from procedural or 
substantive failures to meet notification requirements. Improvements in 
the quality of information provided to participants and beneficiaries 
is expected to help them understand their rights and limit their risk 
of losing the opportunity to elect the COBRA coverage that is required 
to be offered.
    The COBRA provisions require a group health plan to offer qualified 
beneficiaries the opportunity to elect continuation coverage when they 
would otherwise lose group health coverage as a result of certain 
events described in the statute as ``qualifying events.'' Under section 
608 of ERISA, the Secretary has the authority to carry out the 
provisions of part 6 of title I of ERISA. Further, the Conference 
Report that accompanied COBRA provided that the Secretary has the 
authority to issue regulations implementing the notice and disclosure 
provisions of part 6 of ERISA. The Department's objective in issuing 
the regulations is to provide guidelines that will assure plan 
administrators that they are in compliance with the notification 
provisions of COBRA and that participants and beneficiaries have 
sufficient information to exercise their COBRA rights. Small plans will 
benefit from clarifications about the content and timing of notices and 
from the likelihood that fewer determinations about COBRA coverage will 
be delayed, disputed, or appealed. In addition, an increased number of 
qualified beneficiaries in small health plans will be able to obtain 
COBRA continuation coverage.
    The Department believes that, because of the expertise required, 
small plans will use COBRA administrators to review notices and to 
modify or adapt the Department's model notices for use

[[Page 30096]]

by the plan administrator. Generally, COBRA administrators offer plans 
on-going administrative services, such as notifying employees about 
their group health plan continuation coverage, distributing and 
processing election forms, collecting and applying premium payments, 
and monitoring COBRA compliance. Small plans, in particular, are less 
likely to have in-house capabilities to handle these administrative 
tasks. For a service provider, reviewing and adopting or modifying 
forms for plans will result in some direct cost. COBRA administrators 
may choose to absorb some of the cost in order to maintain competitive 
products; others may charge the cost to their client plans. Where these 
costs are charged to plans, the cost will most likely be minimized 
because of the economies of scale inherent in the use of standardized 
forms and procedures. Costs to small plans are further reduced because 
of the large number of small plans that share the cost burden; there 
are approximately seven times as many small plans as large plans. 
Finally, to further reduce costs, the Department has provided two model 
notices that can be adapted by COBRA administrators for use by 
individual single-employer plans.
    The Department estimates that there are approximately 2.5 million 
plans, each with fewer than 100 participants, that are considered small 
group health plans under the Department's definition. Among these, 
COBRA applies to only those plans with 20 or more employees, or 373,000 
plans, with a total of approximately 12.3 million participants. While 
the majority of group health plans subject to COBRA are small plans, 
participation in those plans represents only about 22% of participation 
in all plans covered by COBRA.
    The cost estimates for small plan compliance recognize only the 
cost of changes to existing practices associated with the regulations; 
they exclude the impact of the statute itself. Costs result from the 
likelihood that COBRA administrators may be required to modify two 
notices currently used by plans and may modify or develop other 
notices, including the two new early termination and unavailability 
notices. The cost to small group health plans to review and modify 
existing notices is estimated at $275,900. The cost to develop the two 
new notices and to complete and distribute the early termination notice 
is estimated at $299,400. No costs have been estimated for completion 
and distribution of the unavailability notice because the number of 
notices that might be sent cannot reasonably be determined; it is 
expected, however, that, with the additional clarity provided by the 
general notice regulation, the number of unavailability notices 
required to be sent will be small. The total cost to small plans for a 
service provider's assistance in reviewing, modifying, or developing 
notices is estimated to be $575,300, or $1.54 per small plan. The 
comparable average cost to large plans is $53.09 per plan.
    Employers with small plans will also incur transfer costs as a 
result of an increase in the number of elections of continuation 
coverage by qualified beneficiaries who would have lost the opportunity 
to elect COBRA coverage absent improved notices and procedures. A 
portion of the cost of health care coverage previously borne by these 
individuals will be transferred to plan sponsors. However, because 
there are fewer participants in small plans, the per-plan transfer 
costs are considerably less than for large plans. The potential 
transfer cost to small plans is estimated to range between $2.6 million 
and $5.2 million, depending on the number of qualified beneficiaries 
who will elect COBRA coverage. The rate of potential losses of 
opportunity to elect COBRA coverage is estimated to fall between .5% 
and 1%. This represents an average of $7 to $14 per small plan. The 
comparable cost to large plans ranges from $9.4 million to $18.7 
million, an average of $242 to $484 per plan. At the upper bound, the 
total estimated cost of the regulations for 373,000 small plans is $5.7 
million, or an average of $15 per plan.
    The basis for the regulations lies in the notice and disclosure 
provisions of part 6 of title I of ERISA. The regulations do not 
duplicate, overlap, or conflict with other Federal rules. The COBRA 
provisions have been in effect for many years. Accordingly, most plan 
administrators and COBRA administrators have developed procedures to 
comply with their statutory obligations. The regulations merely seek to 
provide additional, detailed guidance that will clarify a plan's 
administrative obligations and assure plan administrators and COBRA 
administrators that, in complying with the regulations, they have 
satisfied their statutory obligations.
    The Department has attempted to minimize the burden of the review 
and potential revision of existing notices undertaken in response to 
this guidance by including model notices that can be adapted to plans' 
specific circumstances. This should lessen the use of resources for 
small and large plans alike.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this rule does not include 
any federal mandate that may result in expenditures by state, local, or 
tribal governments in the aggregate of more than $100 million, or 
increased expenditures by the private sector of more than $100 million.

Small Business Regulatory Enforcement Fairness Act

    The rule being issued here is subject to the Congressional Review 
Act provisions of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et seq.) and has been transmitted to Congress 
and the Comptroller General for review. The rule is not a ``major 
rule,'' as that term is defined in 5 U.S.C. 804, because it is not 
likely to result in (1) an annual effect on the economy of $100 million 
or more; (2) a major increase in costs or prices for consumers, 
individual industries, or Federal, State, or local government agencies, 
or geographic regions; or (3) significant adverse effects on 
competition, employment, investment, productivity, innovation, or on 
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic or export markets.

Federalism Statement

    Executive Order 13132 (Aug. 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by Federal agencies in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This rule does not have federalism 
implications because it has no substantial direct effect on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. Section 514 of ERISA provides, with certain 
exceptions specifically enumerated, that the provisions of titles I and 
IV of ERISA supersede any and all laws of the States as they relate to 
any employee benefit plan covered under ERISA. The requirements 
implemented in this rule do not alter the fundamental provisions of the 
statute with respect to employee benefit plans, and as such would have 
no implications for the States or the

[[Page 30097]]

relationship or distribution of power between the national government 
and the States.

List of Subjects in 29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Medical child support, Reporting and 
recordkeeping requirements.

0
For the reasons set forth in the preamble, the Department amends 
chapter XXV, subchapter L, part 2590 of title 29 of the Code of Federal 
Regulations as follows:

Subchapter L--Group Health Plans

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
1. The heading of subchapter L is revised to read as shown above.

0
2. The heading of part 2590 is revised to read as shown above.

0
3. The authority citation for part 2590 is revised to read as follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; sec. 
401(b), Pub. L. 105-200, 112 Stat. 645; and Secretary of Labor's 
Order No. 1-2003, 68 FR 5374 (Feb. 3, 2003).

Subpart A--[Amended]

0
4. Part 290, Subpart A, is amended by adding Sec. Sec.  2590.606-1 
through 2590.606-4 to read as follows:


Sec.  2590.606-1.  General notice of continuation coverage.

    (a) General. Pursuant to section 606(a)(1) of the Employee 
Retirement Income Security Act of 1974, as amended (the Act), the 
administrator of a group health plan subject to the continuation 
coverage requirements of part 6 of title I of the Act shall provide, in 
accordance with this section, written notice to each covered employee 
and spouse of the covered employee (if any) of the right to 
continuation coverage provided under the plan.
    (b) Timing of notice. (1) The notice required by paragraph (a) of 
this section shall be furnished to each employee and each employee's 
spouse, not later than the earlier of:
    (i) The date that is 90 days after the date on which such 
individual's coverage under the plan commences, or, if later, the date 
that is 90 days after the date on which the plan first becomes subject 
to the continuation coverage requirements; or
    (ii) The first date on which the administrator is required, 
pursuant to Sec.  2590.606-4(b), to furnish the covered employee, 
spouse, or dependent child of such employee notice of a qualified 
beneficiary's right to elect continuation coverage.
    (2) A notice that is furnished in accordance with paragraph (b)(1) 
of this section shall, for purposes of section 606(a)(1) of the Act, be 
deemed to be provided at the time of commencement of coverage under the 
plan.
    (3) In any case in which an administrator is required to furnish a 
notice to a covered employee or spouse pursuant to paragraph (b)(1)(ii) 
of this section, the furnishing of a notice to such individual in 
accordance with Sec.  2590.606-4(b) shall be deemed to satisfy the 
requirements of this section.
    (c) Content of notice. The notice required by paragraph (a) of this 
section shall be written in a manner calculated to be understood by the 
average plan participant and shall contain the following information:
    (1) The name of the plan under which continuation coverage is 
available, and the name, address and telephone number of a party or 
parties from whom additional information about the plan and 
continuation coverage can be obtained;
    (2) A general description of the continuation coverage under the 
plan, including identification of the classes of individuals who may 
become qualified beneficiaries, the types of qualifying events that may 
give rise to the right to continuation coverage, the obligation of the 
employer to notify the plan administrator of the occurrence of certain 
qualifying events, the maximum period for which continuation coverage 
may be available, when and under what circumstances continuation 
coverage may be extended beyond the applicable maximum period, and the 
plan's requirements applicable to the payment of premiums for 
continuation coverage;
    (3) An explanation of the plan's requirements regarding the 
responsibility of a qualified beneficiary to notify the administrator 
of a qualifying event that is a divorce, legal separation, or a child's 
ceasing to be a dependent under the terms of the plan, and a 
description of the plan's procedures for providing such notice;
    (4) An explanation of the plan's requirements regarding the 
responsibility of qualified beneficiaries who are receiving 
continuation coverage to provide notice to the administrator of a 
determination by the Social Security Administration, under title II or 
XVI of the Social Security Act (42 U.S.C. 401 et seq. or 1381 et seq.), 
that a qualified beneficiary is disabled, and a description of the 
plan's procedures for providing such notice;
    (5) An explanation of the importance of keeping the administrator 
informed of the current addresses of all participants or beneficiaries 
under the plan who are or may become qualified beneficiaries; and
    (6) A statement that the notice does not fully describe 
continuation coverage or other rights under the plan and that more 
complete information regarding such rights is available from the plan 
administrator and in the plan's SPD.
    (d) Single notice rule. A plan administrator may satisfy the 
requirement to provide notice in accordance with this section to a 
covered employee and the covered employee's spouse by furnishing a 
single notice addressed to both the covered employee and the covered 
employee's spouse, if, on the basis of the most recent information 
available to the plan, the covered employee's spouse resides at the 
same location as the covered employee, and the spouse's coverage under 
the plan commences on or after the date on which the covered employee's 
coverage commences, but not later than the date on which the notice 
required by this section is required to be provided to the covered 
employee. Nothing in this section shall be construed to create a 
requirement to provide a separate notice to dependent children who 
share a residence with a covered employer or a covered employee's 
spouse to whom notice is provided in accordance with this section.
    (e) Notice in summary plan description. A plan administrator may 
satisfy the requirement to provide notice in accordance with this 
section by including the information described in paragraphs (c)(1), 
(2), (3), (4), and (5) of this section in a summary plan description 
meeting the requirements of Sec.  2520.102-3 of this chapter furnished 
in accordance with paragraph (b) of this section.
    (f) Delivery of notice. The notice required by this section shall 
be furnished in a manner consistent with the requirements of Sec.  
2520.104b-1 of this chapter, including paragraph (c) of that section 
relating to the use of electronic media.
    (g) Model notice. The appendix to this section contains a model 
notice that is intended to assist administrators in discharging the 
notice obligations of this section. Use of the model notice is not 
mandatory. The model notice reflects the requirements of this section 
as they would apply to single-employer group health plans and must be 
modified if used to provide notice with respect to other types of group 
health plans, such as multiemployer plans or plans

[[Page 30098]]

established and maintained by employee organizations for their members. 
In order to use the model notice, administrators must appropriately add 
relevant information where indicated in the model notice, select among 
alternative language, and supplement the model notice to reflect 
applicable plan provisions. Items of information that are not 
applicable to a particular plan may be deleted. Use of the model 
notice, appropriately modified and supplemented, will be deemed to 
satisfy the notice content requirements of paragraph (c) of this 
section.
    (h) Applicability. This section shall apply to any notice 
obligation described in this section that arises on or after the first 
day of the first plan year beginning on or after November 26, 2004.
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BILLING CODE 4910-29-C


Sec.  2590.606-2.  Notice requirement for employers.

    (a) General. Pursuant to section 606(a)(2) of the Employee 
Retirement Income Security Act of 1974, as amended (the Act), except as 
otherwise provided herein, the employer of a covered employee under a 
group health plan subject to the continuation coverage requirements of 
part 6 of title I of the Act shall provide, in accordance with this 
section, notice to the administrator of the plan of the occurrence of a 
qualifying event that is the covered employee's death, termination of 
employment (other than by reason of gross misconduct), reduction in 
hours of employment, Medicare entitlement, or a proceeding in a case 
under title 11, United States Code, with respect to the employer from 
whose employment the covered employee retired at any time.
    (b) Timing of notice. The notice required by this section shall be 
furnished to the administrator of the plan--
    (1) In the case of a plan that provides, with respect to a 
qualifying event, pursuant to section 607(5) of the Act, that 
continuation coverage and the applicable period for providing notice 
under section 606(a)(2) of the Act shall commence on the date of loss 
of coverage, not later than 30 days after the date on which a qualified 
beneficiary loses coverage under the plan due to the qualifying event;
    (2) In the case of a multiemployer plan that provides, pursuant to 
section 606(a)(2) of the Act, for a longer period of time within which 
employers may provide notice of a qualifying event, not later than the 
end of the period provided pursuant to the plan's terms for such 
notice; and
    (3) In all other cases, not later than 30 days after the date on 
which the qualifying event occurred.
    (c) Content of notice. The notice required by this section shall 
include sufficient information to enable the administrator to determine 
the plan, the covered employee, the qualifying event, and the date of 
the qualifying event.
    (d) Multiemployer plan special rules. This section shall not apply 
to any employer that maintains a multiemployer plan, with respect to 
qualifying events affecting coverage under such plan, if the plan 
provides, pursuant to section 606(b) of the Act, that the administrator 
shall determine whether such a qualifying event has occurred.
    (e) Applicability. This section shall apply to any notice 
obligation described in this section that arises on or after the first 
day of the first plan year beginning on or after November 26, 2004.


Sec.  2590.606-3.  Notice requirements for covered employees and 
qualified beneficiaries.

    (a) General. In accordance with the authority of sections 505 and 
606(a)(3) of the Employee Retirement Income Security Act of 1974, as 
amended (the Act), this section sets forth requirements for group 
health plans subject to the continuation coverage requirements of part 
6 of title I of the Act with respect to the responsibility of covered 
employees and qualified beneficiaries to provide the following notices 
to administrators:
    (1) Notice of the occurrence of a qualifying event that is a 
divorce or legal separation of a covered employee from his or her 
spouse;
    (2) Notice of the occurrence of a qualifying event that is a 
beneficiary's ceasing to be covered under a plan as a dependent child 
of a participant;
    (3) Notice of the occurrence of a second qualifying event after a 
qualified beneficiary has become entitled to continuation coverage with 
a maximum duration of 18 (or 29) months;
    (4) Notice that a qualified beneficiary entitled to receive 
continuation coverage with a maximum duration of 18 months has been 
determined by the Social Security Administration, under title II or XVI 
of the Social Security Act (42 U.S.C. 401 et seq. or 1381 et seq.) 
(SSA), to be disabled at any time during the first 60 days of 
continuation coverage; and
    (5) Notice that a qualified beneficiary, with respect to whom a 
notice described in paragraph (a)(4) of this section has been provided, 
has subsequently been determined by the Social Security Administration, 
under title II or XVI of the SSA to no longer be disabled.
    (b) Reasonable procedures. (1) A plan subject to the continuation 
coverage requirements shall establish reasonable procedures for the 
furnishing of the notices described in paragraph (a) of this section.
    (2) For purposes of this section, a plan's notice procedures shall 
be deemed reasonable only if such procedures:
    (i) Are described in the plan's summary plan description required 
by Sec.  2520.102-3 of this chapter;
    (ii) Specify the individual or entity designated to receive such 
notices;
    (iii) Specify the means by which notice may be given;
    (iv) Describe the information concerning the qualifying event or 
determination of disability that the plan deems necessary in order to 
provide continuation coverage rights consistent with the requirements 
of the Act; and
    (v) Comply with the requirements of paragraphs (c), (d), and (e) of 
this section.
    (3) A plan's procedures will not fail to be reasonable, pursuant to 
this section, solely because the procedures require a covered employee 
or qualified beneficiary to utilize a specific form to provide notice 
to the administrator, provided that any such form is easily available, 
without cost, to covered employees and qualified beneficiaries.
    (4) If a plan has not established reasonable procedures for 
providing a notice required by this section, such notice shall be 
deemed to have been provided when a written or oral communication 
identifying a specific

[[Page 30103]]

event is made in a manner reasonably calculated to bring the 
information to the attention of any of the following:
    (i) In the case of a single-employer plan, the person or 
organizational unit that customarily handles employee benefits matters 
of the employer;
    (ii) In the case of a plan to which more than one unaffiliated 
employer contributes, or which is established or maintained by an 
employee organization, either the joint board, association, committee, 
or other similar group (or any member of any such group) administering 
the plan, or the person or organizational unit to which claims for 
benefits under the plan customarily are referred; or
    (iii) In the case of a plan the benefits of which are provided or 
administered by an insurance company, insurance service, or other 
similar organization subject to regulation under the insurance laws of 
one or more States, the person or organizational unit that customarily 
handles claims for benefits under the plan or any officer of the 
insurance company, insurance service, or other similar organization.
    (c) Periods of time for providing notice. A plan may establish a 
reasonable period of time for furnishing any of the notices described 
in paragraph (a) of this section, provided that any time limit imposed 
by the plan with respect to a particular notice may not be shorter than 
the time limit described in this paragraph (c) with respect to that 
notice.
    (1) Time limits for notices of qualifying events. The period of 
time for furnishing a notice described in paragraph (a)(1), (2), or (3) 
of this section may not end before the date that is 60 days after the 
latest of:
    (i) The date on which the relevant qualifying event occurs;
    (ii) The date on which the qualified beneficiary loses (or would 
lose) coverage under the plan as a result of the qualifying event; or
    (iii) The date on which the qualified beneficiary is informed, 
through the furnishing of the plan's summary plan description or the 
notice described in Sec.  2590.606-1, of both the responsibility to 
provide the notice and the plan's procedures for providing such notice 
to the administrator.
    (2) Time limits for notice of disability determination. (i) Subject 
to paragraph (c)(2)(ii) of this section, the period of time for 
furnishing the notice described in paragraph (a)(4) of this section may 
not end before the date that is 60 days after the latest of:
    (A) The date of the disability determination by the Social Security 
Administration;
    (B) The date on which a qualifying event occurs;
    (C) The date on which the qualified beneficiary loses (or would 
lose) coverage under the plan as a result of the qualifying event; or
    (D) The date on which the qualified beneficiary is informed, 
through the furnishing of the summary plan description or the notice 
described in Sec.  2590.606-1, of both the responsibility to provide 
the notice and the plan's procedures for providing such notice to the 
administrator.
    (ii) Notwithstanding paragraph (c)(2)(i) of this section, a plan 
may require the notice described in paragraph (a)(4) of this section to 
be furnished before the end of the first 18 months of continuation 
coverage.
    (3) Time limits for notice of change in disability status. The 
period of time for furnishing the notice described in paragraph (a)(5) 
of this section may not end before the date that is 30 days after the 
later of:
    (i) The date of the final determination by the Social Security 
Administration, under title II or XVI of the SSA, that the qualified 
beneficiary is no longer disabled; or
    (ii) The date on which the qualified beneficiary is informed, 
through the furnishing of the plan's summary plan description or the 
notice described in Sec.  2590.606-1, of both the responsibility to 
provide the notice and the plan's procedures for providing such notice 
to the administrator.
    (d) Required contents of notice. (1) A plan may establish 
reasonable requirements for the content of any notice described in this 
section, provided that a plan may not deem a notice to have been 
provided untimely if such notice, although not containing all of the 
information required by the plan, is provided within the time limit 
established under the plan in conformity with paragraph (c) of this 
section, and the administrator is able to determine from such notice 
the plan, the covered employee and qualified beneficiary(ies), the 
qualifying event or disability, and the date on which the qualifying 
event (if any) occurred.
    (2) An administrator may require a notice that does not contain all 
of the information required by the plan to be supplemented with the 
additional information necessary to meet the plan's reasonable content 
requirements for such notice in order for the notice to be deemed to 
have been provided in accordance with this section.
    (e) Who may provide notice. With respect to each of the notice 
requirements of this section, any individual who is either the covered 
employee, a qualified beneficiary with respect to the qualifying event, 
or any representative acting on behalf of the covered employee or 
qualified beneficiary may provide the notice, and the provision of 
notice by one individual shall satisfy any responsibility to provide 
notice on behalf of all related qualified beneficiaries with respect to 
the qualifying event.
    (f) Plan provisions. To the extent that a plan provides a covered 
employee or qualified beneficiary a period of time longer than that 
specified in this section to provide notice to the administrator, the 
terms of the plan shall govern the time frame for such notice.
    (g) Additional rights to continuation coverage. Nothing in this 
section shall be construed to preclude a plan from providing, in 
accordance with its terms, continuation coverage to a qualified 
beneficiary although a notice requirement of this section was not 
satisfied.
    (h) Applicability. This section shall apply to any notice 
obligation described in this section that arises on or after the first 
day of the first plan year beginning on or after November 26, 2004.


Sec.  2590.606-4.  Notice requirements for plan administrators.

    (a) General. Pursuant to section 606(a)(4) of the Employee 
Retirement Income Security Act of 1974, as amended (the Act), the 
administrator of a group health plan subject to the continuation 
coverage requirements of Part 6 of title I of the Act shall provide, in 
accordance with this section, notice to each qualified beneficiary of 
the qualified beneficiary's rights to continuation coverage under the 
plan.
    (b) Notice of right to elect continuation coverage. (1) Except as 
provided in paragraph (b) (2) or (3) of this section, upon receipt of a 
notice of qualifying event furnished in accordance with Sec.  2590.606-
2 or Sec.  2590.606-3, the administrator shall furnish to each 
qualified beneficiary, not later than 14 days after receipt of the 
notice of qualifying event, a notice meeting the requirements of 
paragraph (b)(4) of this section.
    (2) In the case of a plan with respect to which an employer of a 
covered employee is also the administrator of the plan, except as 
provided in paragraph (b)(3) of this section, if the employer is 
otherwise required to furnish a notice of a qualifying event to an 
administrator pursuant to Sec.  2590.606-2, the administrator shall 
furnish to each qualified beneficiary a notice meeting the requirements 
of

[[Page 30104]]

paragraph (b)(4) of this section not later than 44 days after:
    (i) In the case of a plan that provides, with respect to the 
qualifying event, that continuation coverage and the applicable period 
for providing notice under section 606(a)(2) of the Act shall commence 
with the date of loss of coverage, the date on which a qualified 
beneficiary loses coverage under the plan due to the qualifying event; 
or
    (ii) In all other cases, the date on which the qualifying event 
occurred.
    (3) In the case of a plan that is a multiemployer plan, a notice 
meeting the requirements of paragraph (b)(4) of this section shall be 
furnished not later than the later of:
    (i) The end of the time period provided in paragraph (b)(1) of this 
section; or
    (ii) The end of the time period provided in the terms of the plan 
for such purpose.
    (4) The notice required by this paragraph (b) shall be written in a 
manner calculated to be understood by the average plan participant and 
shall contain the following information:
    (i) The name of the plan under which continuation coverage is 
available; and the name, address and telephone number of the party 
responsible under the plan for the administration of continuation 
coverage benefits;
    (ii) Identification of the qualifying event;
    (iii) Identification, by status or name, of the qualified 
beneficiaries who are recognized by the plan as being entitled to elect 
continuation coverage with respect to the qualifying event, and the 
date on which coverage under the plan will terminate (or has 
terminated) unless continuation coverage is elected;
    (iv) A statement that each individual who is a qualified 
beneficiary with respect to the qualifying event has an independent 
right to elect continuation coverage, that a covered employee or a 
qualified beneficiary who is the spouse of the covered employee (or was 
the spouse of the covered employee on the day before the qualifying 
event occurred) may elect continuation coverage on behalf of all other 
qualified beneficiaries with respect to the qualifying event, and that 
a parent or legal guardian may elect continuation coverage on behalf of 
a minor child;
    (v) An explanation of the plan's procedures for electing 
continuation coverage, including an explanation of the time period 
during which the election must be made, and the date by which the 
election must be made;
    (vi) An explanation of the consequences of failing to elect or 
waiving continuation coverage, including an explanation that a 
qualified beneficiary's decision whether to elect continuation coverage 
will affect the future rights of qualified beneficiaries to portability 
of group health coverage, guaranteed access to individual health 
coverage, and special enrollment under part 7 of title I of the Act, 
with a reference to where a qualified beneficiary may obtain additional 
information about such rights; and a description of the plan's 
procedures for revoking a waiver of the right to continuation coverage 
before the date by which the election must be made;
    (vii) A description of the continuation coverage that will be made 
available under the plan, if elected, including the date on which such 
coverage will commence, either by providing a description of the 
coverage or by reference to the plan's summary plan description;
    (viii) An explanation of the maximum period for which continuation 
coverage will be available under the plan, if elected; an explanation 
of the continuation coverage termination date; and an explanation of 
any events that might cause continuation coverage to be terminated 
earlier than the end of the maximum period;
    (ix) A description of the circumstances (if any) under which the 
maximum period of continuation coverage may be extended due either to 
the occurrence of a second qualifying event or a determination by the 
Social Security Administration, under title II or XVI of the Social 
Security Act (42 U.S.C. 401 et seq. or 1381 et seq.) (SSA), that the 
qualified beneficiary is disabled, and the length of any such 
extension;
    (x) In the case of a notice that offers continuation coverage with 
a maximum duration of less than 36 months, a description of the plan's 
requirements regarding the responsibility of qualified beneficiaries to 
provide notice of a second qualifying event and notice of a disability 
determination under the SSA, along with a description of the plan's 
procedures for providing such notices, including the times within which 
such notices must be provided and the consequences of failing to 
provide such notices. The notice shall also explain the responsibility 
of qualified beneficiaries to provide notice that a disabled qualified 
beneficiary has subsequently been determined to no longer be disabled;
    (xi) A description of the amount, if any, that each qualified 
beneficiary will be required to pay for continuation coverage;
    (xii) A description of the due dates for payments, the qualified 
beneficiaries' right to pay on a monthly basis, the grace periods for 
payment, the address to which payments should be sent, and the 
consequences of delayed payment and non-payment;
    (xiii) An explanation of the importance of keeping the 
administrator informed of the current addresses of all participants or 
beneficiaries under the plan who are or may become qualified 
beneficiaries; and
    (xiv) A statement that the notice does not fully describe 
continuation coverage or other rights under the plan, and that more 
complete information regarding such rights is available in the plan's 
summary plan description or from the plan administrator.
    (c) Notice of unavailability of continuation coverage. (1) In the 
event that an administrator receives a notice furnished in accordance 
with Sec.  2590.606-3 relating to a qualifying event, second qualifying 
event, or determination of disability by the Social Security 
Administration regarding a covered employee, qualified beneficiary, or 
other individual and determines that the individual is not entitled to 
continuation coverage under part 6 of title I of the Act, the 
administrator shall provide to such individual an explanation as to why 
the individual is not entitled to continuation coverage.
    (2) The notice required by this paragraph (c) shall be written in a 
manner calculated to be understood by the average plan participant and 
shall be furnished by the administrator in accordance with the time 
frame set out in paragraph (b) of this section that would apply if the 
administrator received a notice of qualifying event and determined that 
the individual was entitled to continuation coverage.
    (d) Notice of termination of continuation coverage. (1) The 
administrator of a plan that is providing continuation coverage to one 
or more qualified beneficiaries with respect to a qualifying event 
shall provide, in accordance with this paragraph (d), notice to each 
such qualified beneficiary of any termination of continuation coverage 
that takes effect earlier than the end of the maximum period of 
continuation coverage applicable to such qualifying event.
    (2) The notice required by this paragraph (d) shall be written in a 
manner calculated to be understood by the average plan participant and 
shall contain the following information:
    (i) The reason that continuation coverage has terminated earlier 
than the end of the maximum period of

[[Page 30105]]

continuation coverage applicable to such qualifying event;
    (ii) The date of termination of continuation coverage; and
    (iii) Any rights the qualified beneficiary may have under the plan 
or under applicable law to elect an alternative group or individual 
coverage, such as a conversion right.
    (3) The notice required by this paragraph (d) shall be furnished by 
the administrator as soon as practicable following the administrator's 
determination that continuation coverage shall terminate.
    (e) Special notice rules. The notices required by paragraphs (b), 
(c), and (d) of this section shall be furnished to each qualified 
beneficiary or individual, except that:
    (1) An administrator may provide notice to a covered employee and 
the covered employee's spouse by furnishing a single notice addressed 
to both the covered employee and the covered employee's spouse, if, on 
the basis of the most recent information available to the plan, the 
covered employee's spouse resides at the same location as the covered 
employee; and
    (2) An administrator may provide notice to each qualified 
beneficiary who is the dependent child of a covered employee by 
furnishing a single notice to the covered employee or the covered 
employee's spouse, if, on the basis of the most recent information 
available to the plan, the dependent child resides at the same location 
as the individual to whom such notice is provided.
    (f) Delivery of notice. The notices required by this section shall 
be furnished in any manner consistent with the requirements of Sec.  
2520.104b-1 of this chapter, including paragraph (c) of that section 
relating to the use of electronic media.
    (g) Model notice. The appendix to this section contains a model 
notice that is intended to assist administrators in discharging the 
notice obligations of paragraph (b) of this section. Use of the model 
notice is not mandatory. The model notice reflects the requirements of 
this section as they would apply to single-employer group health plans 
and must be modified if used to provide notice with respect to other 
types of group health plans, such as multiemployer plans or plans 
established and maintained by employee organizations for their members. 
In order to use the model notice, administrators must appropriately add 
relevant information where indicated in the model notice, select among 
alternative language and supplement the model notice to reflect 
applicable plan provisions. Items of information that are not 
applicable to a particular plan may be deleted. Use of the model 
notice, appropriately modified and supplemented, will be deemed to 
satisfy the notice content requirements of paragraph (b)(4) of this 
section.
    (h) Applicability. This section shall apply to any notice 
obligation described in this section that arises on or after the first 
day of the first plan year beginning on or after November 26, 2004.
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    Signed at Washington, DC., this 19th day of May, 2004.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 04-11796 Filed 5-25-04; 8:45 am]
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