18.5 Remedies and Damages

LibraryEmployment Law in Virginia (Virginia CLE) (2020 Ed.)

18.5 REMEDIES AND DAMAGES

18.501 Excise Tax. For a COBRA breach, the IRS can impose a nondeductible excise tax of $100 per day per qualified beneficiary, 221 not to exceed $200 per day per family. Except for willful violations, the maximum excise tax for a year is the lesser of 10 percent of the total amount paid for the group health plans or $500,000. 222 The IRS has stated that the excise tax will not be imposed on employers who "operate in good faith compliance with a reasonable interpretation of the statutory requirement." 223

Historically, the IRS has not actively examined health plans for compliance with COBRA and other rules or in assessing excise taxes when noncompliance has been discovered, but IRS regulations now require employers to self-report violations of COBRA and certain other health plan rules and pay related excise taxes, where appropriate, under the Internal Revenue Code and applicable regulations. 224 The new reporting obligation is effective for plan years beginning on or after January 1, 2010.

The excise tax for violations of COBRA rules can be avoided in a variety of circumstances.

First, no excise tax is imposed during the period when the employer did not know, or exercising reasonable diligence would not have known, a plan failure existed. 225 Second, once the plan failure is discovered, no excise tax will be imposed if the failure was due to reasonable cause and the failure is "corrected." 226

For these purposes, "correction" means (i) retroactively fixing the failure (to the extent possible) within 30 days of the first date on which the error was known or should have been known and (ii) placing any affected

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individual in at least the same financial position as he or she would have been had the failure not occurred. Also, the IRS may waive all or part of the excise tax if the amount of the tax is deemed excessive relative to the failure involved and the failure was due to reasonable cause and not to willful neglect. In addition, governmental plans, church plans, and certain small plans may be exempt from the excise tax under certain circumstances. 227

18.502 Participant Enforcement Suits. Sections 502(a)(1)(A) 228 and (c)(1) 229 of ERISA authorize suits by covered beneficiaries or participants for appropriate equitable relief and statutory penalties of up to $110 per day for COBRA notice violations. For covered state and local government participants and beneficiaries, PHSA provides that an aggrieved individual may bring "an action for appropriate equitable relief." 230

18.503 Penalties for Notice Violations. An ERISA plan administrator who fails to meet the notice requirements 231 may be liable to the participant or beneficiary for an amount of up to $110 a day, "and the court may in its discretion order such other relief as it deems proper." 232 In addition, the DOL can impose penalties of $110 per day for failure to provide notice. Only a plan administrator can be held liable for a COBRA notice violation. 233

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A COBRA notice failure does not extend the period for providing coverage beyond the limits provided by Congress. 234

A good faith, but mistaken, mailing of an election notice to an old address, rather than to the current address contained in the employer's records, subjected the plan administrator to penalties because the notice failure deprived the participant of health care coverage for several months. 235

In an interim final rule published on July 1, 2016, the U.S. Department of Labor revised the monetary penalty amounts for ERISA violations to adjust for inflation 236 pursuant to the Federal Civil Monetary Penalties Inflation Adjustment Act Improvements Act of 2015.

18.50 Damages. Where a district court found that a plan was equitably estopped from denying COBRA coverage, its decision finding the plan liable for 36 months of coverage (totaling $1 million in damages) was affirmed, notwithstanding that partial benefits were paid by another carrier. 237 The court also awarded contribution and reimbursement to a secondary insurer who had paid claims that the court determined were properly owed by the other plan. 238

Compensatory and punitive damages are not available under ERISA, and state claims for those damages are...

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