Monday, July 29, 2013

Outsourced COBRA Mistake? $1.8 Million Dollar Penalty

When some employers hire a third-party administrator (TPA) to handle their COBRA paperwork, they wipe their brow and think: Whew, at least I don’t have to worry about that anymore. But as a recent court ruling revealed, that thought process couldn’t be further from reality.

The ruling to which we are referring came from the case of Pierce v. Visteon Corp., and here’s a brief background:
Visteon, a large global automotive supplier, outsourced its payroll, benefits and COBRA administration processes to a number of different TPAs. 
When employees were terminated from Visteon, those terminations were processed through an auto data feed system where that info was sent off electronically to the payroll TPA, the benefits TPA and then the COBRA TPA
Over the course of several years, many employees failed to receive their COBRA notices. 
Two of those employees initiated a class-action complaint against Visteon and, when all was said and done, 741 former workers joined the class that claimed Visteon failed to ensure its TPA provided the required COBRA qualifying event notices. 
The company tried to pin everything on its TPAs. Visteon also claimed that its TPA never notified it when COBRA notices were actually furnished, so failing to send these notices was out its control and caused by “communication glitches” among its TPAs.
Grossly negligent

A court, however, didn’t buy the argument that making sure terminated employees received COBRA notices was out of Visteon’s control.

According to the court, Visteon either willfully violated COBRA’s notice provisions or, at best, was “grossly negligent in performing its responsibilities as plan administrator.”

The court went on to cite the company’s many failings, such as:
  • lacking internal systems for tracking the status of employees
  • failing to properly oversee its TPAs, and
  • refusing to accept responsibility for the COBRA notice system.
Because of these failings, the court awarded statutory penalties of $2,500 per affected participant, which added up to $1.8 million in total penalties.

And that doesn’t include the yet-to-be determined attorney’s fees Visteon also owes.
  • Lesson: Employers need to be extremely careful when it comes to selecting a TPA for their COBRA administration, and they should closely monitor their TPAs on a regular basis.
Source and full text at