A large employer was socked with $1.85 million in COBRA notice penalties, plus still-to-be determined attorney’s fees, for neglecting its duty as plan administrator to ensure that COBRA election notices were sent on a timely basis. The company’s negligence occurred over several years, affecting hundreds of former employees who participated in a class action lawsuit. A federal district court in Indiana pointed out several reasons that the employer/plan administrator was grossly negligent in its compliance efforts, including a COBRA notice system that was not reasonably designed to ensure that it followed the law, and a failure to regularly audit its COBRA program.
The court added that the employer’s use of third-party administrator did not relief it of legal liability and the large penalty amount would be a deterrent to the employer and others that operate a large number of facilities and use multiple TPAs. The case is Pierce v. Visteon Corp., No. 1:05-cv-01325-LJM-DKL (S.D. Ind., June 25, 2013).
The Background
Visteon Corp., Visteon was the plan administrator for its group health plans. During the period at issue in this case, Visteon had a workforce of approximately 35,500 employees in the United States and worldwide. Visteon employees who enroll in the company’s plans receive a summary plan description that includes COBRA information such as the identity of the COBRA administrator and how to contact that entity with COBRA-related questions.
Generally, Visteon used an automatic data feed system that electronically communicated changes in an employee’s personnel record to its payroll, benefits and COBRA administrators. In practice the process was more complicated because one company did not necessarily perform all three functions, and Visteon went through several TPAs. Visteon did not regularly audit the TPAs to ensure COBRA notices were being sent.
Two employees who never received COBRA qualifying event notices initiated a class action complaint against Visteon for COBRA notice violations. Subsequently, Visteon implemented a formal weekly auditing process with its TPAs and streamlined its COBRA notice process by using the same administrator for both benefits and COBRA notices.
The Violation
But the legal damage was done. The court certified a class of 741 former employees and court concluded that ample evidence existed Visteon was grossly negligent or willfully ignored COBRA’s notice provisions before 2007, which caused harm to COBRA qualified beneficiaries. The court noted that as the plan administrator, Visteon had the duty to comply with COBRA’s notice obligations and using a TPA did not shield it from this liability.
In pointing out the inadequacies of the company’s COBRA program, the court noted that: (1) Visteon’s COBRA notice system was not reasonably designed to ensure that it complied with the law; (2) the company admitted that it did not know at any given time the employment status of its employees to determine if COBRA rules were followed; (3) Visteon could not point to a written policy or training program on how its HR managers should handle COBRA questions or complaints; and (4) no evidence existed that anyone was charged with administering a standard review process for COBRA purposes on a regular basis.
In weighing those and other factors, the court assessed a statutory penalty of $1.85 million. “This penalty is large enough to act as a deterrent to Visteon and to others who similarly operate a large number of facilities and choose to use multiple TPAs to perform various benefit functions, but not so large as to be a windfall for the Class,” the court held.
The court also determined that an attorney’s fee award, the amount to be determined in subsequent proceedings, was justified due to Visteon’s “lack of due regard for the seriousness of this matter” and bad faith.
“With revenues of $13.8 billion in 2012, it is highly likely that Visteon can afford to pay both the penalty imposed by this Order and Plaintiffs’ reasonable attorney’s fees,” the court held.
More details on this case can be found in Mandated Health Benefits — the COBRA Guide, at http://hrcomplianceexpert.com.