The Two Penalty Tracks
| Penalty | Authority | Amount | Who Pays |
|---|---|---|---|
| Excise tax | IRC §4980B | $100/day per qualified beneficiary | Employer |
| ERISA civil penalty | ERISA §502(c) | Up to $110/day per qualified beneficiary | Plan administrator |
| ERISA damages | ERISA §502(a) | Benefits owed + attorney fees | Plan/employer |
Class Action Risk
COBRA class action lawsuits are a significant risk for employers with systemic compliance failures. A single defective election notice — one that omits required information or is sent late — can affect every qualified beneficiary who received that notice. If the notice was used for years, the class can be enormous.
Watch Out
COBRA class action plaintiffs' attorneys actively look for defective COBRA notices. Common targets include notices that do not include all required information, notices that are sent late, and notices that do not correctly describe the election period or premium amount. Have your COBRA notices reviewed by ERISA counsel annually.
Building a Defensible COBRA Process
- Use a qualified COBRA administrator — do not administer COBRA in-house without dedicated expertise
- Document every step of the COBRA process — qualifying event identification, notice delivery, premium collection
- Have COBRA notices reviewed by ERISA counsel annually
- Conduct a COBRA compliance audit every 2–3 years
- Respond promptly to COBRA complaints — do not ignore them