Auditing Your Vendor’s COBRA Election Notice After the 2025–2026 Class Settlements

Why Your Outsourced COBRA Vendor's Template Lands on Your Balance Sheet

Commercial COBRA administrators process paper and payments as ministerial service providers, not named ERISA Plan Administrators. When plaintiffs' firms sue over a defective election packet, the employer—not the TPA—is the statutory defendant.

Ask ten benefits generalists what their company's COBRA election notice looks like, and nine will admit they have never seen the physical envelope mailed to a former employee's home. HR enters a termination code in Workday or Rippling, an EDI file transmits overnight to a third-party COBRA vendor, and everyone assumes a routine administrative box is checked. During a 150-person layoff, that single uninspected template fires simultaneously across 150 households.

Between 2025 and 2026, federal dockets recorded a steady wave of six- and seven-figure ERISA class settlements—including a $1 million proposed class settlement involving The Auto Club Group and a $325,000 class settlement involving Starbucks—built almost entirely on standardized COBRA vendor notice deviations. Look at the statutory leverage driving those settlements under 29 U.S.C. § 1132(c)(1) (ERISA § 502(c)(1)) and 29 CFR § 2575.502c-1:

• Up to $110 per day per affected person: Courts may assess discretionary statutory penalties up to $110 per day from the date of the failure or refusal to furnish a compliant notice under 29 U.S.C. § 1166(a)(4).
• Class-wide multiplication: Across a three-year lookback cohort of just 800 separated employees, even a fraction of the $110 daily statutory cap—paired with claims for uncovered medical bills and plaintiffs' attorneys' fees under 29 U.S.C. § 1132(g)—creates multi-million-dollar settlement pressure before summary judgment.
• Zero automatic TPA indemnity: Pull your COBRA vendor's Master Services Agreement today. Almost every commercial TPA caps contractual damages at 12 months of administrative fees ($4,000 to $15,000 a year) while disclaiming fiduciary status as the ERISA Plan Administrator.

The 30/14-Day vs. 44-Day Mailing Clock After Termination

When the employer is the named ERISA Plan Administrator, you do not automatically get a 44-day error cushion by blaming slow HRIS feeds. Verify when coverage actually ends before starting the clock.

First, lock down your exact statutory deadline under 29 CFR § 2590.606-4(b):

1. Check whether your plan uses a "delayed loss of coverage" rule: Most corporate medical plans continue active coverage through the last day of the calendar month in which termination occurs (unlike final wages, which trigger immediately—see our final-paycheck and deduction rules). If your plan measures the COBRA period from the date coverage is actually lost (for example, October 31 for an October 8 layoff), confirm your SPD states that rule explicitly.
2. Count the 44 calendar days accurately: Under § 2590.606-4(b)(2), when the employer is also the ERISA Plan Administrator (which is true for virtually all single-employer corporate plans, even when outsourcing mailings to a TPA), the election notice must be furnished not later than 44 days after the later of the qualifying event date or the date coverage is lost (where the plan provides for delayed coverage loss).
3. Audit weekend and EDI batch holds: Many payroll-to-TPA integrations only push terminated records once a payroll cycle closes, and TPAs hold notices pending carrier termination confirmation. Test end-to-end postmark timestamps on five recent terminations so batch lag never pushes delivery past Day 44.

Four Specific Template Defects Driving the 2025–2026 Lawsuits

COBRA class complaints target four recurring deviations from 29 CFR § 2590.606-4(b)(4) and the DOL Model Election Notice. Every single one can be spotted in ten minutes with a highlighter.

Request an exact PDF replica of your TPA's live outgoing packet—not a sales brochure—and inspect it for the four defects cited repeatedly in recent federal complaints:

• Defect 1 — Omitting the actual Plan Administrator's name, address, and telephone number: Under 29 CFR § 2590.606-4(b)(4)(i), the notice must state the name of the plan and "the name, address and telephone number of the party responsible under the plan for the administration of continuation coverage benefits." Many TPAs print only their own processing center P.O. Box and omit the employer Plan Administrator entirely, leaving participants uncertain who holds legal authority over the plan. Fix it by listing both the named ERISA Plan Administrator (Company Name, Benefits Dept. Address, Phone) and the designated COBRA Service Provider handling enrollment forms.
• Defect 2 — Splitting required disclosures across piecemeal letters ("Multiple-Envelope Trap"): Some vendors mail a generic "COBRA Rights Overview" first and send actual election forms, exact monthly premium dollar figures, or payment addresses weeks later. Plaintiffs challenge split mailings as failing to provide a single, comprehensible notice under § 2590.606-4(b)(4).
• Defect 3 — Missing concrete calendar dates for the 60-day election and 45-day initial payment: Simply stating "you have 60 days to elect and 45 days after election to pay" without printing the exact calendar cutoff date for election—or misstating whether the initial 45-day retroactive premium payment runs from the date of actual election rather than the notice date under 26 U.S.C. § 4980B(f)(2)(C)—invites immediate challenge.
• Defect 4 — Threatening "IRS penalty" or criminal-fraud scare warnings: Several TPAs inserted aggressive boldface warnings threatening $50-per-day IRS tax penalties or federal fraud prosecution for incomplete forms or late notices—language absent from the DOL Model Election Notice that plaintiffs allege unlawfully chills low-wage workers from electing coverage.

The Layoff Severance Subsidy Trap: Never Extend "Active" Coverage Informally

Keeping laid-off staff on your active medical billing roster for three months instead of triggering COBRA on Day 1 can void stop-loss insurance and strand the employee without continuation rights in Month 4.

During a reduction in force, people operations teams frequently promise "three months of company-paid health insurance" in the severance agreement. How you operationalize those three months determines whether you create a six-figure self-insured medical liability:

1. Never leave a terminated employee coded as "Active" on the carrier feed: Group medical policies and stop-loss contracts cover active employees working minimum weekly hours (for example, 30+ hours/week) plus statutory COBRA participants. If you leave a laid-off employee coded as active for 90 days and they incur a $280,000 hospital claim in Month 2, your insurer or stop-loss carrier can audit payroll, deny the claim as an ineligible non-employee, and leave the company paying 100% out of pocket.
2. Trigger COBRA at termination and subsidize the COBRA premium: Terminate active coverage per standard plan terms (for example, end of termination month), issue the compliant COBRA election notice immediately, and state in the severance agreement that if the employee timely elects COBRA within 60 days and executes the release, the company will pay [X]% of the monthly COBRA premium directly to the TPA for [3] months, running concurrently with the 18-month COBRA maximum period. Also inspect IRC § 105(h) nondiscrimination rules if you offer tax-free 100% COBRA subsidies strictly to highly compensated executives under a self-insured plan.

Copy-Ready TPA Audit Request & Severance COBRA Clause

Send Part A to your COBRA vendor account manager before any RIF announcement, and drop Part B into your severance template review with employment counsel.

PART A — EMAIL TO THIRD-PARTY COBRA ADMINISTRATOR (PRE-LAYOFF AUDIT)
Subject: URGENT Pre-RIF Compliance Audit — Live COBRA Election Packet & DOL Model Alignment

Hi [TPA Account Manager],

Ahead of an upcoming Q4 administrative audit, please provide within 3 business days an unredacted specimen PDF of the exact COBRA Qualifying Event Election Notice packet (including all cover pages, fee schedules, and inserts) currently generated for our group health plan ([Plan Name / Plan #]).

Please confirm in writing against 29 CFR § 2590.606-4(b)(4) and the current DOL Model Election Notice:
1. That [Company Legal Name], [Address], [Benefits Phone] is explicitly identified as the ERISA Plan Administrator alongside [TPA Name] as the designated COBRA service administrator;
2. That all required disclosures, monthly rates, and election instructions mail in a single unified packet within 14 days of our EDI feed (and well inside our 44-day overall deadline);
3. That exact calendar deadlines print for both the 60-day election cutoff and the 45-day post-election initial payment window; and
4. That no non-model penalty warnings or criminal/IRS threat banners appear anywhere in the packet.

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PART B — MODEL SEVERANCE AGREEMENT COBRA SUBSIDY MECHANICS (FOR COUNSEL REVIEW)
"COBRA Continuation Subsidy: Your active group health coverage will end on [Last Day of Termination Month]. You will receive a separate COBRA Election Notice detailing your right to elect continuation coverage for up to 18 months. Provided you (a) timely execute and do not revoke this Agreement, and (b) timely elect COBRA continuation coverage within the 60-day statutory election period, the Company will pay [100% / Employer Active Share] of your monthly COBRA premiums for the coverage tier in effect on your Separation Date directly to the COBRA administrator for [Three (3)] months ([Start Month] through [End Month]), which period runs concurrently with your 18-month COBRA continuation window."