Should former employees in the COBRA election period be counted as “retired or separated participants receiving benefits” on line 6b of the Form 5500?
COBRA Election Period
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), certain separated employees can continue their health coverage under the employer’s group health plan, usually at their own expense, at least for limited periods of time. Those entitled to elect COBRA continuation coverage must be given an election period of at least 60 days (starting on the later of the date they are furnished the election notice or the date they would lose coverage) to choose whether to elect continuation coverage.
Are They “Participants”?
A question has arisen as to whether these employees who have not yet elected COBRA coverage should be counted as “retired or separated participants receiving benefits” on line 6b of the Form 5500. From the Form 5500 Instructions: “An individual becomes a participant covered under an employee welfare benefit plan on the earliest of:
- the date designated by the plan as the date on which the individual begins participation in the plan;
- the date on which the individual becomes eligible under the plan for a benefit subject only to occurrence of the contingency for which the benefit is provided; or
- the date on which the individual makes a contribution to the plan, whether voluntary or mandatory.
See 29 CFR 2510.3-3(d)(1). This includes former employees who are receiving group health continuation coverage benefits pursuant to Part 6 of ERISA and who are covered by the employee welfare benefit plan. Covered dependents are not counted as participants. A child who is an “alternate recipient” entitled to health benefits under a qualified medical child support order (QMCSO) should not be counted as a participant for lines 5 and 6. An individual is not a participant covered under an employee welfare plan on the earliest date on which the individual (a) is ineligible to receive any benefit under the plan even if the contingency for which such benefit is provided should occur, and (b) is not designated by the plan as a participant. See 29 CFR 2510.3-3(d)(2).” Per the first highlighted portion of the instructions, former employees who are receiving COBRA benefits are included. Those former employees, who have not elected, are not receiving benefits. They are also not necessarily entitled to future benefits. They are only entitled to benefits if the election is made. The second highlighted portion states that the employee is not a participant when they are ineligible to receive any benefit even if the contingency for which such benefit is provided should occur. In this case, the contingency is the COBRA election. Former employees are not entitled to a benefit until they make the COBRA election and pay the back premiums. Therefore, as of the last day of the plan year, they are not entitled to any benefits under the plan, i.e., they can’t file a claim. Based on the above, we conclude that former employees who are in the COBRA election period but have not yet elected coverage should not be counted on line 6b of the Form 5500. If you would like a professional to analyze your wellness program for annual reporting and disclosure requirements under ERISA, please call or Email 5500 Tax Group to discuss your specific situation.
