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In a recent Private Letter Ruling (PLR) on a narrow issue relating to the Health Coverage Tax Credit (HCTC), employer bankruptcy, and renegotiated union benefit coverage, IRS provided additional guidance on the use of COBRA coverage waivers.
IRS addressed a unique set of facts in PLR 200624071. In advance of bankruptcy, an employer and a union renegotiated retiree health benefits. The bankruptcy, of course, was a COBRA Qualifying Event for those retirees receiving retiree coverage at the time. In offering the renegotiated union benefit coverage, the employer explicitly stated that it was in settlement of its COBRA obligations. Thus, the waiver of COBRA coverage (which took place before the bankruptcy) occurred before the Qualifying Event itself (i.e., the bankruptcy).
Technically, the Treasury Regulations only address waivers of COBRA coverage that occur after a Qualifying Event has occurred and the Qualified Beneficiary’s right to revoke such waiver prior to the end of the election period. If a waiver is properly revoked, an employer can make the COBRA coverage effective as of the date of the revocation, instead of back to the Loss of Coverage date.
In the PLR, IRS blessed this expanded use of waivers: “If a waiver is entered into shortly before, and in anticipation of a Qualifying Event, with the waiving party being fully informed of the right to COBRA continuation coverage in connection with the anticipated Qualifying Event, then the waiver is not contrary to the policies reflected in section 4980B.” The right to revoke such waiver during the election period would still be required unless it was prohibited by some other law (i.e ., the Bankruptcy Code).
Interestingly, the facts in this case suggest that the employer never sent a COBRA Election Notice, relying instead on the advance waiver of COBRA rights. The IRS did not directly comment on this fact. The Department of Labor has jurisdiction over notice failures.
Infinisource does not advocate the use of an advance waiver or any type of waiver in the COBRA context. First, it is not required. Second, Qualified Beneficiaries could argue that the failure to sign a waiver was akin to making a COBRA election or, in the alternative, proof that the election notice was never sent. Third, employers who use a waiver open themselves up to allegations of strong-arm tactics in obtaining the waiver. PLR addresses the fact situation of only the employer to whom it is addressed and does not constitute binding precedent. However, PLR provides some insight into how IRS might rule in similar scenarios.
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