For employers with 20 or more employees, offering group health insurance comes with responsibilities that extend beyond the active workforce. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), organizations must provide continuation coverage to employees and their dependents following certain qualifying events. While the law itself is well established, many employers still face avoidable risks—often because processes become too informal or assumptions go unexamined.COBRA compliance isn’t just about good recordkeeping. It’s about knowing exactly what’s required, when, and why. Two of the most commonly misunderstood areas are timely notification and the use of COBRA-related release agreements during off boarding.
Timing Matters—So Does Documentation One of the most critical COBRA obligations is sending out the election notice within the required timeframe. When a qualifying event occurs—such as an involuntary termination, a reduction in hours, divorce, or the death of a covered employee—the employer has 30 days to notify the plan administrator. From there, the plan administrator has 14 days to notify the former employee. If the employer handles both functions, the full timeline is 44 days from the qualifying event. Even though this window provides a fair amount of time, real-world administration can be inconsistent. For example, employers sometimes rely on benefit platforms to trigger COBRA notices automatically, assuming compliance is covered. But if the system settings aren’t configured properly, or if HR teams miss a manual task, the notice might never be sent. And in the event of a dispute, employers must be able to show exactly when and how notice was given. Courts have routinely held that a lack of documentation weakens an employer’s defense—even if the failure was unintentional. COBRA notices can be sent electronically, but the Department of Labor has outlined specific requirements, including the need for affirmative consent from the recipient. Employers who opt for email delivery without meeting those requirements may find their notices challenged and penalties imposed. The maximum penalty for failing to provide a required notice is currently $110 per day, per participant.
COBRA and Release Agreements: Proceed with Caution Another area that causes confusion is how COBRA interacts with severance agreements. When employees are terminated or laid off, employers often seek a release of claims in exchange for some form of compensation. While this is a common risk-management strategy, COBRA cannot be used as leverage. Employers cannot condition COBRA continuation coverage on an employee signing a release. That said, there are lawful ways to structure incentives. One example is offering to pay a portion or all of the COBRA premium for a defined period in exchange for a signed release. Another option is to offer an alternative form of coverage, such as a short-term policy or employer-funded benefit, with the understanding that COBRA will be waived. The employee must still receive the COBRA election notice and retain the right to elect coverage for up to 60 days from the date of notification. These arrangements need to be carefully crafted. If the COBRA notice isn’t properly delivered, or if the terms of the release agreement are overly broad, the waiver may not hold. In addition, the employee cannot be pressured or misled; COBRA rights must be presented clearly and accurately, regardless of any incentives being offered. Legal counsel should be involved in drafting any release that involves benefit-related terms.
A Preventable Risk with a Known Solution COBRA is one of those compliance areas where the rules are clear, but execution can easily falter without attention to detail. Missteps are often administrative—missed deadlines, undocumented notices, or assumptions about automated processes. But they can lead to real costs, including penalties, legal fees, and reputational damage. Establishing a consistent, well-documented COBRA process isn’t just good compliance—it’s good governance. And in a labor environment where employer accountability is under increased scrutiny, taking a proactive approach can reduce risk while reinforcing trust.
If you're unsure whether your current practices meet regulatory expectations, or if you've recently experienced staff transitions that impact COBRA processes, now is a good time to review. Reynolds + Rowella’s HR Consulting offers expert support for organizations seeking to evaluate or strengthen their compliance posture. Contact us to schedule a confidential consultation.
Reynolds + Rowella is a regional accounting and consulting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve. Our mission is to operate as a financial services firm of outstanding quality. Our efforts are directed at serving our clients in the most efficient and responsive manner possible, delivering services that exceed the expectations of those we serve. The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, please contact Elizabeth Bresnan at 203.438.0161 or email.
