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Benefits

Clear Eligibility Provisions Avoid Employee’s Claims of Delayed Enrollment and Related Disclosure Failures

EBIA  

EBIA  

McGinnis v. Costco Wholesale Corp. Emp. Benefits Prog., 2021 WL 4844094 (N.D. Ill. 2021)

Available at https://www.govinfo.gov/content/pkg/USCOURTS-ilnd-3_20-cv-50445/pdf/USCOURTS-ilnd-3_20-cv-50445-0.pdf

An individual hired as a “limited part-time” employee claimed she was told by her manager that she would become a regular part-time employee and be entitled to employee benefits after 90 days of employment. Alternatively, she contended she was entitled to enrollment based on the summary plan description (SPD) eligibility rules, which were based on completion of a specified number of hours. However, she was not enrolled in the health plan until several months after either of these alleged eligibility dates. Eventually she sued based on the failure to enroll her in the plan sooner, seeking benefits and reimbursement of COBRA premiums paid under her former employer’s plan for the interim period. She also sought penalties for violations of ERISA and COBRA notice requirements because she was not provided with an SPD or an initial COBRA notice until she became a plan participant—not at the earlier time she claimed she should have been enrolled.

The court explained that the employment agreement under which the employee was hired set forth different employment classifications, and limited part-time employees could be reclassified to regular part-time status (making them benefits-eligible) only upon mutual agreement between the employee and the location manager. The court rejected the employee’s argument that her status should have changed automatically based on her work schedule. In addition, the SPD stated that eligibility was based on employment classification as defined in the employment agreement, in addition to hours of service, and both the SPD and the employment agreement excluded limited part-time employees. Noting that the SPD precluded employees from making representations altering the terms of the plan, the court found no support for the employee’s claim that, based on hours worked and the manager’s initial statement, she should have been enrolled in the plan before her employment status was reclassified. Addressing the claimed disclosure violations, the court explained that the SPD must be provided to a covered participant within 90 days after coverage begins, and the initial COBRA notice must be provided at the commencement of coverage. Because there was no obligation to provide either of these disclosures before plan coverage began, there was no ERISA or COBRA notice violation.

EBIA Comment: Clear and consistent provisions in the plan and employment agreement made disposition of this case relatively straightforward. The employer’s position was further strengthened by plan provisions requiring exhaustion of the internal claims and appeals process and specifying a limitations period for filing lawsuits. For more information, see EBIA’s ERISA Compliance manual at Sections IX.D (“Defining Initial Employee Eligibility”) and XXIV.D (“Who Must Be Furnished With SPDs and SMMs?”). See also EBIA’s COBRA manual at Section XV.H (“When Must Initial Notice Be Provided?”) and EBIA’s Self-Insured Health Plans manual at Section XIV (“Eligibility”). You may also be interested in our upcoming webinar, “Group Health Plans Year-End Update and Looking Ahead to 2022(live on 12/16/21).

Contributing Editors: EBIA Staff.

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