Employer has an HRA in which participants' HRA Accounts are credited with $2000 on the first day of each plan year. Suppose a participant terminates employment and elects COBRA. On the first day of the next plan year, is the Employer obligated to credit the account with $2,000, as it does all other participants? Is there a legal basis to argue that the employer instead is only obligated to credit the account each month with the monthly COBRA premium paid by the employee for coverage under the HRA (i.e., $166, which equals 1/12th of $2,000)?

Yes, if the employee elects COBRA continuation coverage. Of course the employer will invoice the employee for 102% of the $2,000. The plan should be drafted in a way that the premium/contribution (as well as the benefit) is annual, not monthly. In the alternative, the premium/contribution could be 1/12th of $2,000 per month with a corresponding monthly benefit amount.

vebaguru,

"Of course the employer will invoice the employee for 102% of the $2,000." Invoice the employee for the employer's HRA contribution?

Technically the invoice is for the employer's COBRA premium. However, if the HRA is de-coupled from the group health plan, the HRA premium is the employer's HRA contribution.

How can the employer require payment of the full $2,000 on January 1, given that the statute and regs state that qualified beneficiaries must be given the option of paying COBRA premiums on a monthly basis? See ERISA 602(3)(B); Treas Reg 54.4980B-8, Q&A-3. There seems to be a disconnect between the annual amount being contributed on the first day of the plan year, and the requirement to allow monthly premiums. I like your answer, vebaguru, but am concerned without supporting authority.