An employer maintains a cafeteria plan for its employees under which, among other benefits, employees may elect from among various medical coverages. An employee and his spouse have elected medical coverage during 2007. In October, 2007, the couple becomes divorced. However, the employee fails to notify the employer of the divorce until March 2008. In addition, the plan has a requirement that employees provide notice within 30 days of the occurrence of a change in status event. It appears to me that there are a number of options available to the employer in this situation:

(1) Drop the former spouse's medical coverage and deny the former spouse COBRA rights as permitted by the IRS Regulations at 54.4980B-6, Q&A-2. The employer could also impute into the employee's gross i ncome its portion of the premium attributable to the former spouse's coverage and treat the employee portion fo the premium attributable to the ex-spouse as if it were made on an after-tax basis.

(2) Treat the employee as if timely notice were provided and that the former spouse elected COBRA coverage. The employer could then impute its portion of the portion attributable to the ex-spouse into the employee's gross income and treat the employe's portion of the premiums attributable to the ex-spouse as being made on an after-tax basis. On the basis of the 7th Circuit decision in Trustees of AFTRA Health and Welfare Fund v. Biondi, the employer could also seek to recover the portion of the COBRA coverage equal to 2% of the administrative fee.

Under either scenario, this presupposes that the employer is waiving the 30-day notice requirement for notification of a change in status event. Does anyone have any other options?