ACA, ERISA, COBRA — What Every Business Owner Needs to Know
Running a successful business means juggling many priorities. Alongside growth, operations, and culture, you also carry significant legal obligations around benefits, health coverage, and reporting. Failing to meet them isn’t just a technical mistake — it can expose you to substantial fines, legal risk, and damage to your reputation.
In this post, we’ll dig deeper into three foundational compliance obligations for many employers: ACA, ERISA, and COBRA. Understanding how they interact (and where they don’t) is key to staying on solid footing in 2025 and beyond.
1. ERISA (Employee Retirement Income Security Act) — More Than Just Retirement Plans
ERISA is the federal law that governs many employer-sponsored benefit plans (both retirement and welfare). If you offer a health plan, a 401(k) plan, or similar plans, ERISA’s rules will probably apply.
What ERISA requires
Plan documents, SPDs, and disclosures: You must maintain formal plan documents and share a Summary Plan Description (SPD) so participants understand their rights.
Fiduciary duties: If you are acting as a plan fiduciary (or delegate to a TPA/consultant), you must act prudently, avoid conflicts of interest, monitor service providers, and act in the best interests of plan participants.
Reporting and disclosure: Annual filing (such as Form 5500) is required. You may also need to provide Summary Annual Reports (SARs), certain notices (e.g. of material modifications), and respond to participant and DOL requests for information.
Enforcement and penalties: The Department of Labor (DOL) and IRS can enforce compliance, assess civil penalties, and in extreme cases, criminal penalties.
The high stakes of missing a Form 5500
One of the most commonly misunderstood (and missed) obligations under ERISA is the Form 5500 filing. This annual reporting requirement is intended to promote transparency and ensure federal oversight over benefit and retirement plans.
Penalties:
The IRS may assess $250 per day, up to a maximum of $150,000 for a late 5500 filing. Maynard Nexsen+2Paychex+2
The DOL can levy up to $2,670 (or more, adjusted annually) per day for failure or refusal to file, with no statutory cap on the total amount. Paychex+5Morgan Lewis+5Lockton+5
In recent years, the DOL has been more aggressive and faster in issuing Notices of Rejection for Form 5500 noncompliance — meaning penalties are assessed earlier than before. Morgan Lewis+1
If your plan qualifies, you may participate in the Delinquent Filer Voluntary Compliance Program (DFVCP), which allows filing late reports under reduced penalties. The IRS also offers limited relief via a late-filer penalty program. EBC Benefits+5EFAST+5Withum+5
Because DOL’s penalties can skyrocket quickly, missing a single year — let alone multiple years — can be financially devastating.
Other ERISA‐related risks and fines:
Failure to furnish plan documents or SPD upon participant request: up to $110 per day McLane Middleton+3GBS Benefits+3Fredrikson & Byron+3
Civil penalties for failing to provide required ACA disclosures or Summary of Benefits and Coverage (SBCs) (though these tend to be enforced less aggressively) Lockton+1
Criminal penalties (rare, but possible) for willful violations of Title I of ERISA — fines and prison terms may apply in extreme cases. GBS Benefits
Bottom line: If your business sponsors benefit plans, you can’t treat ERISA compliance as an afterthought. The obligations are ongoing, and the risks are real.
2. ACA (Affordable Care Act) — What It Means for Employers
While ERISA covers benefit plan structure and disclosure, the ACA adds a distinct set of rules around health insurance for employers who hit certain size thresholds.
Who must worry about the ACA
An Applicable Large Employer (ALE) is generally one with 50 or more full-time equivalent (FTE) employees. ALEs must offer “minimum essential coverage” to at least 95% of their full-time employees (and dependents) or potentially incur penalties.
Even if you’re not an ALE, you may have ACA-related obligations (such as issuing Form 1095s or providing certain notices to employees in some states).
Key ACA obligations
Offer affordable, minimum-value coverage: The health plan you offer must meet standards for affordability and minimum value, or face penalties.
Form 1094/1095 reporting: ALEs must file annual returns about the coverage they offered (1094-C) and furnish employees with 1095-C forms showing their coverage status.
Employer Shared Responsibility Penalties (ESRP): If ALEs fail to offer qualifying coverage or if coverage is unaffordable, they may face penalties, often thousands of dollars per employee (after the first 30).
Other notice & disclosure obligations: Employers must provide certain notices to employees (e.g. the ACA “Patient Protection Notice”) and may need to make SBCs available.
State ACA/marketplace interactions: Depending on the state, there may be additional mandates or reporting requirements tied to exchanges or state-level health reforms.
Enforcement trends & risks
Penalties and enforcement have increased over the years, with the IRS actively issuing letters to ALEs and auditing their ACA compliance.
Some employers get tripped up by affordability or eligibility rules — for example, not counting certain hours or misclassifying employees.
Because ACA compliance ties directly into payroll and benefits management, small mistakes (or missed deadlines) can magnify into big headaches.
3. COBRA (Consolidated Omnibus Budget Reconciliation Act) — Continuation Coverage You Can’t Ignore
COBRA is the federal law that gives employees (and certain dependents) the right to continue health coverage under the employer’s group plan after certain qualifying events (like job termination, reduced hours, divorce, etc.). For businesses offering group health plans (and with 20+ employees), COBRA compliance is usually mandatory.
Key obligations & timelines
General (initial) notice: You must provide a COBRA general notice to employees and spouses when they first enroll in the group health plan (often within 90 days). Chard Snyder+2McLane Middleton+2
Election (qualifying event) notice: When a qualifying event occurs (e.g. termination, hours reduction), you generally have 44 days from the event (or date coverage would otherwise end) to provide a COBRA election notice to the affected individuals. Asure Software+5Chard Snyder+5McLane Middleton+5
Election period: Individuals typically have 60 days from the notice (or loss-of-coverage date, whichever is later) to elect COBRA coverage. DOL+2McLane Middleton+2
Duration: Coverage may last 18 to 36 months, depending on the nature of the qualifying event (some extensions exist under special circumstances). DOL+2McLane Middleton+2
Notices of early termination: If COBRA coverage must end early (e.g. nonpayment, eligibility in another plan), you must notify the beneficiary with timing rules. Chard Snyder+1
Penalties and legal risk
Failure to provide a timely election notice can subject an employer to $110 per day per qualified beneficiary in penalties (at the discretion of the court). Sterling Administration | COBRA+5Wagner Law Group+5Ameriflex+5
Courts have enforced retroactive coverage, medical expense liability, and damages in some cases. For example:
In Buford v. General Motors, GM failed to send the COBRA election notice within 44 days and was held liable for $110/day for each day the notice was late — totaling $1,300 in that case. Wagner Law Group+1
Even if you correct a late notice, courts may hold you liable for medical costs incurred during the delay period. Wagner Law Group+2Hall Benefits Law+2
The DOL may also enforce notices through administrative action. Asure Software+2McLane Middleton+2
Because COBRA noncompliance can lead not only to penalties but also to lawsuits and medical-cost exposure, many employers view it as one of the highest-risk parts of their compliance portfolio.
4. How ACA, ERISA, and COBRA Interact
These laws overlap, but also have distinct scopes:
ERISA governs plan structure, fiduciary obligations, disclosures, and reporting.
ACA imposes rules about who must be offered health coverage, the quality of coverage, and reporting.
COBRA ensures continuation of health coverage when certain events occur.
When running a benefits program, you must keep all three in mind. For example:
Your health plan (subject to ERISA) must be documented, and covered by fiduciary oversight.
If you’re an ALE under ACA, you must offer coverage that meets ACA standards.
If a qualified event occurs, you must trigger COBRA notices accordingly — failing to do so is an ERISA violation too (since COBRA is administered under ERISA).
Missing one element can cascade into trouble across the others.
5. Best Practices to Stay Compliant
Here are proactive steps you can take:
Work with trusted professionals
Use an HR/payroll partner, benefits consultant, or ERISA attorney — someone familiar with federal and state compliance — to set up your systems.Maintain a compliance calendar
Track deadlines for COBRA notices, 1095/1094 filing, Form 5500, SPD updates, and other mandated disclosure timelines.Automate where possible
Use software or services that can trigger COBRA notices, monitor enrollment, flag coverage gaps, and help generate forms.Do “compliance audits” regularly
At least annually (or quarterly in more complex operations), review your policies, notices, filings, and document retention.Document decisions and corrections
If a mistake is found, document how and when it was corrected, and whether “reasonable cause” arguments or voluntary correction programs were used.Train your HR and benefits staff
Make sure your internal team understands how COBRA, ACA, ERISA, and payroll interact.Plan for transitions or growth
If your headcount is increasing, or you cross the 50-employee threshold (ALE), or take on a new benefit plan, reassess your compliance obligations before the change happens.
6. Final Thought & Call to Action
Compliance with ACA, ERISA, and COBRA isn’t optional — it’s a foundational duty of responsible employer stewardship. The costs of noncompliance are steep, but the reputational and legal risks are even more critical.
At Aquila Payroll Services, we specialize in lifting this burden off your shoulders — helping you navigate deadlines, file accurately, and stay confident in your compliance posture. If you want help auditing your current benefits setup, preparing your 2025 compliance calendar, or simply talking through a tricky situation, let’s connect.