Benefits Termination Letter Sample: COBRA Timing and Delivery

A benefits termination letter sample gives you a working template for telling a departing employee exactly when each benefit ends and what they can do next. The letter itself is short, but it has to carry specific information — coverage end dates, COBRA continuation rights, life insurance conversion, retirement account status, and FSA claim deadlines — because federal law requires several of those disclosures and missing them can cost up to $100 per day per affected beneficiary.¹

What the Letter Has to Cover

Pull these details from payroll and the plan documents before you draft anything. Each item on the list is something the employee will need or something the law expects you to disclose.

Employee full legal name, employee ID or plan participant number, and current mailing address.
Last day of employment and the qualifying event: voluntary resignation, involuntary termination, reduction in hours, or another triggering event.
The exact coverage end date for each benefit. Medical, dental, vision, and life often share a date, but confirm each one against the plan.
A statement that the employee may be eligible for continuation coverage under COBRA or a state continuation law, with the relevant deadlines.
Notice that group life insurance may be convertible to an individual policy, and the application window.
The status of any 401(k) or pension balance, including what happens to an outstanding plan loan.
HSA portability and the FSA claim-submission deadline.
Name, phone, and email of the plan administrator or benefits contact.

A wrong coverage end date or a missing conversion notice creates disputes that are easy to avoid with careful preparation. One letter with all of this in it gives the employee a single reference during a stressful transition.

Sample Letter

Adapt the template below. Replace every bracketed item with actual information for the departing employee.

[Current Date]

[Employee Full Legal Name]
[Employee Mailing Address]
[City, State, ZIP]

Re: Termination of Benefits — Employee ID [Number]

Dear [Employee First Name],

This letter confirms that your employment with [Company Name] ended on [Last Day of Employment] due to [voluntary resignation / involuntary termination / reduction in hours]. As a result, your participation in the following benefit plans will end on [Coverage End Date]:

• Group medical insurance — [Plan Name / Carrier]
• Group dental insurance — [Plan Name / Carrier]
• Group vision insurance — [Plan Name / Carrier]
• Group life insurance — [Plan Name / Carrier], coverage amount [$Amount]
• [Any additional benefits, e.g., short-term disability]

You may be eligible to continue your group health coverage for a limited time under the Consolidated Omnibus Budget Reconciliation Act (COBRA). A separate COBRA election notice with enrollment forms and premium information will follow within [14 / 44] days. You will have at least 60 days from the date of that notice to decide whether to elect continuation coverage.

You also have the right to convert your group life insurance to an individual policy without a medical exam. You must apply within 31 days of your coverage end date. Details and conversion forms are enclosed.

Your 401(k) account with [Plan Name] remains in the plan for now. If you have an outstanding plan loan, please review the enclosed information about repayment deadlines to avoid tax consequences. Your health savings account (HSA) balance, if any, remains yours and can be transferred to another HSA custodian. Any unused balance in your flexible spending account (FSA) must be claimed for expenses incurred before [Coverage End Date] by submitting receipts within [90 days / per plan terms].

For questions about any of these matters, contact [Plan Administrator Name] at [Phone Number] or [Email Address].

Sincerely,
[Authorized Representative Name]
[Title]
[Company Name]

COBRA Timing That Governs the Letter

Federal COBRA requires employers with 20 or more employees to offer departing workers and their dependents the option to continue group health coverage temporarily.² The notice timeline runs on two clocks. The employer has 30 days to notify the plan administrator of a qualifying event. The plan administrator then has 14 days to send the COBRA election notice to each qualified beneficiary.³ The outside deadline from qualifying event to beneficiary receipt is 44 days.

Missing that deadline exposes the plan administrator to personal liability of up to $100 per day for each affected beneficiary, at the court’s discretion, plus potential responsibility for medical expenses the beneficiary incurred during the gap.¹ Penalties are per person, so a family of four with missed notices adds up quickly.

Coverage duration depends on the event. Termination of employment or reduction in hours gives up to 18 months. Other qualifying events give up to 36 months, and a second qualifying event during an 18-month period can extend the total to 36 months from the original event date.⁴ The premium can be as high as 102% of the full plan cost — the employee’s old share, the employer’s old share, and a 2% administrative fee.⁵ Say so in the letter so the number doesn’t blindside anyone. The employee then has at least 60 days from the later of coverage end or notice receipt to elect.⁶ If elected, coverage is retroactive so there’s no gap.

If You Have Fewer Than 20 Employees

Federal COBRA doesn’t apply below 20 employees.² Most states have their own continuation coverage laws — often called mini-COBRA — that apply to smaller employers. Coverage periods range from a few months to as long as 36 months depending on the state. If your company falls below the federal threshold, replace the COBRA paragraph in the sample letter with a reference to your state’s continuation rights and instructions for electing coverage under state law.

Life Insurance Conversion

Group life insurance normally ends with the other benefits, but most group policies include a conversion privilege: the right to convert to an individual policy without a medical exam. The window is usually 31 days from the date group coverage ends. If the employer is late notifying the employee and the employee provides notice more than 15 days after coverage ended, the window typically extends by an additional 15 days, capped at 91 days from the original coverage end date.

Spell this right out in the letter and enclose the conversion application or instructions for requesting one from the carrier. Missing the window means applying on the open market with full medical underwriting, which is a serious problem for anyone with health conditions.

Retirement Accounts and the Loan Trap

A 401(k) or pension balance doesn’t end when employment does. The vested balance stays in the plan unless the employee rolls it over, moves it to a new employer’s plan, or cashes it out (which triggers income tax and potentially a 10% early withdrawal penalty for those under 59½).

Outstanding 401(k) loans are the real trap. Under the Tax Cuts and Jobs Act, an employee who separates from service with an unpaid plan loan has until the tax filing deadline for the year they left, including extensions, to repay the balance. Miss the deadline and the remaining balance is treated as a taxable distribution, with the 10% penalty on top for those under 59½.⁷ On a $20,000 unpaid loan, the combined tax hit plus penalty can exceed $7,000. State the outstanding loan balance in the letter and spell out the repayment deadline.

HSA Versus FSA After Termination

These two accounts follow opposite rules after employment ends, and confusing them is one of the most common mistakes departing employees make.

An HSA belongs to the employee. The balance doesn’t disappear. The employee can leave it with the current custodian, transfer it to another HSA provider, or keep using it for qualified medical expenses indefinitely. What changes is that new pre-tax contributions through payroll stop, though direct contributions up to the annual limit remain available if the employee stays enrolled in a qualifying high-deductible health plan.

An FSA works the opposite way. Unused funds are generally forfeited at termination. Most plans allow a 90-day run-out period to submit claims for expenses incurred before the coverage end date, but no expenses after that date qualify. Tell the employee to gather receipts and submit everything immediately. One exception: the employee can elect COBRA continuation for a health FSA, which allows new expenses to keep accruing, but this only makes sense when the remaining plan-year balance exceeds the COBRA premiums.

Delivering the Letter and Keeping Proof

Delivery matters because disputes almost always come down to “I never got that notice.” The best-drafted letter doesn’t help if you can’t prove it arrived.

Certified mail with return receipt is the gold standard. The signed card is hard evidence of delivery on a specific date. Worth the postage on every termination.
First-class mail is acceptable and commonly used but weaker. You can prove you mailed it; you can’t prove it arrived.
Hand delivery works when the employee is still on-site. Have them sign and date an acknowledgment copy and keep the original.
Electronic delivery is permitted under strict conditions. Under the 2020 ERISA safe harbor, the employee must have a valid electronic address and must receive an initial paper notice explaining that documents will be delivered electronically and that they can opt out at no cost. A 2026 proposed rule adds further requirements, including a mandatory initial paper notice for newly eligible participants and a right to opt out of electronic delivery entirely. Email alone, without the safe harbor steps, doesn’t satisfy the notice requirements.

Keep copies of every notice and proof of delivery for at least six years, which covers the ERISA statute of limitations and most state record-retention requirements. If a former employee raises a claim years later, the delivery receipt is what ends the argument before it starts.

1
Office of the Law Revision Counsel. 29 USC 1132 – Civil Enforcement
2
Office of the Law Revision Counsel. 29 USC 1161 – Plans Must Provide Continuation Coverage to Certain Individuals
3
Office of the Law Revision Counsel. 29 USC 1166 – Notice Requirements
4
Office of the Law Revision Counsel. 29 USC 1162 – Continuation Coverage
5
U.S. Department of Labor. FAQs on COBRA Continuation Health Coverage for Workers
6
Office of the Law Revision Counsel. 29 USC 1165 – Election
7
eCFR. 26 CFR 1.72(p)-1 – Loans Treated as Distributions