If you are like most 401(k) or pension plan administrators, you
have procedures for participants to request plan documents and
forms. They may be as simple as requiring document requests to be
sent in writing to a designated employee.
Section 104(b)(4) of ERISA requires that certain plan documents,
including summary plan descriptions and 5500's, be provided to
participants upon request. Failing to comply could result in a $110
per day penalty if a participant does not receive a requested
document within 30 days and the plan administrator has no
reasonable cause for the delay. But a recent case indicates that
your exposure could be even broader.
Case in Point: In
Kujanek v. Houston Poly Bag Ltd, the Court of Appeals for the
Fifth Circuit required a profit sharing administrator who had not
responded to requests for documents and distribution/rollover forms
to make up almost $184,000 in account losses incurred by the
participant while his distribution was delayed. The court found
that this was a breach of the fiduciary duty of loyalty despite the
fact that the participant failed to follow the plan's
procedures. This decision serves as a vivid reminder that failure
to observe basic ERISA disclosure requirements can be costly.
It seems from the description of facts that the parties were
previously tangled in litigation. While this background may have
influenced the decision, the principles laid down in the decision
are of general applicability. The court found that:
It was not relevant that Kujanek failed to submit a written
request for plan documents as required by his summary plan
description. In fact, there was no evidence that he had received an
SPD prior to his termination of employment. So long as the
administrator knew or should have known that he wanted information
about the plan and how to obtain a distribution, it had a duty to
provide the documents. Kujanek had inquired to the plan's
broker about a distribution and also requested plan documents in
Houston Poly should have known that Kujanek did not have the
necessary information to make a rollover, since the company did not
give departing employees advice on rollovers (though of course plan
administrators should generally be providing 402(f) notices when
participants are eligible for distributions) and no company manual
contained that information.
There is no bright line rule that discovery requests should
always be treated as 104(b) requests.
The appeals court did overrule the district court's award of
statutory penalties and attorney's fees because Kujanek had not
submitted a request directly to the plan.
This decision is a vivid reminder of the importance of providing
correct and timely plan information, even as the disclosure
obligations are increasing. Osler will be presenting a free client
webinar on November 17, "Are You Ready for the Revolution in
Participant Communications?" on new disclosure obligations and
potential penalties. Click here for the invitation.
Carol Buckmann has practised in the employee
benefits field for over 25 years, advising clients on all aspects
of employee benefits and retirement plans, including questions
relating to 401(k), defined benefit and employee stock ownership
plans, welfare plans, fiduciary responsibility, prohibited
transactions and plan asset issues arising in investment fund
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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