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 discovery.
  • 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.