ERISA Plan Administrators Beware! Failure to Provide Plan Documents May Result in Substantial Penalties

           Jane Doe is a participant in an ERISA plan.  Note that an “ERISA plan” includes not only 401(K) and other retirement plans, but also group health insurance, life and disability insurance plans.  Suppose that Jane Doe writes a letter to the plan administrator requesting copies of plan documents (“plan documents” include, for example, the summary plan description, the summary annual report, and the insurance policy.)  Suppose that the plan administrator loses the request, and accordingly does not provide the requested plan documents.  One year later, Jane Doe again provides a written request for plan documents.  Has the plan administrator made an expensive mistake?  Yes.

            Under § 502(c)(1) of ERISA, 29 USC § 1132(c), a court in its discretion may award up to $110 per day for each day against a plan administrator who fails to provide requested documents within 30 days.  29 U.S.C. §1132(c)(1). 

           Accordingly, in our example, the mistake may cost $40,150 in penalties alone.  The aim of the statute “is to provide plan administrators with an incentive to meet requests for information in a timely fashion.”  Davis v. Featherstone, 97 F.3d 734, 738 (4th Cir. 1996).  In Faircloth v. Lundy Packaging Co., 91 F.3d 648 (4th Cir. 1996), the Fourth Circuit further explained that “[t]he purpose of § 502(c)(1) is not to compensate participants for injuries, but to punish noncompliance with ERISA.  Accordingly, prejudice to the party requesting the documents is not a prerequisite to the imposition of penalties.”  91 F.3d at 659 (citations omitted). 

           However, the Fourth Circuit also stated that both (1) prejudice to the plaintiff and (2) bad faith on the part of the administrator are factors a court may consider in deciding whether a penalty should be imposed.  Id.  (Citations omitted).  In addition, a court may consider “frustration, trouble, and expense . . . in deciding whether to impose a penalty.”  Davis, 97 F.3d at 738.  Later decisions confirm that the primary penalty factors are (1) prejudice to the plaintiff, or lack thereof, and (2) the administrator’s conduct in responding to the request, i.e., whether there was bad faith.

            Below are brief summaries of cases from the Fourth Circuit and District Courts within the Fourth Circuit regarding the penalty calculation.

            •           Mullins v. AT&T Corp., 424 Fed. Appx. 217, 225-26 (4th Cir. 2011).   Documents requested in February 2001, some were produced two months later, others in March of 2003, after suit was filed.  District Court found that AT&T did not act in bad faith and that plaintiff was not ultimately prejudiced by the delay in obtaining the information.  District Court applied a penalty of $25 per day, and Fourth Circuit affirmed.

            •           Sedlack v. Braswell Services Group, 134 F.3d 219, 226 (4th Cir. 1998).  Fourth Circuit affirmed a penalty of $20 per day for the 531 days between September 15, 1994, when copies of the plan documents were requested, and February 29, 1996, when the plan documents were made available.

            •           Faircloth v. Lundy Packaging Co., 91 F.3d 648, 659 (4th Cir. 1996).  Fourth Circuit affirmed penalty of $2,500 for what appeared to be a delay of about 90 days (approximately $28 per day; plaintiffs argued that the penalty should have been larger).  District Court determined that employer had not acted in bad faith and plaintiffs did not suffer prejudice.

            •           Davis v. Featherstone, 97 F.3d 734, 738-39 (4th Cir. 1996).  Fourth Circuit reversed District Court’s decision to not award penalty.  The Fourth Circuit appeared to buy the plaintiff’s argument that he suffered prejudice as a result of “the aggravation and frustration he faced as a result of the administrator’s refusal and . . . the fact that he was forced to engage a lawyer and file suit simply to get a copy of the long-term disability plan.”  97 F.3d at 738.  Fourth Circuit noted that District Court should also consider the conduct of the administrator, in that “the purpose of the penalty provision is to provide plan administrators with an incentive to meet requests for information in a timely fashion.”  Id.  In sum, Fourth Circuit stated that “frustration, trouble and expense are relevant factors for a District Court to consider in deciding whether to impose a penalty.  It is evident that Davis had to go to the trouble and expense of engaging an attorney to obtain the BGE plan.”  Id. at 738-39.

            •           Chaffin v. Ni Source, Inc., 703 F. Supp. 2d 579, 599 (S.D. W.Va. 2010).  Request for plan documents made on August 28, 2007, and documents not supplied until September 25, 2008.  The Court awarded a penalty of $50 per day, total of $18,100.  The Court noted that plaintiff no doubt was frustrated by defendants’ lack of diligence and had to bring a claim in the lawsuit to get a copy of the plan, but that it did not appear that defendant was acting out of malicious disregard for plaintiff’s request.

            •           Flores v. Life Ins. Co. of North America, 770 F. Supp. 2d 768, 774-75 (D. Md. 2011).  One particular document that plaintiff contended was essential was not produced.  The District Court decided that no penalty was warranted because there was no evidence that defendant acted in bad faith, and the plaintiff suffered no prejudice.

            •           Rust v. Electrical Workers Local No. 26 Pension Trust Fund, No. 3:10-cv-00029, 2011 WL 4565501 at *20-21 (W.D. Va. Sept. 29, 2011).  Approximately 5,000 day delay in producing documents.  District Court noted that plaintiff suffered “great prejudice due to defendant’s late production and non-production of plaintiff documents.  First, plaintiff was obligated to retain counsel.  Second, plaintiff and his counsel were severely prejudiced by having to pursue the administrative claim and appeal process without the plan document or SPD.  . . .  Furthermore, the facts in this case support a finding of bad faith on the part of defendants in their refusal to produce documents.  Defendants did not merely ignore a single request for documents.  They ignored four separate requests, three of which expressly stated they may pursue it to ERISA.”  On this record, the Court awarded statutory damages of $35 per day.

            •           Additional cases:  Shade v. Panhandle Motor Serv. Corp., 1996 U.S. App. LEXIS 16703 at 12 (4th Cir. 1996) ($5/day; total of $4,035); Freitag v. Pan Am World Airways, Inc., 702 F. Supp. 128, 132 (E.D. Va. 1988) ($100/day for 100 days, $10,000 total); Jackson v. Coyne & Delany Co., 2004 U.S. Dist. LEXIS 11230 (W.D. Va. June 27, 2004) ($25/day for 93 days, total of $2,325).

            As the above cases show, the maximum of $110 per day is seldom awarded, particularly where there is no evidence of bad faith.  But plan administrators should pay attention to requests for plan documents and respond promptly, as penalties are not the only monetary consequence of failure to provide plan documents; attorneys’ fees may be awarded as well.  That topic will be covered in part two of this blog post. 


About the Author

Alan M. Ruley

Alan Ruley is a seasoned civil trial and appellate lawyer. He represents clients in a wide variety of disputes in federal court, state court, and the North Carolina Business Court, focusing primarily on business litigation, intellectual property, insurance coverage and recovery, banking and employment.
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