Recent Cases Highlight Risks of Inattention to ERISA’s Participant Disclosure Requirements

November 8, 2011

Participants in ERISA-covered employee benefit plans must be provided with plan summaries, benefit statements and a variety of other, more specialized communications. A plan administrator’s obligation to provide such disclosures can be triggered by direct operation of law, at stated times or if certain events occur, or when a participant requests information relevant to the plan. In addition, the courts have recognized that plan administrators and other fiduciaries may have affirmative obligations to provide information to participants where it is reasonably expected that a participant would need such information to exercise their rights under a plan.

Failure to comply with these requirements can trigger monetary penalties under ERISA. For example, under Section 502(c)(1) of ERISA, a plan administrator who fails to respond to a participant’s request for certain plan materials within 30 days may be subject to a penalty of up to $110 per day for each day past the 30-day deadline that the materials are not provided.

Additionally, failure to comply with disclosure obligations may constitute a breach of the administrator’s ERISA fiduciary duty, resulting in fiduciary liability and appropriate equitable relief under ERISA. In light of the Supreme Court’s recent decision in CIGNA Corp. v. Amara, this equitable relief could possibly include “surcharge” as a monetary remedy for breach of fiduciary duty. For more discussion of the implications of the Amara decision, see “CIGNA v. Amara: Supreme Court Addresses Remedies for Violation of ERISA Disclosure Rules.”

Two recent cases highlight the need for plan administrators (and other plan fiduciaries) to monitor their compliance with ERISA’s disclosure obligations.

Retroactive Benefits Awarded To Participant Who Claimed She Did Not Receive Plan Communications

In Helton v. AT&T, Inc., No. 1:10-CV-0857, 2011 U.S. Dist. LEXIS 109386 (E.D. Va. Sept. 16, 2011) failure by the administrator of a defined benefit pension plan to provide adequate notice of changes in a participant’s plan benefits resulted in an award of $120,000 in retroactive benefits to the participant. The court found that the plan administrator failed to (1) use a distribution method for plan materials that was reasonably calculated to ensure actual receipt, or (2) provide a response to or correct the participant’s apparent misunderstanding of the benefits available to her under the plan. Additionally, the court determined that the plan’s benefit claims committee abused its discretion in denying the participant’s claim for benefits because it did not engage in a “reasoned and principled decision-making process” and because the benefit denial decision was not supported by substantial evidence.

Francine Helton terminated employment with AT&T by letter of resignation in May 1997. At the time of her termination, Helton was not yet age 55 and had less than 20 years of service with the company, and therefore was not eligible for an unreduced early retirement benefit under the plan. However, in August 1997, AT&T amended the plan to provide for an unreduced pension benefit at age 55 for participants who were actively employed after January 1, 1997. This change would have permitted Helton to begin receiving an unreduced early retirement benefit from the plan. However, she claimed that she was not notified of the change, and only learned of it in 2009 when she contacted AT&T to ask for a pension calculation. After learning of the amendment, Helton made a claim for benefits retroactive to the earliest date she could have begun receipt. The plan’s benefit claim committee denied the claim on the basis that three communications were mailed to participants regarding the changes to the plan during the period in which Helton claimed she was not aware of the plan change, and because she failed to return a benefit commencement election that had been sent to her during that period.

However, testimony by AT&T employees and third-party administrators provided little support for the assertion that the documents had actually been provided to Helton. For example, a former AT&T employee testified that a letter sent in April 1997 was sent only to active management employees. Helton was on leave of absence at that time, and it was unclear using the databases maintained by AT&T whether “active management” included those on leave, and, as a result, whether the mailing tape extracted from the databases would have included her in the mailing list. Similarly, testimony indicated that mailing lists for summary plan descriptions distributed in 1998 and 2004 included only active management employees, not all plan participants and beneficiaries as ERISA requires. Finally, case notes maintained by AT&T pension service center employees indicated that Helton sent an e-mail request for a pension calculation in 2001 and asked questions regarding entitlement to pension benefits. However, there were no corresponding entries in the benefits case system to verify that a pension calculation was mailed or that the questions regarding benefit entitlement were answered.

The court also criticized the manner in which the committee reviewed Helton’s benefit claim because it did not question the plan administrator’s procedures for sending plan communications. In the court’s view, the committee simply “rubberstamped” the plan administrator’s assertion that the documents had been provided to Helton and failed to independently verify that assertion. There were no physical records of any lists of participants to whom mailings were sent, and Helton’s employment record had been destroyed. When reviewing the claims, neither the plan administrator nor the committee gave any weight to Helton’s repeated claims in 2009 that she did not receive the materials. Finally, the court found that the plan administrator breached its fiduciary duties when it did not provide any response to Helton’s questions in 2001, which, according to the court, demonstrated that Helton was operating under a misunderstanding, and had likely not received notification regarding the change to the plan.

Helton, however, did not recover monetary relief in addition to the retroactive benefit payments. The court reasoned that the remedy for her allegation of improper denial of benefits is the award of retroactive benefit payments, and that granting additional monetary relief (such as the monetary penalty for failing to provide plan documents within a specific timeframe) would be outside the scope of the “appropriate equitable relief” and would amount to compensatory or punitive damages impermissible under ERISA.

The Helton case has been appealed to the U.S. Court of Appeals for the Fourth Circuit.

Participant Awarded Additional Benefits for Delayed Distribution

In Kujanek v. Houston Poly Bag I Limited, No. 10-20664 (5th Cir. 2011), a profit-sharing plan sponsor was found to have breached its fiduciary duties under ERISA when it failed to provide a participant with plan information, including information necessary to commence a distribution from his account under the plan. The court awarded the participant $183,881 in damages and $60,030 in attorney’s fees after he sued his former employer to recover benefits lost due to a decline in the value of his plan account between the date of his termination and the date he was permitted to take a distribution from the plan. He alleged that the plan administrator prevented him from receiving a distribution at an earlier date because it failed to provide the requisite documents for initiating a distribution, despite his having made multiple requests to receive such documents.

In September 2007, the plaintiff, Kenneth Kujanek, resigned from employment with the defendant, Houston Poly. He had at that time an account balance of $490,198 in Houston Poly’s profit-sharing plan. Company policy dictated that an individual had to wait at least one year from the date of termination to obtain a distribution. In April 2008 (as part of a state court employment contract litigation) and in September 2008 (through his financial advisor), Kujanek requested from Houston Poly plan documents and materials necessary to initiate a distribution of his plan account. In both instances Houston Poly refused to provide the requested documents and materials. Kujanek sued Houston Poly in 2009, and only then received a copy of plan documents and a distribution of his plan account. By that time, his account balance had dropped in value to $306,000.

The Fifth Circuit held that Houston Poly, in its capacity as plan administrator, had an obligation to provide Kujanek with plan documents upon request and had a duty to “deal fairly” and “to communicate … all material facts.” The court concluded that Kujanek’s multiple requests to Houston Poly for information about receiving a distribution showed that Houston Poly knew, or should have known, that he did not already have information as to what was needed to initiate a distribution. Moreover, the plan trustee testified that there was a practice of not providing such information to departing employees and that the employee manual contained no such information. Therefore, the court concluded, by withholding plan documents Houston Poly breached its fiduciary obligation to act solely in Kujanek’s interest.

Lessons for Plan Administrators

Helton and Kujanek demonstrate that a plan administrator’s disclosure obligations are an integral part of its ERISA fiduciary obligations, including the duty to act solely in the interest of plan participants and beneficiaries. Consequently, plan administrators (and other plan fiduciaries) must understand the scope of their disclosure obligations and must implement practices that will enable them to fulfill those obligations. Such practices may include:

  • Retaining copies of mailing lists (or other appropriate records) of the persons to whom communications are sent.
  • Adopting procedures for recording and promptly responding to participant requests for plan documents and other plan information.
  • Providing participants with information in a format that is clear and understandable.
  • Reviewing communications to determine whether they adequately address the information that participants would reasonably need to understand the plan and their rights under the plan.
  • Periodically evaluating the processes for sending documents, including assessments of whether electronic disclosure is being used properly.

For assistance in drafting participant communications, or for advice regarding compliance with disclosure obligations under ERISA, please contact the authors or any other member of the McGuireWoods Employee Benefits team.