Penalties and Attorneys’ Fees for Not Timely Providing Requested Documents
By: Colleen Wilson, email cwilson@cbginc.com
In a decision that should serve as a warning to employers, the Seventh Circuit upheld a District Court’s imposition of substantial penalties and attorney’s fees upon a plan sponsor for failing to timely provide requested plan documents. In that case, upon a participant’s death, the plan sponsor informed the surviving spouse that the participant had selected a single-life annuity under its plan, which meant that the surviving spouse would not receive any survivor benefits. The spouse, in an effort to prove entitlement to survivor benefits, made a written request to the plan sponsor for relevant plan documents. Two years later, the spouse had filed suit and the plan sponsor finally provided the requested documents and acknowledged the spouse’s right to survivor benefits because his waiver had not been witnessed or notarized (a fact which negates any waiver of survivor benefits). The trial court awarded the spouse: (i) civil penalties of $35,050 (determined by multiplying $50 per day by 701 days) for failing to provide the requested documents within 30 days of the request; and (ii) attorneys’ fees of more than $19,000.
The plan sponsor appealed and the Seventh Circuit upheld both the civil penalties and the award of attorneys’ fees. The plan based its appeal on the fact that its records were “in disarray” due to a plan merger and that the employee handling the matter thought that the necessary waiver might have been “lost in the shuffle”. The Court dismissed this argument, finding that the delay was egregious. The Court pointed out that the trial court had discretion to award a penalty of up to $100 per day for failing to provide the documents (now $110 per day). Thus, the sponsor is “lucky” the penalty was not $70,100. The Court noted that plaintiffs in ERISA cases are not awarded attorneys’ fees as a matter of course, but must show that the sponsor’s position was not “substantially justified.” The Court described the plan sponsor’s argument as a “dog ate my homework” defense, and upheld the award of attorneys’ fees.
There are two lessons here. The first is the underlying problem of effective waivers. Whenever a spouse must consent to a distribution, proper consent requires notarized consent. In this case, the plan sponsor was required to pay survivor benefits to the spouse even though the participant, while living, received the full amount of benefits under the plan. Thus, benefits were paid twice.
The second lesson is to keep plan records in good order and respond promptly to written requests for the documents. While ERISA does not allow a court to award punitive damages, even when the plan’s failure is egregious, plan sponsors can face large civil penalties and awards of attorneys’ fees for failing to provide plan documents within 30 days of a written request. Thus, having the documents complete and accessible is essential.