We have, on many occasions, been asked how long plan documents should be retained. When we answer indefinitely, we are often questioned if that is really necessary. As the case described below indicates, failing to retain these documents could be harmful to your financial health.
A Federal judge in Indiana recently levied $4,470 in penalties against an employer after the company failed to provide a deceased participant’s widowed spouse with retirement plan documents that took effect in 1979.
Facts. EH’s husband retired from the employer in 1979 and died in 2011. After her husband’s death, EH contacted the employer to inquire about a survivor annuity and was told her husband had elected against such an annuity in 1979. EH then requested the relevant plan documents and summary plan description, together with her husband’s election form and the spousal waiver form.
Months later, and after a series of additional communications with the employer’s HR staff who indicated they could not find the 1979 documentation, except for the husband’s actual letter where he chose a single life annuity so that payments would end at his death. EH then sued the employer and the pension plan in 2012 seeking statutory penalties against the employer for its failure to provide the plan documents, along with attorney’s fees. She needed the plan documents to establish whether the Plan required spousal consent for a participant to waive the joint and survivor annuity option that would have provided her a survivor’s benefit after her husband’s death.
After suit was filed, the employer did locate the plan summary, but not the actual plan document.
Discussion. Upon the written request of a participant or beneficiary, ERISA requires a plan administrator to “furnish a copy of the latest updated summary plan description … trust agreement, contract, or other instruments under which the plan is established or operated.” If the plan administrator fails to comply with the request within 30 days, the court may impose a penalty of up to $110 per day for each day the failure continues.
The Court concluded that even outdated plan documents (the plan had been amended more than once since 1979) must be provided if necessary for the participant or beneficiary to understand what the plan administrator was doing in processing the claim, and to effectively assert his or her rights under the plan.
The summary description of the plan did not indicate that spousal consent was required (the law did not require spousal consent until 1984). While one may infer that the plan would not have required such consent, the court determined that the actual plan document was critical to make that determination. Moreover, because it took 14 months to locate the summary, by which time EH had hired a lawyer and filed suit, the production of the summary could not be used as a defense to the penalty. To the contrary, the fact that the summary was ultimately located creates an inference that the employer did not conduct a sufficient search for the plan itself. Hence the penalty was imposed at the rate of $10 per day from the date of the written request to the date the plan summary was provided. While the summary was not sufficient to be a defense to the penalty, it was of sufficient import to toll the penalty period.
Conclusion. The court determined that the employer had acted in good faith, but that was not sufficient to avoid the penalty where the plan document was critical to determine the beneficiary’s rights. Therefore, plan documents (and documents pertaining to participant and beneficiary claims) should be kept indefinitely.
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