Employer Liability, ERISA & Administration of Group Health Benefit Plans

Assume an employee makes a request to the plan administrator requesting copies of group health benefit plan documents, and the plan administrator loses or forgets to respond to the request.  Six months later, the employee makes a second request for the same plan documents. Under the Employee Retirement Income Security Act of 1974 (“ERISA” or the “Act”), the failure to timely and properly provide the requested documents may cost the plan administrator up to $20,075 in penalties alone.

Understanding ERISA is important to employers for three main reasons: First, ERISA governs the operations of group health benefit plans (also, 401(k) plans, retirement plans, and life and disability insurance plans).  Second, ERISA gives participants and beneficiaries of group health benefit plans the right to sue for breach of fiduciary duty.  Finally, employers or their employees may be held liable for breaching the provisions of the Act.

ERISA is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.[1]  ERISA requires benefit plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty.[2]

ERISA defines a fiduciary as someone who uses discretion in administering and managing a benefit plan or who controls a plan’s assets. A fiduciary has the authority to make decisions about the manner in which plans are overseen and implemented, and must act solely in the interest of plan participants or their beneficiaries.

Courts may hold a fiduciary personally liable for losses sustained by participants or their beneficiaries when the fiduciary fails to fulfill his/her obligations as set forth under the law. ERISA, Section 502(c), imposes penalties for a breach of fiduciary, such as failure or refusal by the plan administrators to furnish information about employee benefits. Under Section 502(c)(1), 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.[3]

Courts use five factors in evaluating penalties under Section 502(c):

(1) length of delay in response;

(2) bad faith or intentional conduct of the plan administrator;

(3) number of requests made by the beneficiary or participant;

(4) documents withheld; and,

(5) prejudice to the participant.

In summary, ERISA includes a set of complicated rules and regulations.  To prevent future liability, employers should carefully consider or obtain professional counsel when engaging in activities that may give rise to fiduciary status, including appointing plan administrators, selecting and monitoring plan investment vehicles, selecting and monitoring third party service providers, interpreting plan provisions and exercising discretion in denying or approving benefit claims.  Employers should also consider implementing policies and procedures for plan administration and perform routine training for fiduciaries in charge of ERISA plans.

END NOTES:

[1] US Department of Labor: https://www.dol.gov/general/topic/health-plans/erisa

[2] Id.

[3] 29 U.S.C. §1132(c)(1)