Problem Employees and the Hazards of Disregarding ERISA Information Requests

Added by Bret F. Busacker in Corporate Law, News on October 27, 2011

A recent case from the 5th Circuit Court of Appeals, Kujanek v. Houston Poly Bag I Ltd., highlights a number of important ERISA rules that may come up in the context of contentious employee terminations. The take-away from this case is that employers must be diligent in responding to an employee’s ERISA document and information requests, even if the employee has not satisfied the technical plan rules for making the request (and even if the employee has created problems for the employer).

The backdrop of this case was the resignation of employment by Kenneth Kujanek and the subsequent litigation claims made by Houston Poly that Kujanek breached his employment agreement and damaged the company. The contentious resignation and resulting litigation apparently contributed to a complete break-down in communications between Kujanek and Houston Poly. Accordingly, Kujanek requested account distribution information from Houston Poly’s retirement plan by contacting the plan’s financial advisor (instead of the plan’s administrator). The financial advisor passed the request on to Houston Poly, but Houston Poly disregarded the request on the basis that Kujanek did not comply with the technical requirements of the plan for requesting plan information from the administrator.

The Court found that Houston Poly breached its fiduciary duty under ERISA to Kujanek by not providing the requested information in a timely manner once it became aware that Kujanek was seeking information about the plan. The Court determined that the appropriate measure of damages was the loss in value of Kujanek’s retirement plan account that occurred during the period after Houston Poly failed to provide the required documents. Accordingly, the Court awarded Kujanek damages of $183,882 and attorney’s fees.

This case illustrates a number of important general ERISA rules that employers should be aware of, particularly where the relationship between the employee and employer has become strained:

• The employer-sponsor of an ERISA plan is almost always a fiduciary of the plan and must act in the best interests of plan participants with respect to providing plan benefits. Accordingly, even if the employee has created problems at work, the employer should not ignore requests for ERISA plan information by an employee.
• Indirect requests for ERISA plan information by an ERISA plan participant (i.e., requests made by intermediaries on behalf of the participant) may trigger action on the part of the ERISA sponsor/employer to provide documents to the participant.
• ERISA requests for documents and plan information may come in the form of discovery in litigation. Even if these requests are outside the scope of the litigation, the employer should not ignore the requests and consult with ERISA counsel as to whether a proper ERISA request was made under the circumstances.
• Employers should provide, as part of the standard exit package for employees, copies of the plan’s summary plan description and distribution/rollover information. The employer should document in writing the information provided to the employee and be able to substantiate that the employee received the documents.

For more information or questions about this article or ERISA in general, please contact Bret Busacker at 208.388.4885 or email bbusacker@hawleytroxell.com. Mr. Busacker focuses his practice on employee benefits and executive compensation matters. He has significant experience in counseling publicly owned, privately held, and non-profit businesses in structuring retirement, incentive compensation, equity compensation, and executive compensation programs. Mr. Busacker reviews retirement plans, welfare plans, and compensation arrangements for compliance with applicable tax, labor, and securities rules.