A recent district court decision from California serves as helpful reminder to ERISA plans about their obligation to disclose certain documents upon request. In Zavislak v. Netflix, a California District Court reviewed whether an ERISA health plan adequately complied with ERISA’s disclosure rules and, if not, whether it should be subject to the daily penalty under ERISA Section 502(c)(1).
Background
The Plaintiff was a Netflix employee who was a covered participant in its self-funded health and welfare plan. On January 1, 2021, the Plaintiff sent a written request asking for all “documents governing the operation of the respective plan,” including the plan document, trust agreement, contracts with third-party administrators (“TPA”), and administrative service agreements (“ASA”) with the Plan’s network provider.
Because the request was made while employees were still working remotely, it was missed, and no response was sent. Therefore, on February 11, 2021, the Plaintiff sent a second request to the Plan for the information. Netflix’s in-house counsel received this request and responded to the Plaintiff on February 24th. That response included copies of the SPDs, plan document, the Summaries of Benefits and Coverage. However, it did not include copies of TPA contracts or network ASAs. A second disclosure was made on March 11, 2022, but again did not include TPA contracts or network ASAs. The Plan argued that it was not required to disclose these documents.
Court’s Ruling
Soon thereafter, the Plaintiff filed suit alleging a violation of ERISA Section 104(b) and demanding the statutory maximum penalty of $110 per day for each day the documents remain outstanding. Under ERISA Section 104(b), a participant or beneficiary can make a written request for the latest copies of the following documents:
“…the latest summary plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.”
ERISA Section 502(c) imposes a penalty of “up to $110 per day” if the plan fails or refuses to comply with a request for information under Section 104(b) within thirty (30) days.
In this case, the Court held that although Section 104(b) uses the term “contract,” it does not encompass all contracts between the plan and another party. Instead, it only applies to agreements that govern the relationship between the plan and the plan participants. In other words, agreements that relate to plan operation, and not the actual benefits available to participants, fall outside of ERISA 104(b).
Nevertheless, it wasn’t a total win for Netflix. The Court ruled that Netflix failed to fully respond to the first request (made on January 1, 2021) until March 11, 2022; a delay of 431 days. While the Court did acknowledge that the request came during the COVID-19 pandemic and that the Department of Labor had relaxed the notice rules, it was nonetheless exercising its discretion and imposing a penalty of $15 per day (a total of $6,465).
Takeaway
There are two takeaways for Plan Administrator. First, participants and beneficiaries are not entitled to every plan-related document. Instead, they are entitled to documents which inform them about eligibility and covered benefits. TPA contracts and ASA network agreements control plan operations and therefore fall outside the scope of an ERISA 104(b) request.
Second, ERISA Section 502(c) gives courts a wide range of discretion in assessing penalties. While this penalty of $15/day was at the low-end, other courts have gone the other way and imposed the maximum. In this case, that could have been a penalty of up to $47,410. Therefore, it’s important that plans have a process which adequately (1) evaluates a request for plan documentation, (2) compiles a response that addresses the participant’s concerns and complies with ERISA Section 104(b), and (3) is timely and within the 30-day window. Avoiding the ERISA Section 502(c) penalty is easy if the plan has a process in place that all employees know and understand.