I cannot stress enough the importance of documenting plan procedures and following them for each stage of plan administration. Nothing brings this home as much as a high-dollar award against an employer for failure to satisfy an administrative obligation. Since it seems like COBRA creates these scenarios most often, let’s look at a recent decision related to a failure to provide a COBRA notice.
In Evans v. Books-A-Million, a recent case out of the Northern District of Alabama, the District Court awarded $83,000 in penalties and attorneys fees to a plaintiff who brought suit for a failure to provide a COBRA notice. Of that award, $37,950 was the penalty which the court calculated as 506 days at $75 a day. The reason that the court gave such a stiff penalty was because, at trial, the evidence was clear that not only did the plaintiff not get a notice, but the people who were responsible for COBRA administration could not articulate the basic procedures for COBRA administration and provided contradictory statements regarding what actions they took in dealing with this plaintiff.
This award may seem a little drastic, but the Judge’s opinion made it very clear that the lack of documented procedures and a clean administrative record weighed very much in favor of a punitive result. Which brings us back to my original statement that failure to comply with the rules of plan administration can lead to much larger and more expensive problems. Think of the documentation procedure as both a road map and an insurance policy. The road map gives plan employees a clear direction on what steps to take and provides consistency in administration. The existence of written procedures, and evidence that those procedures were followed, gives insurance against a claim of administrative failure (and breach of fiduciary duty).
So document, document and document. Create them and follow them. And if you need help in creating or following them, your attorney at Fox Rothschild can be your guide.