Benefit Plan Sponsors Brace for DOL ‘Catch-up’ Penalties



Retirement and health plan sponsors that violate Department of Labor participant notice and report filing rules may soon experience sticker shock.

Starting on Aug. 1, the DOL will impose “catch up” penalties on rules’ violators, as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The law requires federal agencies to adjust those penalties each year to keep up with inflation.

The catch-up penalties published by the DOL on July 1 in an interim final rule apply to civil penalties assessed after Aug. 1, 2016, for associated violations occurring after Nov. 2, 2015, the date of the law's enactment.

Increased maximum penalties cannot exceed 150 percent of the existing penalty amount.

“The penalties cover a wide range of civil enforcement provisions under the Employee Retirement Income Security Act, primarily relating to delivery of notices in different types of statements to plan participants,” Brian Benko, a partner in the Washington office of McDermott Will & Emery LLP, told Bloomberg BNA.

“The increases are inflation adjustments to amounts that were set by statute years ago but hadn’t been adjusted,” he said. “The new regulations come up with a formula to determine the new penalty amount.”

DOL said in an announcement that the increases should serve as a “credible deterrent” against rules violations, and that the catch-up provisions “make up for lost time since the last adjustments.”

The penalty increases likely will have the intended deterrent impact on plan sponsors, but they are inflation-adjusted rather than wholly reformulated amounts, Benko said.

Penalties Listed

A sampling of the penalties set forth in a chart issued by the DOL reveals a mix of small and large penalty increases starting Aug. 1.

These include:

  • failure to furnish or maintain plan records (ERISA §209(b)): current maximum $10 per employee;  $11 per employee for post-Nov. 2, 2015, violations; $28 maximum per employee thereafter;

  • failure to or refusal to file an annual report (ERISA §502(c)(2)): current maximum $1,000 a day; increasing to $1,100 per day for post-Nov. 2, 2015, violations and a maximum $2,063 thereafter;

  • failure to disclose certain documents upon request, or to furnish certain notices under (ERISA §502(c)(4)): $1,000 per violation currently and for post-Nov. 2, 2015, violations, and a maximum $1,632 thereafter;

  • failure to furnish documents under ERISA §502(c)(6): current maximum up to $110 per day, but not greater than $1,100 per request; $110 per day not to exceed $1,100 per request for post-Nov. 2, 2015, violations; $147 per day not to exceed $1,472 per request thereafter.

“The reason that some of the penalties jumped more than others, such as the new $2,063 maximum per day penalty for failing to file the Form 5500, had to do with the date on which Congress added the penalty,” Benko said. “Inflation adjustment calculations reflect the date each penalty statute was enacted and vary depending on the penalty.”

For example, the penalty for refusing to file the Form 5500 was last adjusted by statute in 1987 when the maximum was set at $1,000 per day, he said. Similarly, the $1,000 per day civil penalty under ERISA Section 502(c)(4) was enacted in 1993 and later amended in 2008 to include the failure to furnish notices under ERISA Section 101(j). The penalty for failing to provide a notice under ERISA Section 101(j) was inflation-adjusted from $1,000 in 1993 and is now $1,632 per day, he said.

Depending on the particular rules violation, the Labor Secretary has some discretion in determining whether to apply the maximum penalty, Benko said. For example, ERISA states that the Secretary may assess up to a $1,000 penalty for each day of a Form 5500 filing violation, which is now adjusted for inflation.

In general, the statute gives the secretary the discretion to impose the maximum penalty or a lower amount, though the secretary may be less likely to decrease the penalty for some provisions than others depending on the facts and circumstances, Benko said.

Health plan sponsors also will be subject to inflation adjusted “catch-up” provisions under the rules.  For example, the maximum penalty for failure to provide a summary of benefits coverage under Section 2715(f) of the Public Health Service Act, as incorporated into ERISA Section 715, currently pegged at $1,000, will increase to $1,087.

See related article, DOL Hikes Monetary Penalties for Plan Sponsors.

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