United States: Department Of Labor Increases Penalties For Certain ERISA Violations

Christopher Buch is an Associate and Greg Brown is a Partner in in Holland & Knight's Chicago office

HIGHLIGHTS:

  • The U.S. Department of Labor (DOL) published on July 1, 2016, an interim final rule adjusting the civil monetary penalties that it can enforce.
  • The adjustments are the result of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 whereby federal agencies were directed to adjust their civil monetary penalties for inflation each year. The new penalty amounts will affect both pension and welfare plans, and some of the penalty increases are substantial.
  • In light of the new penalty amounts, it is important for employers to review their ERISA plans, understand the requirements imposed on such plans by ERISA and make sure that they are in compliance with those requirements so as to avoid any potential penalties at the newly adjusted rates.

The U.S. Department of Labor (DOL) published on July 1, 2016, an interim final rule adjusting the civil monetary penalties that it can enforce. These adjustments are the result of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Inflation Adjustment Act) whereby federal agencies were directed to adjust their civil monetary penalties for inflation each year.

Before the Inflation Adjustment Act, the DOL had not changed many of the civil monetary penalties enforceable by the DOL under the Employee Retirement Income Security Act of 1974, as amended (ERISA) since 2003. The new penalties imposed under ERISA pursuant to the Inflation Adjustment Act will apply to penalties assessed after Aug. 1, 2016, for violations that occurred after Nov. 2, 2015. Civil monetary penalties will not be adjusted for violations occurring on or before Nov. 2, 2015, as well as for assessments made on or before Aug. 1, 2016, for violations occurring after Nov. 2, 2015. Beginning in 2017, the Inflation Adjustment Act requires the DOL to adjust ERISA penalty amounts for inflation on an annual basis no later than Jan. 15 of each year.

The new penalty amounts will affect both pension and welfare plans, and some of the penalty increases are substantial. Examples of some of the new penalty amounts are below:

Penalties of General Applicability

  • failure to file an Internal Revenue Service (IRS) Form 5500, a penalty of up to $2,063 per day may apply (an increase from an up to $1,100 per day penalty)
  • failure to provide requested information to the DOL, a penalty of up to $147 per day or a maximum penalty of $1,472 per request may apply (an increase from penalties of up to $110 per day and $1,100 per request)
  • failure to furnish reports (such as pension benefit statements) to certain former participants and beneficiaries or the failure to maintain records, a penalty of up to $28 per employee may apply (an increase from an up to $11 per employee penalty)

Retirement Plan Penalties

  • failure of a multiemployer plan to certify endangered or critical status, a penalty of up to $2,063 per day may apply (an increase from an up to $1,100 per day penalty)
  • failure to 1) notify participants of certain benefit restrictions and/or benefit limitations, 2) furnish certain multiemployer plan financial and actuarial reports upon request, 3) furnish an estimate of withdrawal liability or 4) furnish automatic contribution arrangement notices, a penalty of up to $1,632 per day may apply (an increase from an up to $1,000 per day penalty)
  • a payment in violation of benefit restrictions and limitations, an up to $15,909 per distribution penalty may apply (an increase from an up to $10,000 per distribution penalty)
  • failure of the plan sponsor of a multiemployer plan in endangered status to adopt a funding improvement plan or a multiemployer plan in critical status to adopt a rehabilitation plan, a penalty of up to $1,296 per day may apply (an increase from an up to $1,100 per day penalty)
  • failure to provide participants with blackout notices or notice of the right to divest employer securities, a penalty of up to $131 per day may apply (an increase from an up to $100 per day penalty)

Welfare Plan Penalties

  • failure of a multiple employer welfare arrangement to file its required report, a penalty of up to $1,502 per day may apply (an increase from an up to $1,100 per day penalty)
  • failure to provide a Summary of Benefits Coverage, a penalty of up to $1,087 per failure may apply (an increase from an up to $1,000 per failure penalty)
  • failure of an employer to inform its employees of Children's Health Insurance Program (CHIP) coverage opportunities, a penalty of up to $110 per employee per day may apply (an increase from an up to $100 per employee per day penalty)
  • failure of an employer to provide state Medicaid or CHIP agencies information on an employee's health coverage, a penalty of up to $110 per participant or beneficiary per day may apply (an increase from an up to $100 per participant or beneficiary per day penalty)
  • failure to comply with the Genetic Information Nondiscrimination Act (GINA), a penalty of up to $110 per participant or beneficiary per day may apply (an increase from an up to $100 per participant or beneficiary per day penalty); in addition, the minimum penalty for de minimis failures to meet GINA requirements that are not corrected prior to receiving notice of such failures from the DOL increases to $2,745 (an increase from $2,500); the minimum penalty for non de minimis failures to meet GINA requirements that are not corrected prior to receiving notice of such failures from the DOL increases to $16,473 (an increase from $15,000); and the cap on unintentional failures to meet GINA requirements increases to a maximum of $549,095 (an increase from $500,000)

In light of the new penalty amounts, it is important for employers to review their ERISA plans, understand the requirements imposed on such plans by ERISA and make sure that they are in compliance with those requirements so as to avoid any potential penalties at the newly adjusted rates.In addition, DOL audit activity of certain plans has increased lately, and these changes provide ample incentive for the DOL to collect the larger penalties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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