DOL Significantly Increases Certain ERISA Civil Penalties Effective August 2, 2016

Wilson Sonsini Goodrich & Rosati
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The U.S. Department of Labor (DOL) has significantly increased a number of civil monetary penalty amounts (CMPs) that may be assessed by the DOL's Employee Benefits Security Administration for violations of Title I of the Employee Retirement Income Security Act of 1974 (ERISA).

These increases were made in response to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the "2015 Act"), which requires the DOL, as well as certain other federal agencies that impose civil monetary penalties subject to inflation adjustments, to adjust: (1) their respective CMPs, as necessary for inflation; and (2) the new CMP amounts for inflation every January thereafter, in each case pursuant to the methodology prescribed by the 2015 Act.

The newly increased CMP amounts (the "New ERISA Title 1 Penalties") were set forth in a DOL interim final rule (IFR).1 The New ERISA Title 1 Penalties apply to assessments made by the DOL on or after August 2, 2016, for associated violations occurring after November 2, 2015 (the date of enactment of the 2015 Act).

This WSGR Alert highlights the New ERISA Title 1 Penalties that clients likely will find most relevant.2 A table showing all of the New ERISA Title 1 Penalties may be found in Appendix 1 of the IFR. The DOL also has published a fact sheet3 that describes the New ERISA Title 1 Penalties. As mentioned above, beginning in January 2017, the DOL may further adjust the New ERISA Title 1 Penalties annually to account for any inflation.

New ERISA Title 1 Penalties of General Applicability

  • A failure to file a complete and timely annual report (commonly referred to as a Form 5500-series return) may be subject to a penalty assessment of up to $2,063 per day (up from a maximum penalty of $1,100 per day)4
  • A failure to provide reports (e.g., pension benefit statements) to certain former participants and beneficiaries or a failure to maintain plan records may be subject to a penalty assessment of up to $28 per day per participant/beneficiary with respect to whom such failure occurs (up from a maximum penalty of $11 per participant/beneficiary per day)
  • A failure to provide plan information requested by the DOL (e.g., latest summary plan description) may be subject to a penalty assessment of up to $147 per day not to exceed $1,472 per request (up from a maximum penalty of $110 per day not to exceed $1,100 per request)

New ERISA Title 1 Penalties Applicable to 401(k) and Other Retirement Plans

  • A failure to provide a blackout notice or notice of the right to divest employer securities may be subject to a penalty assessment of up to $131 per day (up from a maximum penalty of $100 per day)
  • A failure to provide a notice of rights and obligations under an automatic contribution arrangement may be subject to a penalty assessment of up to $1,632 per day (up from a maximum penalty of $1,000 per day)
  • A failure to notify participants of certain benefit restrictions or limitations arising under Internal Revenue Code Section 436 also may be subject to a penalty assessment of up to $1,632 per day (up from a maximum penalty of $1,000 per day)

New ERISA Title 1 Penalties Applicable to Health and Other Welfare Plans

  • A failure to provide a Summary of Benefits Coverage may be subject to a penalty assessment of up to $1,087 per failure (up from a maximum penalty of $1,000 per failure)
  • A failure to inform employees of Children's Health Insurance Program (CHIP) coverage opportunities may be subject to a penalty assessment of up to $110 per employee per day (up from a maximum penalty of $100 per employee per day)
  • A failure to timely provide state Medicaid or CHIP agencies information on the employer's health coverage may be subject to a penalty assessment of up to $110 per participant/beneficiary per day (up from a maximum penalty of $100 per participant/beneficiary per day)
  • A failure to comply with the Genetic Information Nondiscrimination Act (GINA) requirements may be subject to a penalty assessment of up to $110 per participant/beneficiary per day (up from a maximum penalty of $100 per participant/beneficiary per day)
  • The minimum penalties for de minimis and non-de minimis failures to meet GINA's requirements that are not corrected before receiving notice of such failures is $2,745 (up from a minimum penalty of $2,500) and $16,473 (up from a minimum penalty of $15,000), respectively
  • An unintentional failure to comply with GINA's requirements may be subject to a penalty assessment of up to $549,095 (up from a maximum penalty of $500,000)

Takeaways for Employers

The New ERISA Title 1 Penalties serve as important reminders to employers who sponsor benefit plans that are governed by ERISA and/or other plan fiduciaries who are responsible for the administration of such plans that they should ensure their plans' compliance with ERISA's requirements or else risk being assessed these considerable penalties.5

1 The IFR may be found at https://www.gpo.gov/fdsys/pkg/FR-2016-07-01/pdf/2016-15378.pdf. Once the

applicable 45-day comment period on the IFR lapses, the DOL intends to publish final regulations.

2 In addition to the potential assessment of these ERISA civil penalties, plan administrators also may face penalties imposed by other federal agencies, such as the Internal Revenue Service (IRS), for certain plan violations.
4 In an effort to encourage voluntary compliance with ERISA's annual reporting requirements, the DOL has adopted the Delinquent Filer Voluntary Compliance Program ( DFVCP), which provides eligible plan administrators with the opportunity to avoid these potentially higher CMP assessments if they make the required filings in accordance with DFVCP requirements and they voluntary pay the reduced CMP amounts set forth in the DFVCP. Please note, however, that the DFVCP does not relieve plan administrators of any filing penalties applicable under the Internal Revenue Code or Title IV of ERISA. The IRS may provide relief from late-filing penalties under the Internal Revenue Code for certain delinquent annual reports if certain requirements are met, including the satisfaction of all applicable conditions of the DFVCP. The Pension Benefit Guaranty Corporation also may provide certain penalty relief for certain delinquent annual reports where the conditions of the DFVCP have been satisfied.
5 Certain voluntary correction programs, such as the DFVCP noted earlier, may be available to reduce the CMPs that otherwise potentially may be payable.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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