DOL Rule Imposes Significant Increases in Penalties for Employee Benefit Plan Violations

On June 30, 2016, the U.S. Department of Labor (“DOL”) issued an interim final rule that significantly increases various penalties under the Employee Retirement Income Security Act of 1974 (“ERISA”).  The interim rule is the result of a 2015 amendment to the Federal Civil Monetary Penalties Inflation Adjustment Act of 1990, which required federal agencies to issue an interim final rule by July 1, 2016, that adjusts civil penalties for inflation.  The amendment further requires federal agencies to continue to adjust civil penalties for inflation on an annual basis. 

Beginning in 2017, the DOL will adjust the civil penalties no later than January 15 of each year.  The increases will apply to penalties assessed after August 1, 2016, for violations that occurred after November 2, 2015.  Penalties assessed on or before August 1, 2016, for violations that occurred after November 2, 2015, will continue to be subject to the civil penalty amounts in place prior to this interim rule. 

Some of the penalties that will increase include:

  • Form 5500 Filing Failure. The current penalty of up to $1,100 per day for failing to file a timely Form 5500 will increase by almost 100% to a maximum of $2,063 per day.
  • Multiple Employer Welfare Arrangements (MEWAs). The current penalty for not including a Form M-1 with the annual Form 5500 will increase from up to $1,100 per day to a maximum of $1,502 per day.
  • Blackout Notices. Plans that fail to issue blackout notices or notice of the right to divest employer securities will now face penalty amounts of up to $131 per day, instead of a maximum of $100 per day.
  • Group Health Plan Notice. Failing to inform employees of CHIP coverage opportunities will result in a penalty of up to $110 per day, up from $100 per day. The penalty for failing to furnish the Summary Benefits Coverage notice will increase from up to $1,000 to a maximum of $1,087 per failure.  
  • Automatic Enrollment Notices. For plans with an automatic contribution arrangement feature, the penalty for failing to provide the required notices to participants will increase from up to $1,000 to a maximum of $1,632 per day.

The interim regulations did not increase all penalties. The complete list of all the penalties increased by the regulations can be found here.

Any penalty that is not included in the chart will continue to be subject to the current amount.  For example, the interim regulations did not increase the penalty for failing to furnish certain information requested by participants or beneficiaries.  Therefore, the penalty for such violation remains unchanged at a maximum of $110 per day.

The penalties above apply to many situations where plan sponsors continue to fail to comply with ERISA.  Note that in some cases, plan sponsors can pay lower penalties by taking corrective steps.  For example, if a plan sponsor fails to timely file Form 5500, the plan sponsor, under certain circumstances, can pay a significantly lower penalty amount by filing the late annual reports through the DOL’s Delinquent Filer Voluntary Compliance Program. 

Now is the perfect time for plan sponsors to perform a screening review of their benefit plans to make certain these increased penalties will not be imposed.  

By: Chizoba Nwamaka Egbuonu & Melissa B. Kurtzman