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July 25, 2016Client Alert

ERISA Civil Monetary Penalties Receive a “Catch-up” Adjustment

Failure to comply with the nuances of the Employee Retirement Income Security Act’s (ERISA) disclosure rules is about to become more costly! The Department of Labor (DOL) recently released an interim final rule adjusting the penalty amounts for various violations of Title I of ERISA. These adjustments came as directed by the 2015 Amendments to the Inflation Adjustment Act, which required the DOL and other federal agencies to issue an interim final rule by July 1, 2016 to adjust civil monetary penalties for inflation through October 2015. Released July 1, the DOL’s rule increases penalties which had last been adjusted in 2003.

In conjunction with the rule, the DOL also released a Fact Sheet highlighting the updated ERISA penalty amounts. Some of the most notable penalty increases include:

  • Failure to file a Form 5500: The penalty for failing to file a Form 5500 will increase to a maximum of $2,063 per day, up from $1,100 per day. This is particularly important given the July 31 deadline for calendar year plans. While the DOL’s late 5500 amnesty program has not changed (yet), plan administrators should be sure to timely file Form 5500 or timely obtain an extension (using Form 5558) to avoid a much more expensive potential penalty. 
  • Failure to Furnish Automatic Enrollment Notices: The penalty for failing to provide required notices to defined contribution (e.g., 401(k)) plan participants about automatic contribution arrangements will increase from a maximum $1,000 per day to a maximum of $1,632 per day.
  • Failure to Provide Notice of Benefit Restrictions: The penalty for failing to notify participants of certain benefit restrictions and/or limitations imposed under section 436 of the tax code will also increase from a maximum $1,000 per day to a maximum $1,632 per day.
  • Failure to Provide Blackout Notices: Up from a maximum $100 per day, the penalty for failing to furnish a blackout notice or notice of the right to divest employer securities will increase to a maximum $131 per day.
  • Failure to Provide Group Health Plan Notices: The penalty for failing to provide Summary of Benefits Coverage will increase to a maximum $1,087 per failure, up from $1,000 per failure.

These “catch-up” adjustments to ERISA penalty amounts apply to all penalties assessed after August 1, 2016, for violations occurring after November 2, 2015. This means any assessments made on or before August 1, 2016 and any assessment for a violation that occurred on or before November 2, 2015, are not subject to the penalty increases.

Unlike the last set of adjustments which stood the test of time (13 years!), these adjustments will not remain in place for years on end. To the contrary, the Inflation Adjustment Act requires annual inflation increases. Beginning in 2017, the DOL will adjust ERISA Title I penalty amounts annually by January 15. As such, these recently released “catch-up” adjustments will adjust again by January 15, 2017, to reflect any changes in inflation between October 2015 and October 2016. Plan administrators should be mindful of the increasing penalties associated with its plan disclosure obligations, and consider an internal review of protocols and practices in place to ensure compliance with the same.

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