The Department of Labor (“DOL”) will be increasing penalties, in some cases substantially, for violations of ERISA. Here’s why and how it will impact ERISA plans that are not in compliance.
Background
In 2015, Congress passed the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 as part of the Bipartisan Budget Act of 2015.
The new law directs federal agencies to adjust their civil monetary penalties for inflation every year limited to any penalty for a specific amount or maximum amount set by Federal law that is assessed or enforced by a Federal agency. In other words, Congress told the agencies to “catch-up”.
The new penalty amounts are applicable only to civil penalties assessed after August 1, 2016, for violations occurring after November 2, 2015, the date the 2015 Inflation Adjustment Act was enacted. Going forward, agencies are required to adjust their penalties for inflation before January 15 every year.
New Penalty Amounts
Five of the DOL’s agencies have penalties that are impacted:
- Mine Safety and Health Administration
- Occupational Safety and Health Administration
- Office of Workers’ Compensation Programs
- Wage and Hour Division
- Employee Benefit Security Administration
But for our purposes, we’ll focus on the Employee Benefit Security Administration (“EBSA”) which oversees ERISA for which 15 separate penalties have been increased. I’ll highlight just a few of the dramatic increases because of the catch-up.
- Section 502(c)(2), Failure to file Form 5500: $1,100 per day to $2,063 per day.
- Section 209(b), Failure to furnish certain reports to participants or failure to maintain records: $11 per participant to $28 per participant.
- 502(m), Improper distributions: $10,000 per distribution to $15,909 per distribution.
- 502(c)(4), Failure to furnish automatic contribution arrangement notice under Section 514(e)(3): $1,000 per day to $1,632 per day.
The DOL’s list of the new penalties for all of its agencies can be seen here.
The new schedule of penalties does not affect any penalties that may be assessed under the criminal provisions of ERISA.
Caveat
Other penalties can apply for violation of other laws affecting employee benefit plans such as the Affordable Care Act (“ACA”), COBRA, and HIPAA.
Takeaways
First, the obvious one. Employers should establish a compliance program to monitor compliance with ERISA and other employee benefit laws.
Second, both the Department of Labor and the Internal Revenue Service have voluntary compliance programs that may mitigate any penalties. Don’t wait until until the plan is audited. It’s much more expensive that way.
Finally, yes, compliance with ERISA and the other laws can be both complicated and confusing. Ultimately, compliance is the responsibility of the plan sponsor and fiduciaries and not a third party.