Attention Plan Sponsors: The Cost of Non-Compliance Just Went Up


Ensuring that your employee benefits plans comply with the Employee Retirement Income Security Act of 1974 (“ERISA”) just became more important. That is because the cost of noncompliance just increased (and in some instances, the increases are significant). On June 30, 2016, the U.S. Department of Labor (the “DOL”) issued an interim final rule increasing the penalties for certain violations of ERISA. The interim final rule is effective for penalties assessed after August 1, 2016 if the corresponding violation occurred after November 2, 2015.

The interim final rule and the corresponding increases in penalties occurred as the result of a 2015 amendment to the Federal Civil Monetary Penalties Inflation Adjustment Act of 1990 (the “2015 Amendment”). The 2015 Amendment required federal agencies to issue an interim final rule by July 1, 2016, adjusting their civil monetary penalties for inflation through October 2015. These adjustments are intended to ensure that ERISA penalties maintain their desired deterrent effects. Beginning in 2017, the DOL will make annual adjustments to ERISA penalties by January 15 of each year, accounting for inflation through October of the preceding year.

In connection with the issuance of its interim final rule, the DOL also published frequently asked questions and a fact sheet addressing the changes. The fact sheet included the following chart, which depicts the current penalty amounts enforceable by EBSA (the Employee Benefits Security Administration) and the new inflation-adjusted penalties that will go into effect for penalties assessed after August 1, 2016. As illustrated by the chart below, many of these new penalty amounts are substantial increases from the prior penalties, thus making it even more important for plan sponsors to review their benefit plans to ensure compliance.

ERISA Penalty Statute Description of ERISA Violations Subject to Penalty Current Penalty Amount New Penalty Amount
ERISA § 209(b) Failure to furnish reports (e.g., pension benefit statements) to certain former participants and beneficiaries or maintain records. Up to $11 per employee Up to $28 per employee
ERISA § 502(c)(2)
  • Failure or refusal to file annual report (Form 5500) required by ERISA § 104; and
  • Failure of a multiemployer plan to certify endangered or critical status under ERISA § 305(b)(3)(C) treated as failure to file annual report
Up to $1,100 per day Up to $2,063 per day
ERISA § 502(c)(4)
  • Failure to notify participants under ERISA § 101(j) of certain benefit restrictions and/or limitations arising under Internal Revenue Code § 436;
  • Failure to furnish certain multiemployer plan financial and actuarial reports upon request under ERISA § 101(k);
  • Failure to furnish estimate of withdrawal liability upon request under ERISA § 101(1); and
  • Failure to furnish automatic contribution arrangement notice under ERISA § 514(e)(3)
Up to $1,000 per day Up to $1,632 per day
ERISA § 502(c)(5) Failure of a multiple employer welfare arrangement to file report required by regulations issued under ERISA § 101(g). Up to $1,100 per day Up to $1,502 per day
ERISA § 502(c)(6) Failure to furnish information requested by Secretary of Labor under ERISA § 104(a)(6). Up to $110 per day not to exceed $1,100 per request Up to $147 per day not to exceed $1,472 per request
ERISA § 502(c)(7) Failure to furnish a blackout notice under section ERISA § 101(i) or notice of the right to divest employer securities under ERISA § 101(m) Up to $100 per day Up to $131 per day
ERISA § 502(c)(8) Failure by a 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. Penalty also applies to a plan sponsor of an endangered status plan (other than a seriously endangered plan) that fails to meet its benchmark by the end of the funding improvement period. Up to $1,100 per day Up to $1,296 per day
ERISA § 502(c)(9)(A) Failure by an employer to inform employees of CHIP coverage opportunities under ERISA § 701(f)(3)(B)(i)(I) — each employee a separate violation. Up to $100 per day Up to $110 per day
ERISA § 502(c)(9)(B) Failure by a plan administrator to timely provide to any State the information required to be disclosed under ERISA § 701(f)(3)(B)(ii), regarding coverage coordination — each participant/beneficiary a separate violation. Up to $100 per day Up to $110 per day
ERISA § 502(c)(10) (B)(i) Failure by any plan sponsor of a group health plan, or any health insurance issuer offering health insurance coverage in connection with the plan, to meet the requirements of ERISA §§ 702(a)(1)(F), (b)(3), (c) or (d); or § 701; or § 702(b)(1) with respect to genetic information. $100 per day during non- compliance period $110 per day during non-compliance period
ERISA § 502(c)(10) (C)(i) Minimum penalty for de minimis failures to meet genetic information requirements not corrected prior to notice from Secretary of Labor. $2,500 minimum $2,745 minimum
ERISA § 502(c)(10) (C)(ii) Minimum penalty for failures to meet genetic information requirements which are not corrected prior to notice from Secretary of Labor and are not de minimis. $15,000 minimum $16,473 minimum
ERISA § 502(c)(10)(D) (iii)(11). Cap on unintentional failures to meet genetic information requirements. $500,000 maximum $549,095 maximum
ERISA § 502(c)(12) Failure of CSEC plan sponsor to establish or update a funding restoration plan. Up to $100 per day Up to $100 per day
ERISA § 502(m) Distribution prohibited by ERISA § 206(e). Up to $10,000 per distribution Up to $15,909 per distribution
ERISA § 715 Failure to provide Summary of Benefits Coverage under Public Health Services Act § 2715(f), as incorporated into ERISA section § 715 and 29 CFR 2590.715-2715(e). Up to $1,000 per failure Up to $1,087 per failure

In this blog, Nutter's Executive Compensation and Employee Benefits attorneys will provide updates on key developments and offer practical tips and best practices relating to executive compensation, employee benefits, and corporate governance matters.

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