DOL Increases Many Employee Benefit Plan Penalties

The DOL has issued regulations that increase the civil monetary penalties for a wide range of benefit-related violations. Recognizing that many penalties were becoming less effective as deterrents because the penalty amounts had not kept pace with inflation, Congress enacted legislation in 2015 requiring an initial “catch-up” adjustment to specified penalty amounts, followed by annual adjustments. These regulations establish the catch-up amounts. Future adjustments will be made by January 15 of each year, starting in 2017. Here are highlights of the changes:

• Form 5500. The maximum penalty for failing to file Form 5500 (which must be filed by most ERISA plans) will increase from $1,100 to $2,063 per day that the Form 5500 is late.
• Group Health Plans. The maximum penalty for failing to provide the summary of benefits and coverage (SBC) required under health care reform will increase from $1,000 to $1,087 per failure. Violations of the Genetic Information Nondiscrimination Act (GINA), such as establishing eligibility rules based on genetic information or requesting genetic information for underwriting purposes, may result in penalties of $110 per participant per day, up from $100. Maximum penalties relating to disclosures regarding the availability of Medicaid or CHIP assistance, including failure to disclose to a state, on request, relevant information about the employer’s plan, will also increase from $100 to $110 per day.
• 401(k) Plans. For plans with automatic contribution arrangements, penalties for failure to provide the required ERISA § 514(e) preemption notice to participants will increase from $1,000 to $1,632 per day. Penalties for failing to provide blackout notices (required in advance of certain periods during which participants may not change their investments or take loans or distributions) or notices of diversification rights will increase from $100 to $131 per day. And the maximum penalty for failure to comply with the ERISA § 209(b) recordkeeping and reporting requirements will increase from $11 to $28 per employee.
• Multiple Employer Welfare Arrangements (MEWAs). Penalties for failure to meet applicable filing requirements, which include annual Form M-1 filings and filings upon origination, will increase from $1,100 to $1,502.

Other penalties increased by the regulations include those for failure to provide certain information requested by the DOL, failures not corrected within specified time periods, and defined benefit plan compliance failures. The increases apply to penalties assessed after August 1, 2016 with respect to violations occurring after November 2, 2015. Penalty assessments made before August 1, 2016 (including those relating to violations after November 2, 2015) and assessments at any time relating to violations on or before November 2, 2015 will reflect the lower pre-adjustment amounts.

EBIA Comment: These changes affect a wide range of compliance issues. (The regulations also include penalty increases for violations of other laws under the DOL’s jurisdiction.) Keep in mind that not all violations will give rise to the highest permitted penalty—for example, DOL programs designed to encourage Form 5500 filing allow for lower penalties in certain circumstances. Note also that the DOL has not increased the penalty for failure to furnish certain information requested by participants or beneficiaries under ERISA § 502(c)(1). For more information, see EBIA’s ERISA Compliancemanual at Sections XIX.G (“Form M-1 Obligations for MEWAs and Participating Employers”), XXII.D (“Consequences of Form 5500 Noncompliance”), and XXIV.O (“Summary of Benefits and Coverage (SBC) Under Health Care Reform”). See also EBIA’s HIPAA Portability, Privacy & Security manual at Sections V.F (“Penalties for Violation of Genetic Information Nondiscrimination Act”) and X.F.3 (“Additional Notice and Disclosure Relating to State Premium Assistance Subsidy”); EBIA’s 401(k) Plans manual at Sections VIII.D.2 (“Automatic Contribution Arrangement (ACA): Specific Preemption”) and XXVI.K (“Blackout Notice Requirements”); EBIA’s Health Care Reform manual at Section XVI.I (“Consequences of Failing to Provide the SBC”); and EBIA’s Group Health Plan Mandates manual at Section XXII.F.1 (“GINA Title I Enforcement”).

Contributing Editors: EBIA Staff.