On July 1, 2016, the US Department of Labor (DOL) published an interim final rule (Interim Rule) in the Federal Register adjusting for inflation the amount of certain civil monetary penalties imposed under the Employee Retirement Income Security Act of 1974, as amended (ERISA) and assessed and enforced by the Employee Benefits Security Administration. The adjusted penalties became effective on August 1, 2016.

Background

The DOL was required to publish the Interim Rule by the Federal Civil Monetary Penalties Inflation Adjustment Act of 2015 (2015 Inflation Adjustment Act) that was signed into law on November 2, 2015 as part of the Bipartisan Budget Act of 2015.

The 2015 Inflation Adjustment Act directed US federal agencies to adjust their civil monetary penalties for specified amounts or maximum amounts based on the statutorily prescribed formula. The 2015 Inflation Adjustment Act requires an initial “catch-up” adjustment and subsequent annual adjustments.

Catch-Up Adjustments

The Interim Rule provides for a “catch-up” adjustment increasing penalties for inflation through October 2015. Under the statutory formula, the increase in each penalty depends on when the specific penalty was last adjusted for inflation. In other words, the longer a penalty has gone without being adjusted, the higher the jump. The adjusted penalties set forth in the Interim Rule apply to penalties assessed after August 1, 2016 for violations occurring after November 2, 2015. The penalty amounts set forth in the DOL’s prior regulations (29 CFR Parts 2560, 2575, and 2590) will apply to (i) penalties assessed on violations occurring on or before November 2, 2015, and (ii) penalties assessed before August 1, 2016 for violations occurring after November 2, 2015.

Examples of adjustments under the Interim Rule include the following:

  • Failure to file an annual report ($1,100/day adjusted to $2,063/day)
  • Failure to furnish a blackout notice ($100/day adjusted to $131/day)
  • Failure of multiemployer plan to adopt funding improvement plan or rehabilitation plan as applicable ($1,100/day adjusted to $1,296/day)
  • Failure to provide Summary of Benefits Coverage ($1,000 per failure adjusted to $1,087 per failure)

View a table of the ERISA sections subject to the Interim Rule.

Annual Adjustments

Under the 2015 Inflation Adjustment Act, the DOL will be required to adjust ERISA’s civil monetary penalties annually. The Office of Management and Budget will issue guidance directing agencies to adjust their penalties for inflation in accordance with a statutory formula no later than December 15 of each year. The DOL has until January 15 of the subsequent year to publish the adjusted penalties, and such adjusted amounts will apply to penalties assessed after the later of January 15 or the date the adjustments are published.

Conclusion

Plan sponsors should be aware of the increases made to ERISA’s civil monetary penalties for noncompliance and should expect future increases in penalties on an annual basis.