On December 31, 2008, the Department of Labor issued final regulations (74 Fed. Reg. 17; 29 C.F.R. § 2560) implementing procedures for assessing civil penalties on plan administrators for failure to provide certain documents to participants and other relevant parties. The plan administrator is defined by ERISA and is usually the employer sponsoring the plan. The regulations are effective as of March 3, 2008.

The final regulations are issued under section 502(c)(4) of ERISA which permits the Secretary of Labor to assess civil penalties of not more than $1,000 per day for each violation of sections 101(j), 101(k), 101(l) and 514(e)(3) of ERISA.

  • Defined Benefit Single-Employer Plans. Section 101(j) requires the plan administrator of a single-employer defined benefit plan to give notice to participants and beneficiaries of funding-based limitations on benefits and benefit accruals that apply to plans falling below certain prescribed funding thresholds.
  • Multiemployer Plan. Section 101(k) requires the plan administrator of a multiemployer pension plan to provide, upon request, certain plan documents to participants, beneficiaries and other specified parties. These documents include specified actuarial and financial reports.
  • Multiemployer Plan. Section 101(l) requires the plan administrator of a multiemployer plan to provide employers who have an obligation to contribute to the plan with notice of the estimated amount of potential withdrawal liability upon the employer’s request.
  • Automatic Contribution Arrangement. Section 514(e)(3) requires the plan administrator of a plan with an automatic contribution arrangement to give notice to participants of their rights and obligations under that “ACA.”

The DOL can assess these §502(c)(4) penalties in addition to any other penalties that a court might assess against the plan administrator. The regulations specify the procedure for computing, assessing, and disputing a §502(c)(4) penalty.

Amount assessed. The DOL will determine the amount to be assessed based on the “degree or willfulness of the failure or refusal to furnish” the required documents. The maximum penalty permitted is $1,000 per day per violation. Each failure to provide a person entitled to receive a document is treated as a separate violation. For example, if a plan administrator failed to provide a document to 20 participants for 10 days, the maximum penalty would be $200,000. Or, if a multiemployer plan failed to deliver a required disclosure to 100 contributing employers for 60 days, the maximum penalty imposed on the individual trustees (who are the “plan sponsor” for a multiemployer plan) would be $6 million.

DOL Notice. The DOL will provide a written notice of intent to assess a penalty. The notice will include the amount of the penalty, the number of individuals involved, the period of time to which the penalty applies, and the reasons for the penalty.

Waiver of Penalty. The DOL may decide to waive all or part of the penalty if the plan administrator shows compliance or mitigating circumstances.

Statement of Reasonable Cause. After receipt of the DOL notice, the plan administrator has 30 days to file a written statement of reasonable cause explaining why the penalty should be reduced or not assessed. If the plan administrator does not file a statement, it is considered a waiver of the right to appear and deemed an admission of the facts alleged in the notice.

Final Decision. If the plan administrator does not submit a statement of reasonable cause, the original DOL notice will become the final order. If the plan administrator submits a statement of reasonable cause, the DOL will issue a notice of determination on the statement of reasonable cause which becomes the final decision. If the plan administrator filed a statement of reasonable cause and is unsatisfied with the final decision, it can request a hearing.

Liability. The plan administrator is personally liable for payment of any penalty. Plan assets may not be used to pay the penalty. This is another reason to not name individuals as the plan administrator – or if individuals are named to make sure that adequate insurance or indemnification is in place for their protection.