On December 19, 2007, the Department of Labor proposed procedures for assessing new civil penalties that were enacted as part of the Pension Protection Act of 2006 (PPA). The proposed procedures are available by clicking here, and the news release announcing the procedures is available by clicking here . The record for submitting comments on these proposed regulations will remain open until February 19, 2008.
The PPA also amended ERISA § 502(c)(4) to permit the Secretary of Labor to assess a penalty of up to $1,000 a day for each violation of five separate notice or disclosure requirements. Specifically, the Department is authorized to assess penalties on:
- the plan administrator of a single-employer defined benefit pension plan for failing to notify participants and beneficiaries of benefit and accrual restrictions required to be sent by underfunded DB plans, pursuant to new ERISA section 101(j);
- each of the plan administrators of a multi-employer defined benefit plan for failing to furnish actuarial, financial, or funding information upon request, as required by new ERISA section 101(k);
- the plan sponsor or administrator of a multi-employer defined benefit plan for failing to send notice to notify contributing employers of potential withdrawal liability, as required by new ERISA section 101(k);
- the plan administrator of a defined benefit plan for failing to notify participants, beneficiaries, labor unions representing those individuals (if any), and contributing employers (if more than one) of the plan's election to defer required charges against the plan's standard funding account, as permitted under ERISA section 302(b)(7)(F); and
- the plan administrator of a defined contribution plan that includes an automatic contribution arrangement for failing to provide affected participants with notice of the arrangement's features, as required under new ERISA section 514(e)(3).
The proposed procedure is nearly identical to current procedures the Department uses for assessing a penalty under section 502(c)(2) of ERISA for failure to file an annual Form 5500. Although there is no guarantee that the Department will follow the same informal practice it uses in the § 502(c)(2) context, because the formal procedures are so similar, there is an expectation that past practice can provide a roadmap to how the Department will handle penalty assessments under § 502(c)(4).
After sending a Notice of Intent to assess a penalty ("NOI"), the plan administrator will have 30 days to demonstrate to the Department that it has complied with the notice or disclosure provision at issue. When assessing penalties for failure to file Form 5500s, the Department typically will waive the entire amount of the penalty if the failure is corrected within the 30-day time frame beginning with the issuance of the NOI.
If the violation cannot be corrected within 30 days, the proposed procedures would permit the plan administrator or sponsor to submit a Statement of Reasonable Cause explaining the mitigating circumstances for its failure to comply with the notice or disclosure provision in question. In the context of assessing § 502(c)(2) penalties for failing to file Form 5500, the Department typically has required a demonstration that compliance was impracticable or impossible, not merely inconvenient. For instance, the Department has agreed in the past to reduce or completely waive penalty amounts when the plan sponsor missed a Form 5500 filing deadline because it was dealing with a natural disaster, or catastrophic financial issues, such as bankruptcy. In addition, the death of a key individual involved in the Form 5500 filing (e.g. the plan accountant) has been held to be a "mitigating circumstance" for failing to file a Form 5500.
After reviewing the Statement of Reasonable Cause, the Department will then issue a Notice of Determination ("NOD") explaining its reasons for either continuing to insist on a penalty payment, or deciding to waive or reduce the penalty amount. In the Form 55000 penalty context, unless the plan has come into compliance with its filing obligations before the Department issues the NOD, the full $1,000 per day penalty will be assessed. If the plan administrator comes into compliance with the filing requirements before the NOD, the amount of the full penalty will typically be reduced by as much as 95 percent.
After the Department issues the NOD, the plan administrator will then have an opportunity to request an adjudicative proceeding before an Administrative Law Judge, who after a hearing will render a final decision. The decision of the ALJ can be appealed to federal district court.