New DOL Penalties for Failing to Provide Documents
Everyone who sponsors a plan should be aware of ERISA Section 104(b)(4) that obligates plan administrators (usually the plan sponsor) to provide certain information to plan participants upon written request. Section 502 of ERISA generally provides that there are civil penalties including a possible penalty of up to $100 for every day information is not provided. On December 31, 2008, the DOL gave some final regulations dealing with some specific civil penalties for failing to provide certain retirement plan documentation and notices.
Under Section 101(j) of ERISA, a plan administrator of a single employer defined benefit pension plan is required to give notice to participants about funding-based limitations on benefits and accruals if the plan falls below prescribed funding levels. Section 101(k) makes the same application to multi-employer plans and their participants, and Section 101(l) extends that to employers contributing to the plan as well. The Pension Protection Act also provided guidance about these required notices.
Now for the penalties: The DOL will assess penalties based on the "degree of willfulness of the failure or refusal to furnish" these notices and apply maximum penalties of $1,000 per day per violation. There does not appear to be a specific cap applied, so if a plan fails to distribute a required notice to 100 participants for 100 days, the potential penalty could be $10,000,000. That's a pretty hefty penalty. Adding to the danger is that plan assets may not be used to fund the penalty. It is assessed against the plan administrator directly. So if the company is both a plan sponsor and administrator, the company alone would be responsible for paying the penalty.
There is a requirement that the DOL send the notice of the penalties and also an appeal process for reasonable cause, but it is best to never get in that situation. So plan sponsors and administrators should double check with their services providers right now to find out what notices they are required to send and make sure they have been properly sent.
