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Penalties Increased for Employee Benefit Plan Violations

Employee Benefits Advisory
August 23, 2016

Employee Benefits Package documents with Summary of Benefits highlightedRecently-enacted legislation has increased many penalty amounts for certain employee benefit plan violations. The new penalties – some of which are more than double previous amounts – were adjusted to catch up with inflation and provide a more effective deterrent. The amount of adjustment varies, depending on the length of time since the last adjustment. For some penalties, this has been more than 20 years, and for others, more than 30 years. Annual adjustments for inflation will be made in the future. Here are some highlights:

Form 5500 Reports

  • The maximum penalty for failure to file increased from $1,000 to $2,063 per day late.

401(k) Plans

  • The penalty for failure to provide blackout notices or notices of diversification rights increased from $100 to $131 per day per recipient.
  • The penalty for failure to provide automatic contribution notices increased from $1,000 to $1,632 per day per recipient.
  • The penalty for failure to maintain records or furnish benefit statements to certain former participants and beneficiaries increased from $11 to $28 per employee.

Pension Plans

  • The penalty for failure to provide notice of restriction on certain forms of distribution for some underfunded plans increased from $1,000 to $1,632 per day per recipient.
  • The penalty for failure of a fiduciary to make a proper distribution from a defined benefit plan (during a period in which the plan has a liquidity shortfall) increased from $10,000 to $15,909.

Health Plans

  • The penalty for failure to inform employees of CHIP coverage opportunities or timely provide a state with information regarding related coverage coordination increased from $100 to $110 per day per employee, participant or beneficiary.
  • The penalty for failure to meet the Genetic Information Nondiscrimination Act (GINA) requirements increased from $100 to $110 per day per participant and beneficiary.
  • The penalty for failure to provide a summary of benefits and coverage or a notice of changes in coverage increased from $1,000 to $1,087 per failure.

The adjustments apply to penalties assessed by the Department of Labor after August 1, 2016 for violations that occurred after November 2, 2015. More information on the penalty adjustments, including adjustments for MSHA, OSHA, WHD, and OWCP violations, may be found on the 2016 Inflation Penalty Chart, available at dol.gov.

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