Civil penalty rates for Employee Retirement Income Security Act violations will be much stiffer very soon. Starting Aug. 1, the penalty rates are set to climb — some dramatically — thanks to a 2015 law requiring that penalty amounts keep pace with inflation. The new higher ERISA penalties can be imposed on violations dating back to Nov. 2, 2015, the date enactment of amendments to the Inflation Adjustment Act.
The maximum penalty for one of the most serious infractions — failure to file the annual 5500 form — is rising to $2,063 per day from $1,100, an 88% jump. In contrast, the maximum fine for failing to provide a Summary of Benefits and Coverage (SBC) statement is going up about 9%, to $1,087 per violation.
The base periods for determining the inflation adjustment “are all over the map,” notes Kim Buckey, VP of Compliance Communication for Direct Path, the healthcare compliance and employee engagement firm. The purpose of the 2015 amendments to the 1990 Inflation Adjustment Act was to create a uniform system for updating civil penalties.
Beginning next year, agencies will announce new inflation-adjusted maximum penalties annually, by Jan. 15, based on the inflation rate for the 12-month period ending in October of the prior year.
Given low inflation rates in recent years, future penalty increases are not likely to jump as much as those “catch-up” increases taking effect now.
An enforcement signal?
Buckey notes that regulatory agencies typically don’t proactively seek out violations of most of the rules that can trigger penalties. Instead, most violations are uncovered either because an employee files a complaint or are discovered in the course of an audit. That said, the fact that inflation adjustments are now being made “might be a signal that they will be paying more attention in the future,” Buckey says.
Also, the government is under pressure to replace as much lost tax revenue as possible that was intended to help finance the Affordable Care Act, such as through Congress’ deferral (and perhaps ultimate repeal) of the effective date of the Cadillac tax.
In any case, penalty increases provide an opportunity for employers “to review all their disclosure materials and processes just to make sure they’re in compliance,” Buckey says.
Some employers are still struggling to get caught up with their SBCs, even though they have been required since 2012. (The original 2012 SBC regulations have been updated and the new ones take effect for plans beginning in 2017.)
Most penalties are capped, instead of fixed. Whether the federal agency involved, such as the Department of Labor’s Employee Benefits Security Administration, will impose the maximum penalty for each violation category depends upon such factors as whether the violation has been repeated, intentional, the and number of employees affected, according to Buckey.
So many routine employee notices are required under ERISA that many employers catalog them in one document and distribute that annually. Sometimes one or more required notice might be neglected, however.
“Informing employees about the CHIP opportunity” is a common oversight, says Buckey, referring to lower income employees’ possible eligibility for extra health benefits available to their children via Medicaid. The new maximum penalty for that violation is $110 per employee per day.
Here’s a summary of several additional ERISA violation penalty changes with a listing the new top penalty amounts:
· Under ERISA § 209(b), failure to furnish reports, such as pension benefit statements, to certain former participants and beneficiaries or maintain records, $28 per employee;
· Under ERISA § 502(c)(7), failure to furnish a blackout notice under ERISA §101(i) or notice of the right to divest employer securities under § 101(m), $131;
· Under ERISA § 502(c)(9)(B), failure to “timely provide” to any state the information required to be disclosed under ERISA § 701(f)(3)(B)(i)(I) regarding coverage coordination, $110/day;
· Under ERISA § 502(c)(10)(C)(i), failure to meet genetic information requirements which are de minimis and not corrected prior to notice from Secretary of Labor, $2,745;
· Same as above but when requirements are not de minimis, $16,463; and
· Under ERISA § 502(m), distribution prohibited by ERISA § 206(e), $15,909.
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