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DOL penalty inflation adjustments

ERISA penalties adjusted for inflation

The Department of Labor’s (DOL) enforcement wing, the Employee Benefits Security Administration (EBSA), recently released inflation-adjusted penalty amounts for various ERISA welfare benefit plan violations. Federal regulations require the DOL to adjust penalties for inflation by Jan. 15 of each year, so these increases are routine and not a result of any action taken by either the outgoing Trump administration or the incoming Biden administration. Updated penalty amounts are effective for any civil penalties assessed after Jan. 15, 2021.

Some of the increased penalties of note include the following:

  • Failure to timely file annual report Form 5500 subjects a plan sponsor to a penalty of $2,259 per day, starting on the date of the failure.

Lockton comment: The EBSA offers an amnesty program for late filers that voluntarily submit tardy Forms 5500. Penalty amounts under the program are significantly reduced.

  • Failure to timely file annual report Form M-1 subjects a plan sponsor to a penalty of $1,644 per day (Form M-1 filing requirement applies exclusively to multiple employer welfare arrangements).

Lockton comment: There is no formal amnesty program for late M-1 filers, but the EBSA has been slow to penalize voluntary late filers.

  • Failure to timely provide a compliant Summary of Benefits and Coverage per the Affordable Care Act (ACA) requirements subjects a plan sponsor to a penalty of $1,190 per failure.

Lockton comment: This is a draconian penalty we’ve never seen enforced to its maximum extent. Nevertheless, it’s a reminder to make sure your SBCs are complete and available.

  • Failure to provide plan information to the DOL upon request, such as a Summary Plan Description or other required plan documents, subjects a plan sponsor to a penalty of $161 per day, with a maximum penalty of $1,613 per occurrence.
  • Failure to provide each employee with notice related to state-provided premium assistance (commonly referred to as a Medicaid/CHIP notice or CHIPRA notice) subjects a plan sponsor to a penalty of $120 per day per employee. A related requirement provides that employers must, upon request, provide disclosure of group health plan benefits to states for Medicaid- and CHIP- eligible individuals. The penalty for failure to provide that disclosure also increased to $120 per day per employee.

Lockton comment: We’ve seen little penalty enforcement in this context either. Typically, an EBSA auditor will simply direct the plan sponsor to provide the required notices, unless there is a well-worn pattern of ongoing noncompliance.

EBSA discloses its 2020 enforcement results

Despite the pandemic and the tumultuous year it caused, EBSA auditors were not idle. The EBSA posted impressive enforcement results for the federal fiscal year that ended Sept. 30, 2020. EBSA reported $2.6 billion in monetary recoveries for ERISA violations, despite closing its lowest gross number of plan investigations in the past decade.

Lockton comment: The report reflects a clear multiyear trend of enforcement efforts focused on benefit plans sponsored by large employers, as those efforts tend to result in higher dollar recoveries.