Higher Benefit Plan Penalties Loom, Putting Employers on Guard

Take steps now to avoid higher penalties after Aug. 1

Stephen Miller, CEBS By Stephen Miller, CEBS July 29, 2016
Higher Benefit Plan Penalties Loom, Putting Employers on Guard

A hodge-podge of benefit plan penalties, many of which haven't been updated in years, are being adjusted upward to account for inflation. Benefit plan managers should take steps to make sure they're compliant with all plan administrative and employee-notice requirements or risk higher penalty assessments.

On July 1, the U.S. Department of Labor (DOL) published an interim final rule with a list of increased penalty amounts for violations of the Employee Retirement Income Security Act (ERISA), the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), and other employee benefit and pay statutes.

Such a comprehensive list of penalty adjustments "is a harbinger that the agencies are going to have a renewed focus on enforcement," said Kim Buckey, vice president of compliance communications at Birmingham, Ala.-based DirectPath, an employee engagement and health care compliance firm. "Employers should take this as a signal to investigate their processes and notices to make sure they're in compliance."

Penalty assessments are typically triggered after an employee files a complaint or the agencies uncover failures during the course of routine audits or other investigations. "It's always better for an employer to find these things out on their own and take steps to fix it, rather than getting caught unaware," Buckey said.

The new penalties will be assessed by the DOL, the Internal Revenue Service (IRS), the Equal Employment Opportunity Commission (EEOC) and other agencies beginning Aug. 1, for violations that occurred after Nov. 2, 2015. Going forward, these penalties will be subject to annual inflation adjustments linked to the consumer price index, to be announced no later than Jan. 15 each year.

"Some of these penalties were last adjusted in 1997, and some were adjusted in 2003. So the increases reflect the period of time over which they haven't changed," Buckey noted.

Employee Notices

With regard to employee notices, plan sponsors are likely to be familiar with requirements for summary plan descriptions (SPDs) and health plan summaries of benefits and coverage (SBCs). But "employers are less aware of their responsibilities with regard to distributing annual notices informing employees of available State Children's Health Insurance Plan (CHIP) coverage opportunities," Buckey said.

The penalty for failure to inform employees of Medicaid/CHIP coverage is increasing from $100 to $110 per employee per day, which can add up quickly.

"One of the advantages of having this long list of penalties is that it can serve as a checklist for employers to make sure they're meeting all their requirements," said Buckey.

One way to avoid overlooking notices that might be less top of mind is to produce and distribute an annual legal notices brochure, "where employers can capture all of the required notices on an annual basis and make sure that they all get sent out, usually with open enrollment materials," she advised.


Now is an excellent time to conduct self-reviews or "self-audits" of plan compliance practices, Buckey said. "Sit down with your administrators, legal advisors and consultants and make sure that you have all the documentation that you need to have, and check that all required administrative processes are being followed."

The penalty for a late Form 5500 filing is only $10 per employee per day if the employer uncovers it and files a correction under the DOL's delinquent filer program, she noted, "and the upper limit of the cap is around $2,000. But if the agencies catch you, the maximum penalty will now be $2,063 per day—up from the current maximum of $1,100 per day—and there's no cap. That's quite a difference."

Also, "If you get caught in the course of fixing an error, you can show you uncovered it and were making a good-faith effort to correct the issue," which will likely result in a lower assessment.

Penalties are often expressed in ranges, and "the agencies look at certain factors when applying a penalty"as do courts in situations where an agency files suit on behalf of employeesBuckey noted. These factors include:

  • How egregious the conduct was.
  • Whether the employer has a history of past violations.
  • Whether the violation was intentional or accidental.

"If in the course of your self-audit you uncover a pattern of errors, analyze why this pattern occurred, who were the people involved and whether it was caused by a policy that was misinterpreted," she advised.

Self-audits are also "an opportunity to take a look at the strength of your communications as well as your processes," Buckey said. For instance, "You don't want to just send out a CHIP coverage opportunity notice; you want to have some explanation as to what that means and how it interacts with whatever the company is offering as coverage. You don't want to raise more questions than you answer when you send out these kinds of notices."

EEOC Raises Poster Violation Fines

In another penalty-increase development, effective July 5, 2016, a new Equal Employment Opportunity Commission (EEOC) rule more than doubles the maximum fine against employers for not complying with the posting requirements under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act.

Employers will now face a maximum penalty of $525 per violation, up from $210. The penalty last changed in 2014, when the EEOC increased it from $110 to $220.

Under the law, employers with 15 or more employees are required to post a notice describing their rights under federal laws prohibiting job discrimination based on race, color, sex, national origin, religion, age, equal pay, disability or genetic information. Equal Employment Opportunity posters are required to be placed in a conspicuous location in the workplace where notices to applicants and employees are customarily posted.

“Employers frequently get themselves in trouble for perfunctorily putting these posters where they cannot be readily seen by employees, or not posting them at all,” said Mark Fijman, an attorney with Phelps Dunbar LLP in Jackson, Miss. “When an EEOC investigator stops by, often the first thing they inquire about is the EEO poster, and being out of compliance is not an auspicious way to begin an EEOC investigation.”

Related SHRM Article:

Give Your Retirement Plan an Annual Checkup, SHRM Online Benefits, March 2012

DOL Issues New FMLA Poster, Publishes Employers’ Guide, SHRM Online Benefits, April 2016



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