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Pension and Employee Benefits: Code, ERISA, & Regulations
This series provides an authoritative and comprehensive reference to the full text of benefits-related provisions of the Internal Revenue Code, the full text of ERISA, and related proposed and final regulations, as well as the official IRS and DOL preambles, and Committee Reports.
from Spencer’s Benefits Reports: The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued final regulations that establish procedures relating to the assessment of civil penalties of up to $1,100 a day under ERISA Sec. 502(c)(8) against the sponsor of a multiemployer plan for certain violations of ERISA Sec. 305. The final regulations appeared in the February 26 Federal Register, and are unchanged from the proposed regulations that were issued on Sept. 4, 2009. EBSA received only one comment on the proposed regulations.
Reg. Sec. 1560.502c-8 sets forth how the maximum penalty amounts are computed, identifies the circumstances under which a penalty may be assessed, prescribes certain procedural rules for service by the DOL and filing by a plan sponsor, and provides a plan sponsor a means to contest a DOL assessment by requesting an administrative hearing. The amount of the penalty assessed will be determined by the DOL, taking into consideration the degree or willfulness of the violation.
Background
The Pension Protection Act of 2006 (PPA) added ERISA Sec. 305 and IRC Sec. 432 to provide additional funding rules for multiemployer defined benefit plans in endangered status or critical status. A plan is considered to be in endangered status if it is less than 80% funded, while a plan is considered to be in critical status if it is less than 65% funded. ERISA Secs. 305(c)(1)(A) and 305(e)(1)(A) specify that in the first year that a plan is certified to be in endangered or critical status, the plan sponsor generally has a 240-day period in which to adopt a funding improvement plan (in the case of a plan that is in endangered status) or a rehabilitation plan (in the case of a plan that is in critical status).
As provided by ERISA Sec. 305(b)(3)(A), not later than the 90th day of each plan year, the actuary of a multiemployer defined benefit plan must certify to the Secretary of the Treasury and to the plan sponsor (1) whether or not the plan is in endangered status for such plan year and whether or not the plan is or will be in critical status for such plan year; and (2) in the case of a plan that is in a funding improvement or rehabilitation period, whether or not the plan is making the scheduled progress in meeting the requirements of its funding improvement or rehabilitation plan. Within 30 days after the date of the certification, the plan sponsor must provide notification of the endangered or critical status to participants, the bargaining parties, the Pension Benefit Guaranty Corporation, and the DOL.
The PPA also added ERISA Sec. 502(c)(8)(A), which authorizes the DOL to assess a civil penalty of up to $1,100 per day against the plan sponsor for each violation by such sponsor of the requirement to adopt a funding improvement plan or rehabilitation plan. ERISA Sec. 502(c)(8)(B) further authorizes the DOL to assess a civil penalty of up to $1,100 per day against the sponsor of a plan in endangered status that fails to meet the applicable benchmarks under ERISA Sec. 305 by the end of the funding improvement period. These provisions of the PPA were effective for plan years beginning on or after Jan. 1, 2008.
Provisions Of The Regulations
As provided by the final regulations, prior to assessing a penalty, the DOL will provide the plan sponsor with written notice of the agency’s intent to assess a penalty, the amount of the penalty, the period to which the penalty applies, and the reason(s) for the penalty. The DOL may decide not to assess a penalty, or to waive all or part of the penalty to be assessed, upon a showing by the plan sponsor of compliance with ERISA Sec. 305 or that there were mitigating circumstances for noncompliance. The plan sponsor has 30 days from the date the notice is served to file a statement making such a showing. The DOL then will notify the plan sponsor of its determination to waive the penalty, in whole or in part, or to assess a penalty.
If more than one person is responsible as plan sponsor for the failure to adopt a funding improvement or rehabilitation plan, or to meet the applicable benchmarks, all such persons will be jointly and severally liable for the failure. Thus, the entire joint board of trustees would be jointly and severally liable for any such failure.
As part of the final regulations, Reg. Secs. 2570.160 through 2570.171 establish procedures for hearings before an administrative law judge.
The final regulations are effective on March 29. For further information, contact Michael Del Conte at (202) 693-8500.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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