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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.


EBSA reg provides penalties for failure to notify participants of stock diversification rights under PPA

The Employee Benefits Security Administration (EBSA) has released a final regulation providing penalties against plan administrators who do not inform participants and beneficiaries of their right to divest employer securities in their accounts and reinvest those amounts in certain diversified investments. This requirement does not, however, apply to certain employee stock ownership plans (ESOPs). The notice requirement was mandated under the Pension Protection Act of 2006 (PPA; 109280), which amended both the Code and ERISA. In Notice 2006-107, the IRS provided transitional guidance concerning the notice requirement and a model notice for plans to use to comply.

30 days advance notice required

Section 507(a) of the PPA amended ERISA 101 by adding subsection (m) which requires a plan administrator to provide applicable individuals with a notice of diversification rights under ERISA 204(j). Plan administrators must provide this notice not later than 30 days before the first date on which the individuals are eligible to exercise their rights. The notice must set forth the diversification rights provided under Code Sec. 401(a)(35) (and parallel ERISA 204(j)) and describe the importance of diversifying the investment of retirement account assets.

ERISA 101 is effective for plan years beginning after December 31, 2006. Section 507(b) of the PPA amended ERISA 502(c)(7) to provide that the Secretary of Labor may assess a civil penalty of up to $100 a day from the date of the plan administrator’s failure or refusal to provide notice to an applicable individual in accordance with ERISA 101(m).

Penalties are an extension of DOL existing authority

The final regulation makes conforming changes to ERISA Reg. 2560.502c-7, reflecting changes required by ERISA 502(c)(7), as amended by the PPA. The conforming amendments do not change the existing penalty assessment procedures or the related procedures for contesting penalty assessments. Rather, the changes merely extend the Secretary’s existing procedures for assessing civil penalties for violations of ERISA 101, relating to blackout notices, to include violations of the notice requirements in ERISA 101 (m), relating to diversification rights. These conforming changes primarily add references to ERISA 101 (m) next to existing references to section 101(i) throughout the regulation.

Effective date

The amendments made by this regulation are effective October 9, 2007, without further action or notice, unless significant adverse comment is received by September 10, 2007. If significant adverse comment is received, EBSA will publish a timely withdrawal and reissue the regulation as a proposed regulation with another comment period.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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