[Federal Register Volume 62, Number 75 (Friday, April 18, 1997)]
[Proposed Rules]
[Pages 19078-19082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10078]
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DEPARTMENT OF LABOR
29 CFR Part 2570
RIN 1210-0056
Proposed Rule Relating to Adjustment of Civil Monetary Penalties
AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains a proposed rule that would adjust the
civil monetary penalties under Title I of the Employee Retirement
Income Security Act of 1974, as amended (ERISA), pursuant to the
requirements of the Federal Civil Penalties Inflation Adjustment Act of
1990 (the 1990 Act), Public Law 101-410, 104 Stat. 890, as amended by
the Debt Collection Improvement Act of 1996 (the Act), Public Law 104-
134, 110 Stat. 1321-373. The Act amended the 1990 Act to require
generally the adjustment of civil monetary penalties for inflation no
later than 180 days after enactment of the Act, and at least once every
four years thereafter, in accordance with guidelines specified in the
1990 Act, as amended.
[[Page 19079]]
DATES: Written comments concerning the proposed rule must be received
by May 19, 1997.
ADDRESSES: Interested persons are invited to submit written comments
concerning the proposed rule to: Pension and Welfare Benefits
Administration, Room N-5669, U.S. Department of Labor, 200 Construction
Ave., NW., Washington, DC 20210. Attention: Proposed CMP Adjustment
Rule. Written comments may also be sent by the Internet to the
following address: cmpad@jpwba.dol.gov.
FOR FURTHER INFORMATION CONTACT:
Rudy Nuissl, Office of Regulations and Interpretations, Pension and
Welfare Benefits Administration, (202) 219-7461. This is not a toll-
free number.
SUPPLEMENTARY INFORMATION: Section 3720E of the Act amended section 4
of the 1990 Act to require, with certain exceptions, that, by a
regulation published in the Federal Register, each civil monetary
penalty (CMP) be adjusted in accordance with guidelines specified in
the amendment. The Act specifies that any such increase in a CMP shall
apply only to violations which occur after the date the increase takes
effect.
The term ``civil monetary penalty'' is defined in the 1990 Act to
mean any penalty, fine or other sanction that--
A. (i) Is for a specific monetary amount as provided by federal
law; and
(ii) Has a maximum amount provided for by federal law; and
B. Is assessed or enforced by an agency pursuant to federal law;
and
C. Is assessed or enforced pursuant to an administrative proceeding
or a civil action in the federal courts.
Only CMPs that are specified by statute or regulation in dollar
amounts are adjusted under the 1990 Act, as amended. CMPs that are
specified as percentages are not adjusted. The statutory citations for
each of the CMPs under Title I of ERISA that would be adjusted by the
proposed rule contained in this Notice are set forth in columns (A) and
(B) of Table A. Column (C) briefly describes the nature of the
violations associated with these citations. Column (D) of Table A
indicates the dollar amount of each CMP to be adjusted, and Column (E)
sets forth the year that each penalty was established by law or last
adjusted. Columns (F), (G), and (H), (I), and (J) contain the
intermediate results of applying the series of steps mandated by the
1990 Act, as amended. Reference should be made to Column (K) of Table A
to determine the dollar amounts of the final penalty adjustments that
would be effected by the proposed rule contained in this Notice
pursuant to the requirements of the 1990 Act, as amended.
Table A.--Inflation Adjustment of Civil Monetary Penalties Under Title I of ERISA
Year CLA Penalty Unrounded Uncapped
penalty factor= after raw penalty Rounded maximum Caped penalty=
U.S. Code citation ERISA Title I Nature of Penalty amount last set 456.7/ adjustment= increase= penalty penalty= min(col J, 1.1
section violation to be adjusted or CPI col D x col G-col increase col D x col D)
adjusted below 456.7/col F D +col I
(A) (B)............... (C).............. (D) (E) (F) (G) (H) (I) (J) (K)
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29 USC............ 209(b)............ Failure to $10 per 1974 146.9 $31.09 $21.09 $20 $30 $11 per
1059(b)........... furnish or employee employee.
maintain records.
29 USC............ 502(c)(1)(A)...... Failure to notify Up to $100 1986 327.9 139.28 39.28 40 140 Up to $110
1132(c)(1)(A)..... plan a day a day.
participants of
group health
benefits under
COBRA.
Failure to notify Up to $100 1990 389.1 117.37 17.37 20 120 Up to $110
participants and a day a day.
beneficiaries
re: asset
transfer.
29 USC............ 502(c)(1)(B)...... Refusal to Up to $100 1974 146.9 310.89 210.89 210 310 Up to $110
1132(c)(1)(B)..... provide required a day a day.
info in timely
manner.
29 USC............ 502(c)(2)......... Failure or Up to $1,000 1987 340.1 1,342.84 342.84 300 1,300 Up to $1,100
1132(c)(2)........ refusal to file a day a day.
an annual report.
29 USC............ 502(c)(3)......... Failure to notify Up to $100 1989 371.7 122.87 22.87 20 120 Up to $110
1132(c)(3)........ participants and a day a day.
beneficiaries
re: failure to
meet minimum
funding
requirements.
Failure to notify Up to $100 1990 389.1 117.37 17.37 20 120 Up to $110
certain persons a day a day.
re: transfer of
excess pension
assets to health
account.
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Specifically, the 1990 Act, as amended, provides that the required
inflation adjustment shall be determined by increasing the maximum CMP
amount or the range of maximum and minimum CMP amounts, as applicable,
for each CMP by a cost-of-living adjustment (CLA). The term ``cost-of-
living adjustment'' is defined in the Act as the percentage for each
CMP by which the Consumer Price Index (CPI) for the month of June of
the calendar year preceding the adjustment exceeds the CPI for the
month of June of the calendar year in which the amount of such CMP was
last set or adjusted by law. The term ``Consumer Price Index'' is
defined in the 1990 Act, as amended, to mean the Consumer Price Index
for All-Urban Consumers published by the U.S. Department of Labor.
Accordingly, to calculate the CLA it is necessary to divide the CPI
for June of the calendar year preceding the adjustment by the CPI for
June of the calendar year in which the CMP was last set by law or
adjusted for inflation. (See Column (F) of Table A). In order to
calculate the raw inflation adjustment, it is necessary to multiply the
original penalty amount by the relevant CLA. (See Column (G) of Table
A). The subtraction of the original CMP amount from this product yields
the unrounded penalty increase (See Column (H) of Table A).
Section 5 of the 1990 Act, as amended, sets out the manner in which
inflation adjustments must be rounded. Specifically, any increase in
the maximum CMP or the range of maximum and minimum CMPs, as
applicable, must be rounded to the nearest:
[[Page 19080]]
(1) Multiple of $10.00 in the case of penalties less than or equal
to $100;
(2) Multiple of $100.00 in the case of penalties greater than $100
but less than or equal to $1000;
(3) Multiple of $1000 in the case of penalties greater than $1000
but less than or equal to $10,000;
(4) Multiple of $10,000 in the case of penalties greater than
$100,000 but less than or equal to $200,000; or
(5) Multiple of $25,000 in the case of penalties greater than
$200,000.
Once the penalty increase has been rounded in accordance with the
procedures set forth in the 1990 Act, as amended (see Column (I) of
Table A), the rounded increase must be added to the original penalty
amount to determine the uncapped maximum penalty. (See Column (J) of
Table A). The first adjustment of a CMP pursuant to the amendments
effected by the Act, however, may not exceed 10% of the penalty being
adjusted. The final adjusted penalty amounts listed in Column (K) of
Table A reflect the application of this statutory cap.
Upon application of the CLA rules described above, the following
CMPs under Title I of ERISA need to be adjusted.\1\ (See Columns (A),
(B), and (C) of Table A):
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\1\ The civil penalty set forth in ERISA section 502(c)(4) for a
failure to provide the information specified in ERISA section
101(f), relating to Medicare and Medicaid coverage data bank
requirements, is not being implemented or enforced. See H.R. Conf.
Rep. No. 103-733, 103rd Cong. 2nd Sess., at 22 (1994).
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(1) The per capita CMP of $10.00 set by ERISA section 209(b) (29
U.S.C. 1059(b)) for a failure to furnish the employee benefit plan
information or to maintain the plan records specified in ERISA section
209(a);
(2) The CMP of up to $100.00 a day (as determined in the discretion
of a court) set by section 502(c)(1)(A) (29 U.S.C. 1132(c)(1)(A) for a
failure or refusal by a plan administrator to meet the requirements of
ERISA section 101(e)(1) (concerning notice with regard to a transfer of
excess pension assets) or ERISA section 606(4) (concerning notice with
regard to the occurrence of qualifying events), or to comply with a
request for information which such administrator is required by Title I
of ERISA to furnish to a participant or beneficiary;
(3) The CMP of up to $100.00 a day (as determined in the discretion
of a court) set by ERISA section 502(c)(1)(B) for a failure or refusal
to comply with a request for information which a plan administrator is
required by Title I of ERISA to furnish to a participant or
beneficiary;
(4) The CMP of up to $1,000.00 a day set by ERISA section 502(c)(2)
for the failure on the part of a plan administrator to file the annual
report required to be filed under ERISA section 101(b)(4);
(5) The CMP of up to $100.00 a day (as determined in the discretion
of a court) set by ERISA section 502(c)(3) for the failure on the part
of an employer to meet the requirements of ERISA section 101(d)
(concerning provision of notice to participants and beneficiaries for
failure to meet the minimum funding requirements) or ERISA section
101(e)(2) (concerning provision of notice regarding transfers of excess
pension assets).
In view of the foregoing, the proposed rule contained in this
document would amend Part 2570 (``Procedural Regulations Under the
Employee Retirement Income Security Act'') of Title 29 of the Code of
Federal Regulations (CFR) by adding a new ``Subpart E--Adjustment of
Civil Penalties Under ERISA Title I.'' New Subpart E contains five new
regulations effecting the adjustment for inflation of the civil
monetary penalties discussed above.
Executive Order 12866
The Department has determined that this regulatory action is not a
``significant rule'' within the meaning of Executive Order 12866
concerning federal regulations, because it is not likely to result in:
(1) an annual effect on the economy of $100 million or more, or an
adverse and material effect on a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local or tribal governments or communities; (2) the creation of a
serious inconsistency or interference with an action taken or planned
by another agency; (3) a material alteration in the budgetary impacts
of entitlement, grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) the raising of novel legal or
policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in Executive Order 12866.
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires each
Federal agency to perform an initial regulatory flexibility analysis
for all proposed rules unless the head of the agency certifies that the
rule will not, if promulgated, have a significant economic impact on a
substantial number of small entities. Small entities include small
businesses, organizations, and governmental jurisdictions. Because this
proposed regulation does no more than mechanically increase certain
statutory CMPs to account for inflation, pursuant to specific
directions set forth in the 1990 Act, as amended by the Act, the
proposed regulation has no impact, independent of the specific
statutory requirements, on small entities. The statute specifies the
procedure for calculating the adjusted CMP and does not allow the
Department to vary the calculation to minimize the effect on small
entities. As a result, the undersigned hereby certifies that the rule,
if promulgated as proposed, will not have a significant effect on a
substantial number of small entities.
Nevertheless, the Department provides the following information
concerning the potential effect of the increased penalties on small
entities. No small governmental jurisdictions will be affected by this
regulation because governmental plans are not covered by Title I of
ERISA. Each CMP is discussed in more detail as follows:
ERISA section 209(b)
The CMP provided in ERISA section 209(b), 29 U.S.C. 1059(b) is
payable to the Secretary. It applies to employers who maintain ERISA
covered pension plans (except those described at ERISA sections 201(2)-
(7), 29 U.S.C. 1051(2)-(7)) and who fail to furnish information or
maintain records described in section 209(a) unless such failure is due
to reasonable cause. Of the approximately 506,000 employers who file
reports indicating that they maintain ERISA-covered pension plans,
465,000 employers file report forms indicating that the plans they
maintain have less than 100 participants. The data available to the
Department does not indicate the number of employers who fail to comply
with the requirements of ERISA section 209(a). The Department has to
date chosen to pursue voluntary compliance to achieve correction of
deficiencies with regard to those requirements, rather than assessing
penalties under section 209(b).
ERISA section 502(c)(1)
The CMP provided in ERISA section 502(c)(1) applies to three
different situations. Section 502(c)(1)(A), 29 U.S.C. 1132(c)(1)(A),
refers to administrators of group health plans sponsored by employers
with 20 or more employees if the administrator fails to provide notices
to participants and beneficiaries required under ERISA section 606(1)
and (4), 29 U.S.C. 1166(1) and (4). Because most group health plans are
not required to file annual reports, the data available to the
[[Page 19081]]
Department does not indicate the number of group health plans covered
by the requirements of sections 606(1) and (4). Nor does the data
available to the Department indicate the number of administrators that
are small entities and the number of such administrators who fail to
comply with the requirements of sections 606(1) and (4).
Section 502(c)(1)(A) also refers to administrators of defined
benefit pension plans who violate ERISA section 101(e)(1) by failing to
provide a notice to plan participants and beneficiaries at least 60
days in advance of a qualified transfer of excess plan assets to a
health benefits account. Although the Department is unable to estimate
the number of administrators that administer such plans or the number
which are small entities, the Department estimates that approximately
63,000 employers file annual reports indicating that they maintain
defined benefit plans. The Department is unable to estimate the number
of employers who maintain such plans but fail to file annual reports.
The notices to which the CMP applies concern only those administrators
of such plans who fail to meet the notice requirements of ERISA section
101(e)(1).
Section 502(c)(1)(B), 29 U.S.C. 1132(c)(1)(B), refers to
administrators of employee benefit plans covered by ERISA who fail to
comply with a request (within 30 days) for information which the
administrator is required, under Title I of ERISA, to provide to a
participant or beneficiary, unless the failure results from matters
beyond the control of the administrator.
The CMP amount provided under ERISA Section 502(c)(1) is a maximum
penalty amount. It is assessed by the courts in private lawsuits. The
courts are free to, and often do, impose less than the maximum amount
based on factors such as the degree of prejudice to the affected
participant caused by the administrator's violation. Research of court
opinions indicates that Federal courts imposed, or indicated some
likelihood of imposing, a CMP under Sec. 502(c)(1) in approximately 100
cases since 1978. None of such cases concerned a failure to comply with
ERISA section 101(e)(1). The available data with respect to these cases
does not indicate how many involved imposition of a CMP on a small
entity.
ERISA Sec. 502(c)(2)
The CMP provided in ERISA section 502(c)(2), 29 U.S.C. 1132(c)(2),
applies to administrators of employee benefit plans covered by ERISA
who fail to file annual reports with the Secretary as required under
ERISA section 101(b)(4), 29 U.S.C. 1021(b)(4), unless exempted under
the Department's regulations. Annual reports are filed by approximately
970,000 employee benefit plans. Over the past six years, the Department
has collected CMPs totalling $56,390,000 under this section from 31,030
plan administrators. Approximately $16,000,000 of such CMPs were
collected from 1,600 administrators of small plans (plans having less
than 100 participants.
The CMP provided in ERISA section 502(c)(2) is a maximum penalty of
$1000 per day. Under the Department's current practice, the Department
has not assessed a penalty of more than $300 per day and does not
intend to change this practice as a result of promulgating this
proposed regulation. In addition, all but approximately $5 million in
CMPs collected thus far have been collected under either the temporary
grace period program which ended in 1992 or under the Department's
Delinquent Filer Voluntary Compliance Program established in 1995 (60
FR 20874, Apr. 27, 1995). Under the DFVC program, the Department
assesses much lower CMPs on administrators who voluntarily correct
their noncompliance before the Department notifies them of such
noncompliance. The same was true during the temporary grace period.
502(c)(3)
The CMP provided in ERISA section 502(c)(3) applies to employers
maintaining a defined benefit plan (other than a multiemployer plan)
who failed to comply with the notice requirements of ERISA sections
101(d) or (e)(2), 29 U.S.C. 1021(d) or (e)(2). The Department estimates
that approximately 63,000 employers file annual reports indicating that
they maintain such plans. The Department is unable to estimate the
number of employers who maintain such plans but fail to file annual
reports. The notices to which the CMP applies concern only those
covered plans that fail to meet the minimum funding standard under
ERISA section 302, 29 U.S.C. 1082, and those that fail to meet the
notice requirements of ERISA section 101(e)(2) in connection with a
qualified transfer of excess plan benefits to a health benefits
account. The data available to the Department does not indicate the
number of employers or the number of small entities that fail to meet
the notice requirements of sections 101(d) or (e)(2). To date, however,
the Department has not sought to hold an employer liable for the CMP
provided under section 502(c)(3). In certain instances, this CMP may
also be applied by a court in a private lawsuit. Research of court
opinions revealed no cases where an employer was held liable for a CMP
under this section.
Paperwork Reduction Act
This proposed rule contains no information collection requirements
which are subject to review and approval by the Office of Management
and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C.
3500 et seq.).
Unfunded Mandates Reform Act
For purposes of Title II of the Unfunded Mandates Reform Act of
1995, 5 U.S.C. 1531-1538, as well as Executive Order 12875, this
proposed rule does not contain any federal mandate that may result in
increased expenditures in either Federal, State, local, and tribal
governments in the aggregate, or impose an annual burden exceeding $100
million on the private sector.
Effective Date
Pursuant to the requirements of the Administrative Procedure Act at
5 U.S.C. 553(b), the Department is publishing this notice of proposed
rulemaking for notice and comment and will promulgate this rule in
final form subsequent to such comment period. The Department expects to
issue a final rule 30 days following the close of the comment period.
The final rule will be effective upon publication in the Federal
Register and will apply only to violations occurring after the date of
publication of the final rule in the Federal Register.
Congressional Review
The Department has determined that this proposed rule is not a
``major rule'' as that term in defined in 5 U.S.C. 804, because it is
not likely to result in (1) an annual effect on the economy of $100
million or more; (2) a major increase in costs or prices for consumers,
individual industries, federal, State or local government agencies, or
geographic regions; or (3) significant adverse effects on competition,
employment, investment, productivity, innovation, or on the ability of
the United States-based enterprises to compete with foreign-based
enterprises in domestic and export markets.
Statutory Authority
This proposed regulation would be adopted pursuant to authority
contained in section 4 of the Federal Civil Penalties Adjustment Act of
1990, Public Law 101-410, 104 Stat. 890, 28 U.S.C. 2461 note, as
amended by the Debt Collection Improvement Act of
[[Page 19082]]
1996, Public Law 104-134, Title III, section 31001(s)(1), 110 Stat.
1321-373, and contained in sections 209(b), 502(c)(1) and 505 of ERISA,
29 U.S.C. 1059(b), 1132(c)(1) and 1135.
List of Subjects in CFR Part 2570
Administrative practice and procedure, Employee benefit plans,
Employee Retirement Income Security Act, Pensions, Pension and Welfare
Benefits Administration.
Proposed rule
In view of the foregoing, Part 2570 of Chapter XXV of Title 29 of
the Code of Federal Regulations is proposed to be amended as follows:
PART 2570--PROCEDURAL REGULATIONS UNDER THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT
1. The authority citation for Part 2570 is revised to read as set
forth below:
Authority: (5 U.S.C. 8477(c)(3);) 29 U.S.C. 1108, 1135;
Reorganization Plan No. 4 of 1978; Secretary of Labor Order No. 1-
87.
Subpart A is also issued under 29 U.S.C. 1132(c)(1).
Subpart E is also issued under sec. 4, Pub. L. 101-410, 104
Stat. 890, (28 U.S.C. 2461 note), as amended by sec. 31001(s)(1),
Pub. L. 104-134, 110 Stat. 1321-373.
2. Part 2570 is amended by adding a new Subpart E in the
appropriate place to read as follows:
PART 2570--PROCEDURAL REGULATIONS UNDER THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT
* * * * *
Subpart E--Adjustment of Civil Penalties Under ERISA Title I
Sec. 2570.100 In general.
Sec. 2570.209b-1 Adjusted civil penalty under section 209(b).
Sec. 2570.502c-1 Adjusted civil penalty under section 502(c)(1).
Sec. 2570.502c-2 Adjusted civil penalty under section 502(c)(2).
Sec. 2570.502c-3 Adjusted civil penalty under section 502(c)(3).
* * * * *
Subpart E--Adjustment of Civil Penalties Under ERISA Title I
Sec. 2570.100 In general.
Section 3720E of the Debt Collection Improvement Act of 1996 (the
Act, Pub. L. 104-134) amended the Federal Civil Penalties Inflation
Adjustment Act of 1990 (the 1990 Act, Pub. L. 101-410) to require
generally that the head of each federal agency adjust the civil
monetary penalties subject to its jurisdiction for inflation within 180
days after enactment of the Act and at least once every four years
thereafter.
Sec. 2570.209b-1 Adjusted civil penalty under section 209(b).
In accordance with the requirements of the 1990 Act, as amended,
the amount of the civil monetary penalty established by section 209(b)
of the Employee Retirement Income Security Act of 1974, as amended
(ERISA), is hereby increased from $10 for each employee to $11 for each
employee. This adjusted penalty applies only to violations occurring
after [insert date of publication of the final rule in the Federal
Register].
Sec. 2570.502c-1 Adjusted civil penalty under section 501(c)(1).
In accordance with the requirements of the 1990 Act, as amended,
the maximum amount of the civil monetary penalty established by section
502(c)(1) of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), is hereby increased from $100 a day to $110 a day.
This adjusted penalty applies only to violations occurring after
[insert day of publication of the final rule in the Federal Register].
Sec. 2570.502c-2 Adjusted civil penalty under section 502(c)(2).
In accordance with the requirements of the 1990 Act, as amended,
the maximum amount of the civil monetary penalty established by section
502(c)(2) of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), is hereby increased from $1000 a day to $1100 a day.
This adjusted penalty applies only to violations occurring after
[insert date of publication of the final rule in the Federal Register].
Sec. 2570.502c-3 Adjusted civil penalty under section 502(c)(3).
In accordance with the requirements of the 1990 Act, as amended,
the maximum amount of the civil monetary penalty established by section
502(c)(3) of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), is hereby increased from $100 a day to $110 a day.
This adjusted penalty applies only to violations occurring after
[insert date of publication of the final rule in the Federal Register].
Signed at Washington, DC this 11th day of April, 1997.
Olena Berg,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S.
Department of Labor.
[FR Doc. 97-10078 Filed 4-17-97; 8:45 am]
BILLING CODE 4510-29-M
