August 26, 2016

New penalty guidelines for ERISA compliance violations will give Plan Sponsors plenty to consider this fall, and the October 15th deadline is quickly approaching.  Violations occurring after November 2, 2015 which are assessed after August 1, 2016 may be subject to a penalty increase which will be capped at 150% of the November 2, 2015 level.  Plan Sponsors with qualifying plans should also take note that filings submitted without an audit will likely be rejected, and therefore subject to the penalty increase.

Under the old guidelines, Plan Sponsors would have faced a maximum fine of $1,100 per day if they failed to file an annual  report (Form 5500).  Under the new guidelines (which took effect on August 1, 2016), the maximum penalty for failing to submit an annual report will jump to a staggering $2,063 per day.

The automation of filings in EFAST adds an additional consideration for qualifying Plan Sponsors, who may have enjoyed a 30-45 day grace period to remedy an incomplete filing before being notified of their omission by the Department of Labor.  It will no longer be tolerable to file an annual report by the October 15th deadline without submitting the audit report with the filing.  For this reason, Plan Sponsors who require an audit are strongly encouraged to have their audit completed in a timely manner and submitted with their 5500 Form.  Once a filing is rejected, the risk for incurring the maximum penalty increases.

Although the DOL might not impose the maximum allowable penalty, the size of the increase should motivate Plan Sponsors and Administrators to pay closer attention to compliance deadlines and be proactive in completing their annual audit.  This will not only keep Plan Sponsors compliant, it will reduce costs and help provide them with an audit experience that is efficient, more affordable and minimally disruptive to their business.

For additional information on the new guidelines for ERISA Compliance Violations, please click here for a copy of the Federal Register.

To determine if your 401(k) benefit plan is subject to an audit or for a consultation regarding your current 401(k) plan, contact JoAnn today.

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