Issuing required notices and filing reports—within the mandated timeframes—are among the ongoing duties of plan sponsors. Tardiness and other oversights are damaging, with consequences ranging from lawsuits on behalf of participants, to regulatory audits, investigations and penalties. Like everything else, the cost of penalties is on the rise.
Why The Fuss?
Even when reports and notices are outsourced to third party service providers, accurate and timely submission must be regularly monitored and documented by plan fiduciaries. Notification of participants is taken seriously by the Department of Labor: failure leaves participants without information, which can impact their decision-making, and ultimately their savings. Additionally, when basic plan requirements, like filing reports, are not met, questions about what else may not be getting proper attention logically bubble up for auditors and investigators to explore.
Penalties On The Rise
In addition to mandated corrective action and other consequences tied to retirement plan oversights, government penalties are increasingly costly. In fact, as The National Law Review reports, there is a law ensuring that penalties rise with inflation: “The Federal Civil Penalties Inflation Adjustment Act of 2015 directs the US Department of Labor (DOL) to make annual inflation adjustments to specified Employee Retirement Income Security Act (ERISA) violations. The increased penalties generally apply to reporting and disclosure failures if the penalty is assessed after January 15, 2022, and if the violation occurred after November 2, 2015.” Examples of penalties and the associated fees include:
Failure to furnish reports (e.g., pension benefit statements) to certain former participants and beneficiaries or maintain records, carries a penalty of $33 per affected participant and beneficiary.
Failure or refusal to properly file the annual report (Form 5500) required by ERISA §104 also carries a penalty of $33 per affected participant and beneficiary.
Failure to notify participants under ERISA §10(j) of certain benefit restrictions and/or limitations arising under Internal Revenue Code §436, has a penalty of up to $2,400 per day.
Failure to furnish estimate of withdrawal liability upon request under ERISA §101(l) has a penalty of up to $1899—per participant, per day,
Failure to furnish automatic contribution arrangement notice under ERISA §514(e)(3) also has a penalty of up to $1899—per participant, per day.
The diligence required of plan sponsors is inherently challenging. Why go it alone? Colonial Surety offers affordable Fiduciary Liability Insurance at locked in rates. Annual premiums cost less then one hour of ERISA legal advice. We even include Basic Cyber Liability Insurance for added protection. Armed with Colonial’s Fiduciary-Cyber Pack, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be covered for defense costs and penalty limits up to $1,000,000. Plus, in the event of a cyber breach, your business—and plan—will receive support at every stage of incident investigation and breach response, as well as coverage against lawsuits or regulatory actions related to the breach. At Colonial, we make it so efficient and reasonable for plan sponsors to secure insurance, that you can do it in minutes, now:
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ERISA Compliance Fundamentals
Given the importance of properly managed retired accounts, there are many eyes monitoring compliance. The Department of Labor (DOL) makes and receives investigative referrals from the IRS, the U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority, and the Office of the Comptroller of the Currency (OCC). It also has its own subagency, the Employee Benefits Security Administration (EBSA), which serves as the primary enforcer of ERISA’s fiduciary rules.
Adhering to fundamentals of ERISA is essential. For example, experts caution that insufficient or expired ERISA bonds are a trigger for Department of Labor audits.
Failure to have current and adequate ERISA Bond coverage at all times is among the most common compliance issues plaguing retirement plan sponsors. As Morgan, Lewis & Bockius explain: The DOL routinely seeks evidence of a fidelity bond covering a plan’s fiduciaries and (to the extent applicable) service providers that complies with ERISA Section 412. The bond requirement is designed to protect the plan from theft of assets. In the absence of a compliant bond, the DOL likely will require that the company (or applicable fiduciaries or service providers) acquire one before closing the investigation.
Uniquely, Colonial Surety includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered and provides cost-saving multi-year coverage, ensuring the ERISA bond remains Department of Labor compliant for the life of its term. Our three point coverage package offers plan sponsors the greatest value, protection and efficiency. Conveniently, Colonial provides: the required ERISA bond to protect the assets of the retirement plan from theft; Fiduciary Liability coverage to protect you and your assets from personal liability; and, Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.
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Serving customers since 1930, Colonial Surety is the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time.
Colonial Surety Company is rated “A Excellent” by A.M. Best Company, US Treasury listed and in business all across the country.