Last week, the Department of Labor (DOL) released adjusted penalty amounts which are effective for penalties assessed on or after January 13, 2017, whose associated violations occurred after November 2, 2015. You might remember that these penalties were just adjusted effective August 1, 2016 (also for violations which occurred after November 2, 2015); however, the DOL is required by law to release adjusted penalties every year by January 15th, so you shouldn’t be surprised to see these amounts rise again next year.
All of the adjusted penalties are published in the Federal Register, but we’ve listed a few of the updated penalty amounts under the Employee Retirement Income Security Act of 1974 (ERISA) for you below:
- For a failure to file a 5500, the penalty will be $2,097 per day (up from $2,063).
- If you don’t provide documents and information requested by the DOL, the penalty will be $149 per day (up from $147), up to a maximum penalty of $1,496 per request (up from $1,472).
- A failure to provide reports to certain former participants or failure to maintain records to determine their benefits remained stable at $28 per employee.
Pension and Retirement
- A failure to provide a blackout notice will be subject to a $133 per day per participant penalty (up from $131).
- A failure to provide participants a notice of benefit restrictions under an underfunded pension plan under 436 of the tax code will cost $1,659 per day (up from $1,632).
- Failure of fiduciary to make a properly restricted distribution from a defined benefit plan will be $16,169 per distribution (up from $15,909).
- A failure of a multiemployer plan to provide plan documents and other information or to provide an estimate of withdrawal liability will be $1,659 per day (up from $1,632).
- A failure to provide notice of an automatic contribution arrangement required under Section 514(e)(3) of ERISA will also be $1,659 per day per participant (also up from $1,632).
Health and Welfare
- For a multiple employer welfare arrangement’s failure to file a M-1, the penalty will be $1,527 per day (up from $1,502).
- Employers who fail to give employees their required CHIP notices will be subject to a $112 per day per employee penalty (up from $110).
- Failing to give State Medicaid & CHIP agencies information on an employee’s health coverage will also cost $112 per day per participant/beneficiary (again, up from $110).
- Health plan violations of the Genetic Information Nondiscrimination Act will also go up to $112 per day per participant/beneficiary from $110. Additionally, the following minimums and maximums for GINA violations also go up:
- minimum penalty for de minimis failures not corrected prior to receiving a notice from DOL: $2,790 (formerly $2,745)
- minimum penalty for GINA failures that are not de minimis and are not corrected prior to receiving a notice from the DOL: $16,742 (up from $16,473)
- cap on unintentional GINA failures: $558,078 (up from $549,095)
- Failure to provide the Affordable Care Act’s Summary of Benefits and Coverage is now $1,105 per failure (up from $1,087).
The penalty amounts listed above are generally maximums, but there is no guarantee the DOL will negotiate reduced penalties. If you’re already wavering on some of your new year’s resolutions, we recommend you stick with making sure your plans remain compliant!
Only hours into the new administration, steps were taken to eliminate, or at the very least minimize the impact of, the Patient Protections and Affordable Care Act (“ACA”). In his first Executive Order, President Trump affirmed his intent to repeal the ACA and further sought to minimize the economic burden of the ACA. The order instructs the Secretary of Health and Human Services and the heads of all other executive departments and agencies to, “take all actions consistent with the law to minimize the unwarranted economic and regulatory burden of the act, and prepare to afford the states more flexibility and control to create a more free and open healthcare market.”
This is not a repeal of the ACA (the President cannot unilaterally do that). However, what it means is that the agencies responsible for overseeing ACA implementation (HHS, Treasury, and Labor) are tasked with finding ways to lessen the law’s impact. That can only be done through future rule making and other guidance. While we do not have a crystal ball, we expect to see several more sets of FAQs that will mitigate the impact of the law and potentially a suspension of the enforcement of such items as the employer play or pay mandate and the individual mandate. Whether any of that comes to fruition remains to be seen, but it seems reasonable to expect that the less popular aspects of the law will be the initial targets of future guidance.
What does this mean for employers faced with compliance obligations and potentially onerous noncompliance penalties? It’s too early to tell for certain and definitely too early to abandon compliance obligations. The secretaries of the three agencies have not been confirmed yet, and in fact, the Labor Secretary-designate Puzder is not scheduled to have his first confirmation hearing until February 2. The best course is still the one we advised in an earlier post: continue your compliance obligations – and keep your eye on twitter.
On January 18, 2017, the IRS issued proposed regulations allowing amounts held as forfeitures in a 401(k) plan to be used to fund qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs). This sounds really technical (and it is), but it’s also really helpful. Some plan sponsors of 401(k) plans use additional contributions QNECs and/or QMACs to satisfy nondiscrimination testing. Before these proposed rules, they could not use forfeitures to fund these contributions because the rules required that QNECs and QMACs be nonforfeitable when made (and also subject to the same distribution restrictions as 401(k) contributions). If you have money sitting in a forfeiture account, then by definition it was forfeitable when made, so that money couldn’t possibly have been used to fund a QNEC or QMAC.
The proposed regulations provide that amounts used to make these contributions must satisfy the vesting requirements and distribution requirements applicable to 401(k) contributions when they are allocated to participants’ accounts rather than when they are contributed to the plan. The regulations are only proposed, but the IRS has said taxpayers may rely on them. If the final regulations turn out to be more restrictive, then those restrictions will only apply after the regulations are finalized.
Going forward, plan sponsors wishing to apply amounts held in forfeiture accounts to fund QNECs and QMACs under the 401(k) plan should review their plan document provisions. The plan should at a minimum allow forfeitures to be used to make employer contributions and not prohibit their use to fund QNECs and QMACs. Plan sponsors may wish to amend the document to clarify that “employer contributions” will include allocations made as QNECs and QMACs.
It has been an eventful 10 days in the courts and in Congress for halting impending regulations and setting the stage to roll-back new rules implemented by the Obama Administration. Employers can expect a repeal of recently passed regulations is on the horizon in the area of benefits regulation.
ACA — 1557 Regulations: Discrimination Based on Gender Identity or Pregnancy Termination
A nationwide injunction prohibiting the Department of Health and Human Services (HHS) from enforcing nondiscrimination rules promulgated under ACA section 1557 as they relate to discrimination on the basis of gender identity or termination of pregnancy was imposed by a federal judge on December 31, 2016. (Franciscan Alliance, Inc. v. Burwell, N.D. Tex., No. 16-cv-108, 12/31/16) The plaintiffs argued that section 1557 regulations forced health care professionals and religious-based facilities to provide gender transition services against their medical judgment and religious beliefs.
Regulations under 1557 have been challenged in a number of suits across the country, the most recent being a case filed by a collection of Catholic organizations in North Dakota. (Catholic Benefits Ass’n v. Burwell, D.N.D., No. 3:16-cv-432, filed 12/28/2016) Plaintiffs are arguing that the rules improperly require religious health-care organizations and benefits providers to provide services and insurance coverage relating to certain procedures that are in violation of their religious beliefs.
Since the passage of these regulations, employer-sponsors of health plans have been scrambling to determine if the rules require that they cover gender reassignment, among other things. Generally speaking, most employer-sponsored health plans are not “covered entities” under Section 1557 because they do not receive direct subsidies from HHS.
The remaining antidiscrimination provisions of the 1557 regulations which prohibit discrimination on the basis of disability, race, color, age, national origin, or sex other than gender identity, were generally effective January 1, 2017.
The DOL Fiduciary Rule: Proposed 2-Year Delay for Effective Date (H. R. 355)
A bill was introduced by Rep. Joe Wilson (R-S.C.) on 1/6/2017 proposing a 2-year delay in the effective date of the DOL Fiduciary Rule. The Fiduciary Rule is scheduled to take effect April 10, 2017, with full compliance required by January 1, 2018.
Republicans have repeatedly challenged the DOL Fiduciary Rule, but presumably stand a better chance of success under President-elect Donald Trump.
En Bloc Reconsideration of Agency Regulations by Congress – Retroactive Consideration
Bills have been introduced in both the Senate (S.34) and the House (H.R 21) that would empower Congress to make a wholesale repeal at once of multiple regulations that were passed by the Obama Administration in the last half of 2016. The House passed the Midnight Rules Relief Act (H. R. 21) on 1/4/17, one day after it was introduced. The Senate bill was introduced 1/5/2017.
The measures amend the Congressional Review Act (“CRA”) to allow Congress to repeal multiple rules and regulations in one joint resolution. The CRA currently requires that regulations be considered individually.
Regulations promulgated in the last half of 2016 by the Department of Labor and the Department of Health and Human Services as well as other agencies could come under review under these bills.
New Requirements of the Process of Agency Adoption of Regulations
Two bills have been introduced in the House to add substantial Congressional review of regulations promulgated by governmental agencies, such as the National Labor Relations Board, The Equal Employment Opportunity Commission, and the Department of Labor. The “Executive in Need of Scrutiny Act” (H. R. 26) and the “Regulatory Accountability Act of 2017” (H.R. 5) substantially limit agencies by requiring multiple additional steps in the rulemaking process.
The “Executive in Need of Scrutiny Act” (H. R. 26) requires Congress to act before any major rules take effect. Under the bill, an agency promulgating rules would have to publish certain information in the Federal Register and include in its report to Congress and to the Government Accountability Offices 1) a classification of the rule as major or non-major, and 2) a copy of the cost-benefit analysis of the rule that includes an analysis of any jobs added or lost. The bill includes standards for determining if a rule is major or non-major and sets forth the congressional approval procedure for major rules and the congressional disapproval procedure for non-major rules.
The “Regulatory Accountability Act of 2017” (H.R. 5) likewise imposes a number of steps on the formulation of new regulations and guidance documents, clarifies the nature of judicial review of agency interpretations, and requires a rigorous analysis of potential impacts of proposed rules on small entities.
If statistics are any guide, by now a significant number of you have already broken your New Year’s resolutions. However, there’s still plenty of time to make new ones that you can break, er, keep. If you sponsor or work with an employee benefit plan (and odds are, if you’re reading this, that you do), then here are some ideas to keep in mind in the upcoming year:
- Fiduciary, Know Thyself. It important to know your fiduciaries (or know if you are one). Reviewing plan documents, charters, and delegations, among other possible documents, are key to determining who is an ERISA fiduciary. You should make sure that any individuals who have been designated are still willing and able to serve and, if not, they should be removed. While not as much of an issue for plan sponsors, advisors should also closely review the DOL’s conflict of interest/fiduciary rule to determine if it applies to them.
- Look Over Your Service Providers’ Shoulders. Even if you think you have outsourced one or more of your plan responsibilities, you’re still required, under ERISA, to monitor those providers to make sure they are doing their jobs properly. Additionally, if you have not done an RFP in a while for a particular service provider, it may be time to do one.
- Resolve to Improve Your Plan Governance. As we have detailed previously, the specter of litigation can be made considerably less scary by reviewing, and improving your plan governance.
- Wrap Yourself in the Protective Cloak of Procedurally Prudent Process. Not only is following a procedurally prudent process necessary to satisfy your fiduciary obligations, it is also your best protection from fiduciary breach claims. What does this mean? For each fiduciary decision you should: 1) inquire, 2) analyze, 3) consider alternatives, 4) seek help and advice as appropriate, and 5) document the process, actions and basis for the decision.
- And Add a Protective Layer of Fiduciary Insurance. After all, ERISA fiduciary liability is personal …and joint! Which means you could be liable for the sins of your fiduciary brothers and sisters.
- Calendar Reporting and Disclosure Requirements. From ACA reporting to sending out 401(k) statements and filing Forms 5500s, sponsoring an ERISA plan can involve a dizzying array of reporting and disclosure obligations. Take the time to sit down and review the obligations for each plan and calendar when they are due. This will prevent them from becoming deadlines that creep up on you unexpectedly. For assistance with retirement plans, consult the Retirement Plan Reporting and Disclosure Guides issued by the IRS and the DOL. Note also that your plan vendor may also publish a reporting calendar that will help you fulfill these obligations.
- Keep an Eye on Twitter (Yes, Really). Given the President-elect’s propensity to make economic news 140-characters at a time (no account required for that link to work), including tweeting about the ACA, it makes sense to keep an eye on what’s going on there. Of course, you could also follow us on Twitter for the latest benefit updates (whether or not Trump-related).
- Or at Least Keep an Eye on D.C. More generally, with Republicans controlling both houses of Congress and the White House, it’s possible that this year and next year could result in some significant changes in the employee benefits landscape. The Republicans are already working to repeal the ACA and are talking about tax reform, both of which will have substantial impacts on employee benefit plans. While both topics have been discussed frequently in recent years, only now do [to] the Republicans really have the ability to implement them. So stay tuned.
- Keep the Other Eye on the Courts, Particularly on Fee Litigation. Plaintiff’s lawyers continue to expand not only the plans which they are targeting for challenge, but also the type of fees being challenged. Plans sponsored by educational institutions were targets in 2016.
- And if you have one eye left, keep it on government enforcement action. We will report shortly on the 2017 enforcement priorities, but one area that is always at the top of the list is timely contribution to the plan of employee deferrals and loan repayments. Remember, the DOL requires that such amounts be paid into the plan “as soon as reasonably practicable”. The 15th day of the following month is a NOT a safe harbor.
Rise of Minimum Wage as of January 1st 2017:
As of January 1st 2017 the statutory Minimum Wage in Germany rises from € 8.50 to € 8.84 gross per hour. It is the first increase, since the Minimum Wage Act (Mindestlohngesetz – MiLoG) has put into effect a statutory minimum wage for Germany in 2015. This statutory minimum wage applies – with some exceptions – to all employees working on German territory. Most interim arrangements that allowed for lower wages for certain groups of workers expired on 31st of December 2016. As the Minimum Wage Act only states a base amount to be paid for any employee in Germany, binding collective bargaining agreements (Allgemeinverbindliche Tarifverträge) stipulate higher hourly wages in many work areas.
Clients employing blue collar workers in Germany with low salaries as well as clients who have marginal employed employees (geringfügig Beschäftigte) are advised to check whether they comply with the new Minimum Wage.
New contribution assessment ceilings for statutory Social Security as of January 1st 2017:
In Germany, most social benefits such as health insurance, long-term care insurance, pension insurance as well as unemployment insurance are statutory and compulsory for the absolute majority of employees. These programs are generally financed by employers and employees jointly. The contributions employers and employees have to pay are determined by percentage rates applying to the gross salary of the employee. The contribution assessment ceilings (the maximum amount of monthly income to which the contribution rates apply) are subject to periodic changes. As of January 1st 2017, the monthly contribution assessment ceilings and percentage rates are as follows:
|Program||Contribution Limit/Month||Employer Portion||Employee Portion|
14.6% shared equally + additional contribution by employee (1.1% in average depending on individual insurance company)
|€ 4,350.00 (West & East)||Up to € 317.55||Up to € 317.55 + additional contribution|
|Long-term care insurance:
2.55% shared equally (except Saxony, where employees cover 1.775% and employers cover 0.775%)
|€ 4,350.00 (West & East)||Up to € 55.46||Up to € 55.46 + 0.25% if employee is older than 23 and has no children|
18.7% shared equally
|€ 6,350.00 (West)
€ 5,700.00 (East)
|Up to € 593.73 (West)
up to € 532.95 (East)
|Up to € 593.73 (West)
up to € 532.95 (East)
3% shared equally
|€ 6,350.00 (West)
€ 5,700.00 (East)
|Up to € 95.25 (West)
up to € 85.50 (East)
|Up to € 95.25 (West)
up to € 85.50 (East)