Potential Penalties for Non-Compliance with Various Employee Benefit Plan Legal Requirements

ERISA Plan Document and Summary Plan Description (SPD)

  • Plan sponsor may be charged $110 per day if it does not provide plan document, SPD, or Summary of Material Modifications (SMM) within 30 days of individual’s written request.
  • Failure to furnish plan-related information requested by the DOL carries a penalty of up to $161 per day, not to exceed $1,613 per request. Under ERISA, plan administrators must furnish to the DOL, upon request, any documents relating to the employee benefit plan.
  • Criminal penalties may be imposed on any individual or company that willfully violates any requirement of Title I of ERISA, which includes the SPD and plan document disclosure rules. The penalty per conviction could be $100,000 or imprisonment for up to 10 years. The fine can be increased up to $500,000 when it is imposed against an entity. 

5500 Filing and Summary Annual Report (SAR)

  • DOL may assess a civil penalty against a plan administrator of up to $2,400 per day starting from the date of the administrator’s failure or refusal to file the Form 5500. The penalty is also for incomplete or otherwise deficient Form 5500s.
  • This penalty amount is subject to annual increases for inflation. 
  • Penalties may be reduced under the DOL delinquent and late-filer programs.
  • A willful failure to distribute a SAR or failure to complete 5500 reporting is subject to criminal penalties, punishable by a fine of not more than $100,000 or imprisonment for not more than 10 years, or both. Fine can be increased up to $500,000 if assessed against an entity (and not the responsible individual).
  • A participant requesting a SAR, who does not receive the SAR within 30 days of that request, can be awarded up to $110 per day (until the SAR is provided).

Summary of Benefits and Coverage (SBC)

  • Maximum penalty is $1,264 per failure per day.
  • Penalty amount is annually adjusted for inflation.

Children's Health Insurance Program (CHIP) Notice

  • If a violation is discovered and is not corrected within 30 days of discovery, the employer is required to self-report the violation on IRS Form 8928 and a civil penalty of $127 per day per affected individual would be assessed.
  • Legal action may be brought by either a participant or the U.S. Department of Labor (DOL), and a court could assess an ERISA statutory penalty up to $120 a day.
  • This penalty is indexed for inflation annually.

Women's Health and Cancer Rights Act (WHCRA) Notice

  • Legal action may be brought by participant, and an ERISA $110 per day fine may be assessed. 

HIPAA Notice of Privacy Practices

Applies to all self-funded plans and fully-insured plans that are “hands-on” PHI. If a plan is fully insured and “hands-off” PHI, it is the responsibility of the insurer to provide this notice. 

  • CMS/HHS may impose a penalty of $100 per day per person (subject to certain minimums and maximums). 
  • Criminal penalties may also apply. 

HIPAA Notice of Special Enrollment Rights

  • CMS/HHS may impose a penalty of $100 per failure to comply.
  • If the violation is not corrected within 30 days of discovery, then the employer is required to self-report the violation to the IRS on Form 8928 and pay a civil penalty of $100 per day.

HIPAA Privacy and Security Rules

  • Penalties for a covered entity or business associate violating the Health Insurance Portability and Accountability Act’s (HIPAA) privacy and security rules will depend on the type of violation involved. Penalties are broken down into “tiers” that reflect increasing levels of knowledge about the violation. Each tier carries a minimum and maximum penalty with an annual cap.  The penalty amounts are adjusted annually to account for inflation.
  • No Knowledge. For violations where the covered entity does not know about the violation (and by exercising reasonable diligence, would not have known about the violation) the penalty amount is between $120 and $60,226 for each violation.  The calendar year penalty cap is $1,806,757 for all violations of an identical requirement.
  • Reasonable Cause. If the violation is due to reasonable cause, the penalty amount is between $1,205 and $60,226 for each violation.  The calendar year penalty cap is $1,806,757 for all violations of an identical requirement.
  • Willful Neglect (but corrected within 30 days).  For corrected violations that are caused by willful neglect, the penalty amount is between $12,045 and $60,226 for each violation.  The calendar year penalty cap is $1,806,757 for all violations of an identical requirement.
  • Willful Neglect (but not corrected within 30 days).  For violations caused by willful neglect that are not corrected, the penalty amount is between $60,226 and $1,806,757 per violation.  The calendar year penalty cap is $1,806,757 for all violations of an identical requirement.
  • In certain circumstances, criminal penalties may also apply, including a fine of up to $250,000 and imprisonment for up to 10 years.
  • Increased OCR enforcement of HIPAA violations and breaches has resulted in numerous penalty settlements ranging from approximately $100,000 up to multi-millions for failures to complete a risk assessment and/or failures to implement the appropriate safeguards, policies and procedures required under the privacy and security rules.

COBRA Notices

  • Legal action may be brought by participants or the DOL, and an ERISA fine of up to $110 per day per violation may be assessed. This penalty can be levied per each qualified beneficiary with no family maximum.
  • Qualified beneficiaries may sue to recover COBRA coverage. Such suits carry large potential damages for large claims which might not be covered by the plan’s insurance or stop-loss.

ACA Notices (e.g., Patient Protection Notice, Rescission of Coverage Notice)

  • 100 per day for each individual for whom the failure applies, if the failure is not corrected within 30 days of knowledge.

ACA Reporting for ALEs and Self-Funded Plans - 6055 and 6056 Reporting

  • $280 for each filing failure for filings made in 2021 (penalty indexed for inflation each year). Total penalty amount cap of $3,392,000 for 2021 filings.
  • Penalties are reduced if failures are corrected within certain time frames.

ACA Employer Mandate

Applicable Large Employer’s (ALEs) may face penalties if:

  1. Do not provide minimum essential coverage (MEC) to substantially all (95%) full-time employees.  Penalty for not offering coverage to substantially all full-time employees equals the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of the annual $2,700 penalty amount for 2021 for any applicable month.
  2. Do not offer coverage to full-time employees that is affordable or minimum value (MV).  Penalty amount for each full-time employee who was not offered affordable, MV coverage is 1/12 of the annual $4,060 penalty amount for 2021 for any applicable month that specific employee receives a subsidy through an Exchange.  This total penalty amount is limited to the penalty amount for not offering coverage to substantially all full-time employees. 

Potential penalties are triggered only if one or more full-time employee obtains a subsidy through an Exchange.

These penalties are indexed for inflation annually.

FMLA Violations

  • An employer may be liable for compensation and benefits lost by reason of the violation, for other actual monetary losses sustained as a direct result of the violation, and for appropriate equitable relief, including employment, reinstatement, promotion, or any other relief.
  • Willful failure to post FMLA general notice carries a penalty up to $178 for each separate offense (adjusted annually for inflation).

Section 125 Non-discrimination Testing

  • Highly compensated and/or key employees participating in a discriminatory cafeteria plan must include in gross income the value of the taxable benefit with the greatest value that the individual could have elected to receive, even if the individual elects to receive only the nontaxable benefits offered.
  • Annual Section 125 non-discrimination testing is required to be conducted by plan sponsors.

Section 105(h) Non-Discrimination Testing for Self-insured Plans (including HRAs and FSAs)

  • Highly compensated individuals participating in discriminatory self-insured plan will be taxed on excess reimbursements that otherwise would have been excluded from income under IRC 105(b).
  • Annual Section 105(h) non-discrimination testing is required to be conducted by plan sponsors.

Form M-1 Filings for Multiple Employer Welfare Arrangements (MEWAs)

  • $1,746 per day penalty for each failure.
  • This penalty is subject to annual inflation adjustments.
  • Unlike the Form 5500 reporting requirement, there is no prescribed delinquent filer program providing reduced penalties for Form M-1 filing failures.

GINA Violations

  • Violations of the Genetic Information Nondiscrimination Act (GINA), such as establishing eligibility rules based on genetic information or requesting genetic information for underwriting purposes may result in penalties of $127 per participant per day.
  • If a failure is not corrected before the plan receives a notice of violation, then the minimum penalty is $3,192.
  • Minimum penalty is increased to $19,157 if violations are “more than de minimis.”
  • These penalty amounts are subject to annual increases for inflation.

Medicare Secondary Payer (MSP) Violations

The MSP statute prohibits a group health plan from “taking into account” the Medicare entitlement of a current employee or a current employee’s spouse or family member and imposes penalties for violations. These penalties are adjusted annually to account for inflation. The amounts for violations are as follows:

  • Offering incentives to Medicare-eligible individuals not to enroll in a group plan that would otherwise be primary – $9,753.
  • Failure of responsible reporting entities (RRE) to provide information identifying situations where the group health plan is primary – $1,247 per day per individual for whom information should have been submitted.  The RRE in most cases is the insurer or the TPA.  An employer sponsoring a group health plan will be an RRE in the rare instance they have an HRA that is self-administered and has an annual benefit of $5000 or more.
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