DATE: NOVEMBER 4, 1994
CASE NO.: 93-RIS-61
IN THE MATTER OF
UNITED STATES DEPARTMENT OF LABOR,
Pension and Welfare Benefits Administration,
Complainant,
v.
MICHAEL M. MAGUIRE,
Plan Administrator for the Michael M. Maguire Profit
Sharing Plan,
Respondent.
Appearances:
Michael M. Maguire, Esq.,
For the Respondent
Wayne R. Berry, Esq.
For the Solicitor
BEFORE: Richard K. Malamphy
Administrative Law Judge
DECISION AND ORDER
This case arises under 29 C.F.R. Parts 2520, 2560, and
2570, which implement sections 502 and 505 of the Employee
Retirement Income Security Act of 1974 (commonly known as ERISA;
hereinafter the "Act"), 29 U.S.C. §§ 1132 and 1135, and
the Secretary of Labor's Order 1-87, 52 Fed. Reg. 13, 139 (1987).
The Implementing regulations particularly in issue in this
proceeding are published at 29 C.F.R. Part 2520, the rules of
reporting and disclosure, and at 29 C.F.R. Part 2570, the
procedures for assessment of civil penalties.
[PAGE 2]
EVALUATION OF THE EVIDENCEOn March 23, 1992, the Pension and Welfare Benefits
Administration (PWBA), U.S. Department of Labor, issued a press
release, USDL 92-158, which stated in part:
LABOR DEPARTMENT TO ASSESS CIVIL PENALTIES FOR
FAILURE TO FILE TIMELY FORM 5500 REPORTS
The U.S. Department of Labor's Pension
and Welfare Benefits Administration today
announced a program for assessing civil
penalties against plan administrators for
failing to file timely annual reports. The
program starts with the 1988 reporting year
and includes all subsequent years.
PWBA is the agency charged with the
administration and enforcement of Title I of
the Employee Retirement Income Security Act
(ERISA). The act authorizes the department to
assess penalties of up to ,000 a day against
plan administrators who fail to file complete
and timely annual reports.
PWBA's reporting compliance program was
established to help assure that plan
administrators comply with ERISA's reporting
requirements by filing complete and accurate
reports on time. To date, PWBA has focused
its efforts on assessing penalties against
plan administrators who filed seriously
deficient annual reports. PWBA now intends to
identify and penalize those plan
administrators who file annual reports late or
not at all. ...
Under PWBA's expanded penalty assessment
program, the following penalties may be
assessed against welfare plan administrators.
-- Late filers -- plan
administrators who
voluntarily file annual
reports for 1988 and
[PAGE 3]
subsequent reporting years after the due date, with extensions,
will be considered late filers. They may be assessed $50 a day per
plan for the period they failed to file. ...
These same penalties for welfare plan
administrators also will apply to pension plan
administrators. Additional penalties may be
imposed by the IRS for failure to file timely
reports. Information concerning IRS penalties
can be found in the Form 5500 Series
instruction booklets available from the IRS.
PWBA will give both pension and welfare
plan administrators a one-time only
opportunity to file overdue annual reports
without incurring the full penalty.
Beginning March 23 and continuing until
September 30, (later extended to December 31,
1992) all plan administrators who voluntarily
file previously unfiled annual reports for
1988 and subsequent reporting periods will be
assessed $50 per day/per filing up to a
maximum of ,000. Plan administrators who
submit late filings after the grace period
will be subject to larger penalties (JX 1).[1]
On September 29, 1992, Mr. Maguire completed a Form 5500 - C/R
for the year 1990 and also submitted a letter to the PWBA. The
letter stated in part:
I have always tried to comply with all Federal
reporting requirements. In 1990, I set up a
retirement plan for my secretary and I have
just learned that I should have filed a Form
5500-C/R some time ago.
My C.P.A. has provided me with your press
release USDL 92-158, which is self
explanatory. I have talked to your agency
representatives, who have been very helpful.
The question is whether or not you may waive
the ,000 civil penalty in this case (JX 2).
On June 25, 1993, Mr. Maguire was informed by PWBA that a
penalty amount of $2,500 had been assessed as:
[PAGE 4]
Your recent submission under the Department's
"grace period" (described in the Federal
Register on April 20, July 24 and September
21, 1992) did not comply with the terms and
procedures of this program because you failed
to submit the appropriate penalty payment with
your filing. The grace period penalty amount
was $50 per day up to a maximum of ,000 per
filing for the period of time the filing was
late. Your filing, therefore, does not
qualify for the grace period reduced penalty
amounts. (JX 3)
In July 1993, Mr. Maguire responded that the plan was set up
in 1990, and that contributions to the plan in that year were
$888.00 and that the investment broker had not informed him of the
reporting requirement. He subsequently received notice from his
CPA.
The Respondent stated, in part:
I am told that one of the goals of the
Department of Labor is to provide for the
welfare of workers, including my secretary.
In this case, the Department's monitoring has
clearly worked to her benefit because her
investments have been and are protected. But
to now levy a penalty against the
Administrator will have an adverse affect(sic)
against the one person who clearly needs to be
protected.
As applied in this case, a $2,500.00
penalty would be nearly three times the amount
that was in the plan for the questioned year.
Any penalty that you may assess will have to
come from me personally. Since this law
office is a sole proprietorship, my net
earnings are identical to the amount of money
that is available in the upcoming year for
additional contributions to the plan. If the
penalty is now applied, the amount will
clearly reduce the funds available for future
retirement contributions.
This cannot be in the best interest of my
secretary, the person for whom your monitoring
[PAGE 5]
requirements are designed to protect. My request then is that you
not assess a penalty against me for my failure to file the
appropriate form in a timely manner. The failure was unintentional
and harmed no one. We are now in compliance and will remain in
compliance. Our error was discovered by us and corrected by us.
To levy an assessment at this time will have an immediate and
adverse affect(sic) on future contributions and will therefore
decrease benefits to plan members, including my secretary. (JX 4)
On August 27, 1993, the PWBA informed Mr. Maguire that the
penalty had been reduced to ,000.00. The letter stated, in part:
We received your statement of reasonable cause
dated July 22, 1993, in which you state your
explanation for not filing the 1990 annual
report when due.
The Department has reviewed the presentations
made in your statement and has determined on
the basis of your statement that there is
reasonable cause to waive part of the penalty
with respect to the 1990 annual report filing.
Accordingly, the Department hereby waives
,500 (60%) of the penalty with respect to
the 1990 annual report filing of the subject
plan.
This determination to waive ,500 of the
penalty does not preclude action by the
Department on any other issues under ERISA
surrounding your duties and obligations as the
Plan Administrator of the subject plan.
The Department has further determined that
there is no reasonable cause to waive ,000
(40%) of the penalty with respect to the 1990
annual report filing (JX 5).
The Claimant subsequently filed a timely appeal with the
Office of Administrative Law Judges.
A formal hearing was held in Newport News, Virginia, on
April 29, 1994, at which time all parties were afforded full
opportunity to present evidence and argument as provided in the Act
and the applicable regulations.
[PAGE 6]
At the hearing, Ronald D. Allen, testified that he was
employed as the Chief of the Division of Reporting Compliance in
the Office of the Chief Accountant in the Pension Welfare Benefits
Administration for the United States Department of Labor.
Mr. Allen stated that under Section 103 of ERISA, every
pension welfare benefit plan is generally required to file an
annual report every year. This -- it ranges from a two page filing
which is the 5500-R to a six page filing which would be the full-
blown form 5500, and those forms, depending upon the size of the
plan and type of form have attachments required thereto.
It was reported that the plan administrator was required to
sign the annual report. Reportedly, since 1987 Section 502(c)2 of
ERISA gave the Department of Labor the authority to assess a civil
penalty of up to ,000 for any violation of ERISA, be it deficient
form; late filing or non-filing.
On March 23, 1992, the PWBA began a grace period for non-
filers and for late filers of the annual reports. A plan
administrator was required to make an initial filing with the
Internal Revenue Service and file with the Department of Labor and
make a voluntary payment of ,000.00.
Mr. Allen testified that:
Mr. Maguire's filing was received during the
grace period. The fact that it did not meet
the requirements of the grace period, it was
not considered to be a grace period filing
because it was deficient in that it did not
include the voluntary ,000 penalty payment.
(TR 19)
As the penalty payment was not made during the grace period,
PWBA subsequently assessed a $2,500.00 penalty. Thereafter, Mr.
Maguire submitted a reasonable cause statement. Upon review, PWBA
abated 60% of the penalty but found it to be inappropriate to abate
the other 40%, or ,000.00. This penalty was assessed against Mr.
Maguire, the plan administrator.
Mr. Allen testified that ,000.00 penalties per year were
assessed against plans from 1988 onward where the annual report had
not been properly filed. When asked why only 60% of the penalty
assessment was abated, Mr. Allen stated:
The penalty was not abated entirely based on
[PAGE 7]
various factors, the case file cover to cover. The plan
administrator is a responsible -- has fiduciary responsibilities
both to the participants and responsibilities to the Department of
Labor and the IRS and in essence the PBGC (sic). It is the plan
administrator's responsibility to carry out ERISA to its fullest.
Not knowing your responsibility demonstrates neglect on the part of
the plan administrator, and I don't think the Department can turn
its back when a plan administrator neglects his or her
responsibility under ERISA and therefore can abate a penalty all
the way when there is clear cut evidence of neglect which the plan
administrator by his own admission agrees to. Those are part of
the reasons and part of the deliberative process. (TR 53)
The pertinent law and regulations pertaining to ERISA are
contained in Exhibit A of the Complainant's brief.
CONTENTIONSAs the Complainant has noted, it is undisputed that
Mr. Maguire, as the plan administrator, failed to timely file the
plan's 1990 Form 5500.
In the September 1992 letter (JX 2), the Respondent asked that
the following be considered in waiver of the ,000 penalty (as
originally cited).
- I set up this plan for my
secretary's retirement.
- She and I were unaware of the 5500
reporting requirements.
- The account books are open to her.
- The total of contributions and
income for 1990 was $888.
- Failing to report on time has not
harmed my secretary, for whom the
plan was designed.
- As soon as I discovered the error, I
immediately corrected it.
- Payment of the penalty will
substantially reduce this year's
[PAGE 8]
contribution.
- Although it makes sense for PWBA to
levy a penalty on plan
administrators to induce their
compliance with their rules, in this
particular case it will have
disastrous consequences.
In his brief, the Respondent stated, in part:
The Complainant assumes that penalizing the
administrator will induce him to comply with
reporting requirements. Presumably, if the
administrator complies with the reporting
requirements, the interest of the plan
beneficiaries will be protected. But is does
not necessarily follow that penalizing the
administrator will always protect the plan
beneficiaries. In fact, as applied to this
case, the Complainant's unexplained ,000
penalty will actually harm the beneficiary the
law was designed to protect. A penalty which
is greater than the assets reported on
obviously considers the level of punishment to
be inflicted on the administrator. The
Complainant totally ignores potential adverse
consequences to the beneficiary when a penalty
is placed on an administrator who is the sole
contributor to the plan.
The Complainant argues that there is statutory authority under
ERISA Section 502(c)(2) to assess a penalty of up to ,000.00 a
day against a plan administrator for failure or refusal to file an
annual report. The grace period announcement was made on March 23,
1992, and provided for a $50.00 a day penalty for the filing of
overdue reports.
The Complainant states that the Respondent has not produced
evidence to indicate that either his broker or his CPA had any
obligation to inform him of his duties and responsibilities as a
plan administrator. Moreover, the Complainant alleges that PWBA
was not arbitrary or capricious in the assessment of the penalty as
Mr. Allen indicated that everyone was treated the same. In
addition, the penalty is assessed against the plan administrator
rather than the plan, and the assets of the plan should have no
bearing on the size of the penalty.
[PAGE 9]
DISCUSSION AND CONCLUSIONS
It is clear that under the enacting legislation pertaining to
ERISA, the PWBA has the authority to assess civil penalties. Mr.
Allen testified that the reporting requirements were contained in
Section 103 of ERISA and at 29 C.F.R. §2520. The annual
report was to be submitted to the IRS and the Department of Labor.
The March 1992 grace period announcement granted amnesty to
late filers and non-filers who made proper filings and submitted a
check for a ,000 penalty prior to January 1993.
Mr. Maguire filed the report for 1990 in September 1992 but
did not furnish the ,000.00 "penalty assessment." The Respondent
had assumed all duties as plan administrator, and it is noted that
he did file the report as soon as he became aware of the reporting
requirements. However, as a plan administrator, it was his duty to
be aware of and to comply with the pertinent criteria.
There is no indication that the respondent was treated
disparately from others in the initial assessment of the ,000.00
penalty or in the later reduction of the larger penalty of
$2,500.00 to ,000.00
The Respondent does not dispute that "some" penalty should be
assessed for the violation, but he feels that the ,000.00 penalty
is excessive as the amount is more than the balance of the account
in 1990.
This Administrative Law Judges does concede that there is
merit to this argument by the Respondent. However, it is noted
that PWBA abated the total penalty assessed from $2,500.00 to
,000.00 The undersigned is aware that Mr. Maguire is the sole
contributor to the plan and that payment of a penalty by the plan
administrator may affect the net income of Mr. Maguire and,
therefore, impact his subsequent contributions to the plan.
However, the Respondent was negligent in his role as plan
administrator as he should have been aware of the reporting
requirements. The penalty of ,000.00 is assessed against the
plan administrator rather than against the assets of the plan.
The penalty assessment of ,000.00 is consistent with PWBA
policy and it is not shown to be discriminatory in this case.
Moreover, the amount of the penalty does not appear to be onerous.
Therefore, I do not find a good reason to order a reduction in the
[PAGE 10]
penalty assessed in this case by PWBA.
ORDER
It is hereby ordered that Respondent, Michael M. Maguire, as
plan administrator of the Michael M. Maguire Profit Sharing Plan,
shall pay the civil penalty, in the amount of ,000.00, as
assessed and directed in the Notice of Discrimination, issued by
PWBA, U.S. Department of Labor, on August 27, 1993.
___________________________________
RICHARD K. MALAMPHY
Administrative Law Judge
RKM/dlh
[PAGE 11]
Newport News, Virginia
[ENDNOTES]
[1] The following abbreviations will be used as citations to the
record:
JX - Joint Exhibits;
RX - Respondent's Exhibits; and
TR - Transcript of hearing.
