DATE: March 20, 1995
CASE NO.: 94-RIS-00017
In the Matter of:
UNITED STATES DEPARTMENT OF
LABOR, PENSION AND WELFARE
BENEFITS ADMINISTRATION,
Complainant
v.
CINPAC, INC./LIBBY LEE TOYS, INC.,
Respondent
Before: Richard E. Huddleston
Administrative Law Judge
DECISION AND ORDER
This proceeding arises under § 502(c)(2), 29 U.S.C. § 1132(c)(2), of
§ 16(e) of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended, 29 U.S.C. §§ 1001, et seq., for final determination on the
record of the issues raised by Respondent s timely exception to the notice of civil money
penalty assessed by the United States Department of Labor, Pension and Benefits Welfare
Administration ("PWBA"), through its Office of Chief Accountant and its Division of
Reporting Compliance ("DRC"). Said penalty, in the amount of $5,000, was assessed on
Respondent, as administrator of the Cinpac Inc./Libby Lee Toys, Inc., 401(k) Plan ("Plan") for
reporting deficiencies in connection with the 1989 annual report required under ERISA to be
filed for the Plan by the plan administrator.
STATEMENT OF THE CASE
On April 3, 1992, Complainant, PWBA, issued a Notice of Rejection of the Cinpac
Inc./Libby Lee Toys, Inc., 401(k) 1989 Annual Report (Exhibit A). PWBA rejected the report
upon review because the 1989 report did not contain the report of an independent qualified
certified public accountant ("IQPA"), as required under 29 C.F.R. § 2520.101-1(b).
Respondent was notified that under ERISA §§ 104(a)(5) and 502(c), an annual
report rejected for failure to provide material information such as the IQPA report, would be
treated as a failure to file an annual report unless a satisfactory revised report is filed within
45 days of the date of the Notice of Rejection.
[PAGE 2]
An amended Form 5500 was filed on May 21, 1992 (Exhibit B). On July 15, 1992,
PWBA issued a Notice of Intent to Assess a Penalty in the Amount of $50,000, for
Respondent's failure to file a timely adequate Form 5500 (Exhibit C). The Notice of Intent
stated that the Form 5500 filed on May 21, 1992, was rejected because the IQPA submitted in
the amended filing contained the following deficiencies:
1. The Statement of Net Assets Available for Plan Benefits was not presented in
comparative format, in violation of 29 C.F.R. § 2520.103(b)(2)(I);
2. The notes to the Plan's financial statements were not adequate, in violation of
§ 2520.103-1(b)(3); and,
3. The IQPA Report did not extend to a Schedule of Assets held for investment in
violation of § 2520.103-10 and § 2520.103-1(b)(5)(iii)(A).
The Notice of Intent also informed Respondent that it had 30 days from the date of the Notice
to file a written statement of reasonable cause for failure to file a complete annual report, or
why the penalty, as calculated, should not be assessed.
On August 12, 1992, Respondent submitted a statement of reasonable cause and an
amended Form 5500, arguing that the $50,000 penalty should be completely abated
(Exhibit D). Respondent argued in part that a penalty was inappropriate because it had
responded to all requests for information in a timely manner, in good faith, and after having
engaged professional assistance.
On October 29, 1993, PWBA issued a Notice of Determination on Statement of
Reasonable Cause, reducing the original penalty amount of $50,000 by 90% to $5,000
(Exhibit E). PWBA determined that there was no reasonable cause to waive the 10% penalty
of $5,000, because the plan administrator's response to the initial notice of rejection was not
timely; and, the plan administrator had not presented reasonable cause for his failure to attach
an acceptable IQPA to the original filing, or for his failure to correct in a timely manner.
On November 30, 1993, the Respondent requested a hearing before the Office of
Administrative Law Judges (Exhibit F). The case was assigned to the undersigned
Administrative Law Judge, and upon agreement of the parties, a hearing was scheduled for
August 30, 1994, in Cincinnati, Ohio. On August 10, 1994, the Complainant requested and
was granted a continuance, and the hearing was rescheduled to January 25, 1995. On
January 5, 1995, the Complainant filed a Motion for a Summary Decision on the record,
arguing that there are no material facts in dispute. On January 19, 1995, the Respondent
issued a Response to the Motion for Summary Decision. On January 23, 1995, the parties
agreed that a formal hearing and oral argument would not be required, and that a decision on
the Motion for Summary Decision and resolution of the matter could be made on the record,
and that the record should be held open for further response. A response from the
Complainant was filed on February 3, 1995. The Respondent filed a further response on
February 8, 1995. On March 3, 1995, I issued an Order Closing the Record for a Decision on
the Record.
Motion for Summary Decision:[PAGE 3]
Summary Decision may be granted where it is shown that the non-moving party
cannot prove an essential element of his claim, so that there is no genuine issue of material
fact to be determined at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); 29
C.F.R. § 18.41; Fed. R. Civ. P. 56(c). A genuine issue of material fact is present where
the record, taken as a whole, could lead a rational trier-of-fact to find for the non-moving
party. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
582 (1986); see also, Anderson v. Liberty Lobby Inc., 477 U.S. 242 (1986).
The moving party has the burden of production to prove that the non-moving party
cannot make a showing sufficient to establish an essential element of his case, and on which
he will bear the burden of proof at trial. Celotex, 477 U.S. at 322-23. Once the
moving party has met its burden of production, the non-moving party must show by evidence
beyond the pleadings, themselves, that there is a genuine issue of material fact. Id. at
324; Fed. R. Civ. P. 56(e).
Here, the moving party is the Complainant, PWBA. The Respondent, in its
January 19, 1995, response, stated that "although there are no material facts in dispute, the
Complainant has misapplied the law to the undisputed facts." The alleged "misapplication" of
the law concerns § 104(a)(5) of ERISA, which states that additional information in
response to the Notice of Intent must be "submitted within 45 days after the Secretary makes
his determination . . . ." 20 C.F.R. § 2560.502-2(b)(3) provides that the revised filing
must be submitted "within 45 days of the date of the notice of rejection by the Department [of
Labor]."
The Respondent was also notified of the 45-day time limit in the April 3, 1992, letter of
rejection, which it received on April 7, 1992. Respondent sent in the requested additional
information by letter of May 21, 1992; 48 days after the date of the April
3, 1992, Notice, but only 44 days after its April 7, 1992, receipt of the
Notice. Complainant contends the Respondent's submission was not timely, based on the date
of the Notice. Respondent contends its submission was timely, based on the receipt of the
Notice.
The case concerns a civil penalty imposed upon the Respondent by Complainant,
PWBA, for a reporting violation under ERISA. One of the two reasons cited by the
Complainant in denying the Respondent's request for abatement of that penalty was that the
Respondent's submission of additional evidence was not timely. Complainant's own response
indicates that whether or not the Respondent submitted the requested information in a timely
manner is material as a factor to the severity of any penalty imposed, or the abatement of that
penalty. I find that the issue of timeliness is material to this case and deny the Complainant's
Motion for Summary Decision.
Discussion
In it's Motion for Summary Judgment and February 3, 1995, Response, the
Complainant contends in part that the $5,000 penalty should not be abated because the
Respondent's Response to the initial April 3, 1992, Notice of Penalty was not timely filed.
Complainant also maintains that the penalty should not be abated because the Respondent has
never offered reasonable cause why the original filing of the 1989 annual report did not
contain an IQPA, or for its failure to correct in a timely manner.
[PAGE 4]
Timeliness:
The regulations clearly provide that failure to provide material information will be
treated as failure to provide an annual report "when a revised report satisfactory to the
Department is not submitted within 45 days of the date of the Department's Notice of
Rejection." 20 C.F.R. § 2560.502-2(b)(3) (emphasis added). The April 3,
1992, Notice of Rejection also clearly states "failure to provide the requested material
information shall be treated as a failure to file an annual report unless a revised report
satisfactory to the Department is filed within 45 days of the date of this Notice of
Rejection" (Exhibit A) (emphasis added). In addition, if the Respondent was
uncertain about the time limit or any other aspect of the Notice of Rejection, it should have
contacted the Department of Labor. The Department invited such contact on the Notice of
Rejection, and provided the appropriate phone number and contact person (Exhibit A).
Respondent argues in his response brief of January 19, 1995, that the 45-day time limit
should be calculated from the date of receipt, otherwise the Department could send out notices
that are never received and assess fines even where the respondents would have no notice of
any rejection (Respondent's 1/19/95 Response at 2-3). This argument fails because the Notice
was sent by certified mail, which insures that the Department of Labor has some
documentation of the receipt of such notices. Moreover, as the Complainant correctly points
out in his motion, respondents also often receive notice of deficiency in filing of their annual
reports from the IRS, before any action by the Department of Labor (Motion for Summary
Decision at 9, n. 7).
For the foregoing reasons, I find that the Respondent s filing of the requested material
information was not timely, and instead, was outside the 45-day time limit by three days.
Reasonable Cause:
Complainant contends that the Respondent has never offered any reasonable cause for
the failure to include the IQPA in the original filing, and for its failure to correct in a timely
manner.
In its August 12, 1992, letter of response, Respondent states that after it received the
Notice of Rejection, it contacted the Department of Labor to inquire "why a Plan where all
the assets are in an allocated insurance contract, as Cinpac's assets are, required an IQPA."
The Respondent further states "I received an explanation, which I am still not 100% sure that
I understand, and was advised that a Limited Scope IQPA was acceptable" The Respondent
requested that the penalty be abated because it has made timely, good faith responses that
required additional assistance in a "very complex and ever-changing regulatory area"
(Exhibit D).
Although I have found that the Respondent's initial response was three days outside of
the 45-day time limit, it made all other responses on a timely manner, and the Notice of
Rejection was sent at the height of tax season, which would have likely made the immediate
services of a CPA more difficult to obtain. The Respondent did contact the Department of
[PAGE 5]
Labor, and made a satisfactory filing after determining what was required. Moreover, some
confusion on the part of the Respondent does seem reasonable, because ERISA was amended
effective March 1, 1989, and 1989 was the first year of the Plan. Even the CPA who
prepared the IQPA was confused and had to resubmit the IQPA in a different form. Finally,
the Plan is unique to the Respondent in that it has over 100 participants, but its corresponding
total value is very small, with average assets per participant as of December 31, 1989, being
$740.04.
Based on the foregoing, I find that the Respondent has established reasonable cause for
its initial failure to file the IQPA.
Conclusion
The Respondent was late in filing the requested IQPA by three days past the 45-day
limit. The Respondent's August 12, 1992, letter presents sufficient reasonable cause for its
initial failure to file the IQPA. The Complainant was within it's discretion to levy a fine for
up to $1000 a day for each day of noncompliance under 29 C.F.R. § 2560.502c-2(b),
and to reduce the levied fine of $50,000 to $5,000. However, when Congress added
§ 502(c)(2) to ERISA, it also commented that the penalty needs to reflect the
materiality of the failure. H. Conf. Rept. No. 100-495, p. 889, accompanying H.R. 3545,
reprinted in 4 U.S. Cong. News 1987, pp. 2313-1635. The Respondent notes in its
August 12, 1992, response that $5,000 would equate to almost 4% of the Plan assets, and
three times what is charged to administer the Plan. The $5,000 penalty does not reflect the
materiality of the failure of being three days late in filing material information. I find that the
penalty should be further reduced to $1000, as that amount more accurately reflects the
materiality of the failure, is substantial enough to encourage future compliance by the
Respondent, and honors the importance of the reporting and disclosure provisions of ERISA.
Wherefore, upon consideration of the record in its entirety, I hereby find that the
Respondent, Cinpac, Inc./Libby Lee Toys, Inc., shall pay modified civil money penalties in
the amount of $1000.
Entered this the _____ day of December, 1995, at Cincinnati, Ohio.
______________________________
Richard E. Huddleston
Administrative Law Judge
