Civil Penalties Under ERISA Section 502(c)(7) and Conforming Technical
Changes on Civil Penalties Under ERISA Sections 502(c)(2), 502(c)(5) and
502(c)(6) [01/24/2003]
Volume 68, Number 16, Page 3729-3741
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Parts 2560 and 2570
RIN 1210-AA91, RIN 1210-AA93
Civil Penalties Under ERISA Section 502(c)(7) and Conforming
Technical Changes on Civil Penalties Under ERISA Sections 502(c)(2),
502(c)(5) and 502(c)(6)
AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.
ACTION: Final rules.
-----------------------------------------------------------------------
SUMMARY: This document contains final rules that implement the civil
penalty provision in section 502(c)(7) of the Employee Retirement
Income Security Act of 1974 (the Act or ERISA) adopted as part of the
Sarbanes-Oxley Act of 2002 (SOA). The final rules establish procedures
relating to the assessment of civil penalties by the Department of
Labor (Department) under section 502(c)(7) of ERISA for failures or
refusals by plan administrators to provide notices of a blackout period
as required by section 101(i) of ERISA. This document also contains
final rules making conforming and technical changes to the agency's
rules of practice and procedure for other civil penalties under section
502(c) of ERISA. The final rules affect employee benefit plans, plan
sponsors, administrators and fiduciaries, and plan participants and
beneficiaries.
DATES: Effective date: These final rules are effective January 26,
2003.
FOR FURTHER INFORMATION CONTACT: Susan Elizabeth Rees, Office of
Regulations and Interpretations, Pension and Welfare Benefits
Administration, U.S. Department of Labor, Washington, DC 20210, (202)
693-8537 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
A. Background
The Sarbanes-Oxley Act of 2002 (the SOA), Pub. L. 107-204, was
enacted on July 30, 2002. Section 306(b)(1) of the SOA amended section
101 of ERISA to add a new subsection (i), requiring that administrators
of individual account plans provide notice to affected participants and
beneficiaries in advance of the commencement of any blackout period.
For purposes of this notice requirement, a blackout period generally
includes any period during which the ability of participants or
beneficiaries to direct or diversify assets credited to their accounts,
to obtain loans from the plan or to obtain distributions from the plan
will be temporarily suspended, limited or restricted. Elsewhere in the
Federal Register today, the Department has published a final rule, to
be codified at 29 CFR 2520.101-3, implementing the notice requirements
in ERISA section 101(i).
Section 306(b)(3) of SOA amended section 502(c) of ERISA to add a
new paragraph (7) establishing a civil penalty for an administrator's
failure or refusal to provide timely notice of a blackout period to
participants and beneficiaries. Specifically, section 502(c)(7)
provides that the Secretary may assess a civil penalty of up to $100 a
day from the date of the plan administrator's failure or refusal to
provide notice to a participant or beneficiary in accordance with ERISA
section 101(i).
On October 21, 2002, the Department published interim rules
implementing section 502(c)(7) of ERISA in the Federal Register (67 FR
64774) for public comment. The interim rules established procedures
relating to the assessment and administrative review of civil penalties
by the Department under section 502(c)(7) for failures or refusals by
plan administrators to provide notice of a blackout period as required
by section 101(i) of ERISA and 29 CFR 2520.101-3. The interim rules
also made changes to the existing civil penalty rules under ERISA
sections 502(c)(2), 502(c)(5), and 502(c)(6) to incorporate certain
technical improvements being adopted as part of the section 502(c)(7)
implementing regulations.
The Department received 7 comments on the section 502(c)(7) interim
rules in response to its request for comments. Set forth below is an
overview of the final rules, which adopt the interim
[[Page 3730]]
rules with a technical addition to address the Federal Civil Penalties
Inflation Adjustment Act of 1990, as amended, and a discussion of the
public comments.
B. Overview of Final Rules and Public Comments
1. Assessment of Civil Penalties for Violations of Section 101(i) of
ERISA--Sec. 2560.502c-7
Section 2560.502c-7 addresses the general application of section
502(c)(7) of ERISA, under which the administrator of an individual
account plan shall be liable for civil penalties assessed by the
Secretary in each case in which there is a failure or refusal to
provide to an affected participant or beneficiary notice of a blackout
period as required under section 101(i) of ERISA and Sec. 2520.101-3.
Section 2560.502c-7 defines terms, sets forth how the maximum penalty
amounts are computed, and identifies the period for which a penalty is
assessed. The section also sets forth the rule that prior to assessing
a penalty under ERISA section 502(c)(7), the Department must provide
the plan administrator with written notice of intent to assess a
penalty, and provide the administrator with the opportunity to request
that a penalty not be assessed upon a showing of compliance with ERISA
section 101(i), or be waived, in whole or in part, upon a showing that
there were mitigating circumstances justifying a waiver or reduction of
the penalty for noncompliance. Section 2560.502c-7 also establishes
certain procedural rules regarding deadlines and service requirements
in connection with penalty assessment proceedings, and the consequences
of failure to comply therewith. The section clarifies the personal
liability of the plan administrator for penalties assessed.
Specifically, the section provides that, if more than one person is
responsible as administrator for the failure to provide the required
blackout notice, all such persons shall be jointly and severally liable
for such failure, and that the liability is a personal liability of the
person against whom the penalty is assessed and not a liability of the
plan. Finally, the section provides that the plan administrator has the
opportunity to contest the assessment in administrative proceedings
governed by Part 2570 of Title 29 of the Code of Federal Regulations,
described below.
Several commenters requested that Sec. 2560.502c-7(b)(1) be
changed to shorten the maximum period for which a civil penalty may be
assessed. Under the interim rule, the amount assessed under section
502(c)(7) for each separate violation is to be determined by the
Department, taking into consideration the degree and/or willfulness of
the failure or refusal to provide a notice of blackout period. The rule
further provides that the maximum amount assessed for each violation
shall not exceed $100 a day,\1\ computed from the date of the
administrator's failure or refusal to provide a notice of blackout
period up to and including the date that is the final day of the
blackout period for which the notice was required. The interim rule
defines a failure or refusal to provide a notice of blackout period to
mean a failure or refusal to provide notice of a blackout period to an
affected plan participant or beneficiary at the time and in the manner
prescribed by section 101(i) of the Act and Sec. 2520.101-3. For
purposes of calculating the amount to be assessed, a failure or refusal
to provide a notice of blackout period with respect to any single
participant or beneficiary is treated as a separate violation under
section 101(i) of the Act and Sec. 2520.101-3.
---------------------------------------------------------------------------
\1\ As discussed in more detail in a following section of this
preamble, this document also contains a technical amendment to
section Sec. 2560.502c-7(b) designed to reflect the requirements of
the Federal Civil Penalties Inflation Adjustment Act of 1990 (the
1990 Act), Pub. L. 101-410, 104 Stat. 890, as amended by the Debt
Collection Improvement Act of 1996 (the Act), Pub. L. 104-134, 110
Stat. 1321-373. The Act amended the 1990 Act to require generally
that federal agencies adjust certain civil monetary penalties for
inflation no later than 180 days after the enactment of the Act, and
at least once every four years thereafter, in accordance with the
guidelines specified in the 1990 Act. The Act specifies that any
such increase in a civil monetary penalty shall apply only to
violations that occur after the date the increase takes effect.
---------------------------------------------------------------------------
In general, the commenters requested that the rule be amended to
provide that the penalty would only apply to the extent that a notice
is late, i.e., only days prior to the date on which notice is actually
given would be counted in determining the penalty, and that the penalty
calculation period would run to the end of the blackout period only in
cases where no notice is provided. The commenters expressed concern
that the interim rule exposes plan administrators who make a good faith
effort to comply to potentially substantial penalties even in cases
where the blackout notice is only one or two days late. These
commenters suggested that their proposed change would give plan
administrators an incentive to provide the notice as quickly as
possible, even if late.
The blackout notice requirements are intended to ensure that plan
participants and beneficiaries are afforded advance notice of plan
imposed restrictions on their rights in order that they may take
appropriate steps in anticipation of the restriction. The SOA expressly
provides in section 502(c)(7) that the beginning date for calculating
the penalty is the date of the administrator's failure or refusal to
provide a notice of blackout period, but does not, however, specify an
ending date for the penalty calculation. In adding section 101(i) to
Title I of ERISA, the SOA established a 30-days advance notice
requirement and listed exceptions to that general rule where less than
30 days notice was permitted. Failure to provide a timely blackout
notice, therefore, serves to deprive affected participants and
beneficiaries of the full period of time Congress concluded was the
minimum period necessary for those individuals to sufficiently consider
effects of the blackout period on their investments and financial
plans. Accordingly, providing participants and beneficiaries a late
notice does not serve to correct the violation. Moreover, the
situations in which penalties are most likely to be assessed in this
area are those where it already has been determined that the failure is
not due to events that were unforeseeable or beyond the control of the
plan administrator, nor due to avoiding a breach of fiduciary
responsibility.
In connection with a failure to provide timely notice, when an
administrator provides notice would be one factor to be taken into
account in determining the degree or willfulness of a violation. In
this regard, the Department would, for example, also take into account
the feasibility of delaying the blackout period so as to provide the
required advance notice, the length of time between the late issuance
and the beginning of the blackout period, the effect of the lateness on
the ability of affected participants and beneficiaries to take
appropriate steps in anticipation of the restriction, actions
implemented by the administrator to ameliorate adverse effects on
participants and beneficiaries, and the length of the blackout period
itself. Further, the Department notes that the ability of
administrators to submit statements of reasonable cause (Sec.
2560.502c-7(e)) and to appeal civil penalty determinations (Sec.
2560.502c-7(h)) under the final rules ensures that administrators have
the opportunity to pursue waivers or reductions of penalty amounts.
Several commenters sought clarification regarding whether the
Department would waive penalties under Sec. 2560.502c-7(d) in cases
[[Page 3731]]
involving inadvertent and minor violations. For example, one commenter
suggested that the rule be clarified to indicate that civil penalties
will not be assessed if a plan administrator, acting reasonably and in
good faith, inadvertently fails to furnish a timely blackout notice to
a small percentage of those entitled to receive the notice. Another
commenter suggested that mistakes, such as misaddressed envelopes,
misspelled names, especially occurring as the new blackout notification
procedures are implemented, should be dealt with leniently where the
errors are inadvertent and/or de minimus. Another commenter suggested
that a plan administrator who makes reasonable good faith efforts to
provide notices and who promptly corrects any failure that is brought
to its attention should not be penalized.
As noted above, decisions regarding a waiver or reduction of
penalty assessments will take into account a variety of factors on the
facts and circumstances involved in each case. For this reason, it is
not feasible to list specific criteria in the regulation that would be
treated as mitigating circumstances in every case. Although, as also
noted above, the Department will consider whether administrators acted
reasonably and in good faith, and whether mistakes were inadvertent and
promptly addressed, the provision in the interim rule allowing
administrators to make showings regarding the ``degree and/or
willfulness'' of the violation gives ample opportunity for extenuating
circumstances to be raised and considered in the penalty assessment
proceedings.
Another commenter requested clarification regarding how the
Department will apply Sec. 2560.502c-7(j), which provides that, ``if
more than one person is responsible as administrator for the failure to
provide a notice of blackout period * * * all such persons shall be
jointly and severally liable for such failure.'' Section 502(c)(7)
states that the civil penalty is assessable against a ``plan
administrator.'' As the Department stated in the preamble to its
parallel final rule, to be codified at 29 CFR 2520.101-3, implementing
the notice requirements in ERISA section 101(i), references to plan
administrator and administrator mean the ``administrator'' as defined
in section 3(16)(A) of ERISA. In that regard, section 2560.502c-7(a)(1)
expressly provides that ``the administrator (within the meaning of
section 3(16)(A) of the Act) of an individual account plan * * * shall
be liable for civil penalties assessed by the Secretary under section
502(c)(7) * * *'' The joint and several liability provision in Sec.
2560.502c-7(j) is intended to make it clear that where the
administrator is more than one person, e.g., a committee, joint board,
or other group of individuals, each person may be held separately
liable for a notice violation under the civil penalty regulation.
One commenter suggested that the regulation be amended to include a
one-year limit from the date a blackout period commences on the
Department's ability to issue a notice of intent to assess civil
penalties under section 502(c)(7). The Department notes that there is
nothing in Title I of ERISA that establishes such a time limit on the
Department's ability to assess civil penalties under section 502(c)(7),
or under any of the other provisions of section 502(c) pursuant to
which the Department has the authority to assess civil penalties for
violations of Title I of ERISA. Accordingly, the Department does not
believe it would be appropriate to adopt such a time limit as part of
this rulemaking.
The same commenter also expressed concern that Sec. 2560.502c-7(f)
was ``harsh'' in providing that an administrator who fails to respond
to a notice of intent to assess a penalty will be deemed to have
admitted the facts alleged in the notice and waived the right to appear
and contest the penalty assessment. A similar default provision applies
in connection with the Department's other civil penalty proceedings
under section 502(c) of the Act, and it is designed to ensure the
Secretary's ability to effectively enforce section 502(c) of ERISA.
Accordingly, the Department is not making any change to this provision
in the final rule.
One commenter expressed concern about the assessment of substantial
civil penalties for violations of the notice required to be provided by
the administrator to the issuer under section 101(i)(2)(E) of ERISA in
cases where the plan administrator is the issuer or an affiliate. The
Department notes that section 502(c)(7) provides for a penalty to be
assessed against a plan administrator for a ``failure or refusal to
provide notice to participants and beneficiaries in accordance with
section 101(i).'' In the Department's view, the section 502(c)(7)
penalty is not applicable for failures to provide the notice to issuers
required under section 101(i)(2)(E).
2. Procedures for Administrative Review of Assessment of Civil
Penalties Under ERISA Section 502(c)(7)--Sec. 2570.130 et seq.
The interim rules added to part 2570, Subpart G, section 2570.130
through section 2570.141, to establish procedures for hearings before
an Administrative Law Judge (ALJ) with respect to assessment by the
Department of a civil penalty under ERISA section 502(c)(7), and for
appealing an ALJ decision to the Secretary or his or her delegate. With
regard to such procedures, the Secretary has established the Pension
and Welfare Benefits Administration (PWBA) within the Department for
purposes of carrying out most of the Secretary's responsibilities under
ERISA. See Secretary's Order 1-87, 52 FR 13139 (April 27, 1987). The
Department received no comments on these procedural rules, and,
therefore, the final rules are issued without change from the interim
rules.
3. Conforming Changes to Existing Civil Penalties Rules Under ERISA
Sections 502(c)(2), 502(c)(5) and 502(c)(6)--Sec. Sec. 2560.502c-2,
2560.502c-5, 2560.502c-6, and Subparts C, E, and F of Part 2570
The interim rules also amended the existing civil penalty
assessment regulations under ERISA sections 502(c)(2), 502(c)(5) and
502(c)(6) in part 2560 and in Part 2570 of subchapter G, to conform
them to the rules of practice and procedure being adopted for penalty
proceedings under ERISA section 502(c)(7) in 29 CFR 2560.502c-7 and
part 2570 Subpart G. The amendments affect certain rules for penalty
assessment and administrative review in Sec. 2560.502c-2, Sec.
2560.502c-5, Sec. 2560.502c-6, and subparts C, E, and F of Part 2570.
The primary amendments were intended to conform the filing and service
rules under Sec. 2560.502c-2, Sec. 2560.502c-5 and Sec. 2560.502c-6
to those being adopted for proceedings under Sec. 2560.502c-7. In
addition, Sec. Sec. 2560.502c-2(d) and (e), Sec. Sec. 2560.502c-5(d)
and (e), and Sec. Sec. 2560.502c-6(d) and (e) were amended to use the
clarifying language adopted in Sec. Sec. 2560.502c-7(d) and (e) that
better describes the statement of reasonable cause and penalty waiver
procedures.
The Department received no comments in response to its request for
comments on the conforming technical amendments to Sec. 2560.502c-2,
Sec. 2560.502c-5, Sec. 2560.502c-6, and subparts C, E, and F of Part
2570 which were adopted in the interim rule.
[[Page 3732]]
Therefore, except for the technical changes noted below intended to
address the Federal Civil Penalties Inflation Adjustment Act of 1990,
as amended, the interim rules are being adopted as final rules without
change.
4. Technical Changes to Sec. Sec. 2560.502c-2(b), 2560.502c-5(b),
2560.502c-6(b), 2560.502c-7(b), To Reflect the Requirements of the
Federal Civil Penalties Inflation Adjustment Act of 1990, as Amended
This document also contains technical amendments to Sec.
2560.502c-2(b), Sec. 2560.502c-5(b), Sec. 2560.502c-6(b), and Sec.
2560.502c-7(b), regarding the maximum penalty amounts that may be
assessed. The amendments are designed to reflect the requirements of
the Federal Civil Penalties Inflation Adjustment Act of 1990 (the 1990
Act), Pub. L. 101-410, 104 Stat. 890, as amended by the Debt Collection
Improvement Act of 1996 (the Act), Pub. L. 104-134, 110 Stat. 1321-373.
The Act amended the 1990 Act to require generally that federal agencies
adjust certain civil monetary penalties for inflation no later than 180
days after the enactment of the Act, and at least once every four years
thereafter, in accordance with the guidelines specified in the 1990
Act, as amended. The Act specifies that any such increase in a civil
monetary penalty shall apply only to violations that occur after the
date the increase takes effect. The Department's civil monetary penalty
inflation adjustment regulations are codified in part 2575 of Title 29
of the Code of Federal Regulations.\2\ The technical amendments to
Sec. 2560.502c-2(b), Sec. 2560.502c-5(b), Sec. 2560.502c-6(b), and
Sec. 2560.502c-7(b) in this document are being made under section 505
of ERISA which authorizes the Department to prescribe such regulations
as the Secretary finds necessary or appropriate to carry out the
provisions of Title I of ERISA. As a general matter, the Administrative
Procedure Act (APA) requires rulemakings to be published in the Federal
Register and also mandates that an opportunity for comments be provided
when an agency promulgates regulations. Section 553(b)(3)(B) of the APA
exempts certain rules or agency procedures from the notice and comment
requirements when an agency finds for good cause that notice and public
comment are impracticable, unnecessary, or contrary to the public
interest. The Department finds for good cause that notice and comment
on these technical amendments to Sec. 2560.502c-2(b), Sec. 2560.502c-
5(b), Sec. 2560.502c-6(b), and Sec. 2560.502c-6(b) is unnecessary.
The amendments merely confirm that the maximum amount of the civil
penalty assessable by the Department under its implementing regulations
is the maximum amount stated in sections 502(c)(2), 502(c)(5),
502(c)(6), and 502(c)(7), or such other maximum amount as may be
established by regulation pursuant to the Federal Civil Penalties
Inflation Adjustment Act of 1990, as amended. Accordingly, the
Secretary determined that these technical changes were appropriate to
issue in final form.
---------------------------------------------------------------------------
\2\ The Department will be publishing shortly a separate final
rule implementing the required inflation adjustment for this
adjustment cycle. Application of the required methodology will
result in a small increase in only two Title I civil penalty
amounts. Specifically, the civil monetary penalty set by ERISA
section 502(c)(5) for a failure or refusal on the part of certain
administrators to file Form M-1 information with the Department as
required by ERISA section 101(g) will be adjusted from $1,000 to
$1,100 per day, and the civil monetary penalty set by ERISA section
502(c)(6) for a failure on the part of the plan administrator to
furnish certain plan documents to the Secretary on request will be
adjusted from $100 to $110 per day with the penalty cap being
adjusted from $1,000 to $1,100 per request. No adjustments were
required for any other civil penalties under Title I of ERISA.
---------------------------------------------------------------------------
5. Effective Date
These final rules are effective January 26, 2003. The final rules
establishing procedures relating to the assessment of civil penalties
by the Department under section 502(c)(7) of ERISA shall apply to
failures or refusals by plan administrators to provide notices of a
blackout period as required by section 101(i) of ERISA and 29 CFR
2520.101-3 on or after that date. Pursuant to section 553(c) of the
APA, the Department finds good cause for these rules to be effective
less than 30 days after publication. The Department believes that
having the blackout notice civil penalty rules effective on the
effective date of the underlying statutory provisions will avoid
confusion for plan administrators, and the amendments to the existing
civil penalty rules under ERISA sections 502(c)(2), 502(c)(5), and
502(c)(6) merely incorporate certain technical improvements being
adopted as part of the section 502(c)(7) implementing regulations.
Moreover, the limited extent of the differences between the instant
rule and the interim rules will minimize any difficulties in complying
with these rules by the effective date.
C. Regulatory Impact Analysis
Executive Order 12866
Under Executive Order 12866 (58 FR 51735), the Department must
determine whether a regulatory action is ``significant'' and therefore
subject to review by the Office of Management and Budget (OMB). Section
3(f) of the Executive Order defines a ``significant regulatory action''
as an action that is likely to result in a rule (1) having an annual
effect on the economy of $100 million or more, or adversely and
materially affecting a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local or tribal governments or communities (also referred to as
``economically significant''); (2) creating serious inconsistency or
otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impacts of entitlement
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or (4) raising novel legal or policy issues arising
out of legal mandates, the President's priorities, or the principles
set forth in the Executive Order. The Department has determined that
these final rules relating to the assessment of civil monetary
penalties under section 502(c)(7) of ERISA are significant in that they
provide guidance on the administration and enforcement of the notice
provisions of section 101(i) of ERISA. Separate guidance on the notice
requirements of section 101(i) (Final Rule Relating to Notice of
Blackout Periods to Participants and Beneficiaries), also published in
today's issue of the Federal Register, is also considered significant
within the meaning of section 3(f)(4) of the Executive Order.
Accordingly, OMB has reviewed the final rules pertaining to both the
blackout notice and the related civil penalty pursuant to the terms of
the Executive Order.
The principal benefit of the statutory penalty provisions and these
final rules will be greater adherence to the requirement of ERISA
section 101(i) that plan administrators provide advance written notice
to participants and beneficiaries in individual account retirement
plans whose existing rights to direct investments in their accounts or
to obtain loans or distributions will be suspended or limited. The
implementation of orderly and consistent processes for the assessment
of penalties and the review of such assessments will also be beneficial
for plan administrators. The procedures established in these final
rules will also allow facts and circumstances related to a failure or
refusal to provide appropriate notice to be presented by a plan
administrator and to be taken into consideration by the Department in
assessing penalties under ERISA section 502(c)(7).
[[Page 3733]]
The rate of failure or refusal to provide blackout notices where
required, and the dollar value of penalties to be assessed in those
cases cannot be predicted. The civil penalty provisions of the statute
and these final rules impose no mandatory requirements or costs, except
where a plan administrator has failed to provide the notice required in
ERISA section 101(i).
The technical amendments conforming the existing regulatory
provisions relating to the assessment of civil penalties under sections
502(c)(2), (c)(5), and (c)(6) of ERISA are procedural in nature, and
similarly impose no additional requirements or costs.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA),
imposes certain requirements with respect to federal rules that are
subject to the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. For purposes of its analyses under the RFA, PWBA continues to
consider a small entity to be an employee benefit plan with fewer than
100 participants. The basis of this definition is found in section
104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe
simplified annual reporting for pension plans that cover fewer than 100
participants. Because this guidance was originally issued an interim
final rule pursuant to the authority and deadlines prescribed in
sections 306(b)(2) of SOA, RFA does not apply, and regulatory
flexibility analysis is not required. However, in the interim final
rule, the Department requested comments regarding any special issues
facing small plans, or any alternative approaches that would assist
small plans with compliance with respect to the assessment of civil
penalties under ERISA section 502(c)(7) and the conforming amendments
to existing administrative and procedural regulations relating to the
assessment of civil penalties under ERISA sections 502(c)(2), (c)(5),
and (c)(6). No such comments were received.
The terms of the statute pertaining to the assessment of civil
penalties for failure to provide notices to plan participants and
beneficiaries in the event of a blackout do not vary relative to plan
or plan administrator size. The operation of the statute will normally
result in the assessment of lower penalties where small plans are
involved because a violation with respect to a single participant or
beneficiary is treated as a separate violation for purposes of
calculating the penalty. The opportunity for a plan administrator to
present facts and circumstances related to a failure or refusal to
provide appropriate notice that may be taken into consideration by the
Department in assessing penalties under ERISA section 502(c)(7) may
offer some degree of flexibility to small entities subject to penalty
assessments. Penalty assessments will have no direct impact on small
plans because the plan administrator assessed a civil penalty is
personally liable for the payment of that penalty pursuant to section
2560.502c-7(j).
Paperwork Reduction Act
This Final Rule on Assessment of Civil Penalties under ERISA
section 502(c)(7) is not subject to the requirements of the Paperwork
Reduction Act of 1995 (PRA 95) (44 U.S.C. 3501 et seq.) because it does
not contain a collection of information as defined in 44 U.S.C.
3502(3). Information otherwise provided to the Secretary in connection
with the administrative and procedural requirements of these final
rules is excepted from coverage by PRA 95 pursuant to 44 U.S.C.
3518(c)(1)(B), and related regulations at 5 CFR 1320.4(a)(2) and (c).
These provisions generally except information provided as a result of
an agency's civil or administrative action, investigation, or audit.
This exception also applies to the conforming amendments to
administrative and procedural rules pertaining to the civil penalty
provisions of ERISA sections 502(c)(2), 502(c)(5), and 502(c)(6).
Congressional Review Act
The rules being issued here are subject to the Congressional Review
Act provisions of the Small Business Regulatory Enforcement Fairness
Act of 1996 (5 U.S.C. 801 et seq.) and have been transmitted to
Congress and the Comptroller General for review. The rule is not a
``major rule'' as that term is defined in 5 U.S.C. 804, because it is
not likely to result in (1) An annual effect on the economy of $100
million or more; (2) a major increase in costs or prices for consumers,
individual industries, or federal, State, or local government agencies,
or geographic regions; or (3) significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, these rules do not include
any Federal mandate that may result in expenditures by State, local, or
tribal governments, and does not impose an annual burden exceeding $100
million on the private sector.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires the adherence to specific
criteria by federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. These final rules do not have federalism
implications because it has no substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Section 514 of ERISA provides, with certain
exceptions specifically enumerated, that the provisions of Titles I and
IV of ERISA supersede any and all laws of the States as they relate to
any employee benefit plan covered under ERISA. The requirements
implemented in these final rules do not alter the fundamental reporting
and disclosure, or administration and enforcement provisions of the
statute with respect to employee benefit plans, and as such have no
implications for the States or the relationship or distribution of
power between the national government and the States.
List of Subjects
29 CFR Part 2560
Employee benefit plans, Employee Retirement Income Security Act,
Law enforcement, Pensions.
29 CFR Part 2570
Administrative practice and procedure, Employee benefit plans,
Employee Retirement Income Security Act, Law enforcement, Pensions.
In view of the foregoing, Parts 2560 and 2570 of Chapter XXV of
title 29 of the Code of Federal Regulations are amended as follows:
[[Page 3734]]
PART 2560--RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT
1. The authority citation for Part 2560 continues to read as
follows:
Authority: 29 U.S.C. 1132, 1135, and Secretary's Order 1-87, 52
FR 13139 (April 21, 1987).
Section 2560.503-1 also issued under 29 U.S.C. 1133.
Section 2560.502(c)(7) also issued under sec. 306 (b)(2) of Pub.
L. 107-204, 116 Stat. 745.
2. Revise Sec. 2560.502c-2, paragraphs (b)(1), (d), (e), (f), (g),
(h), and (i) to read as follows:
Sec. 2560.502c-2 Civil penalties under section 502(c)(2).
* * * * *
(b) Amount assessed. (1) The amount assessed under section
502(c)(2) of the Act shall be determined by the Department of Labor,
taking into consideration the degree and/or willfulness of the failure
or refusal to file the annual report. However, the amount assessed
under section 502(c)(2) of the Act shall not exceed $1,000 a day (or
such other maximum amount as may be established by regulation pursuant
to the Federal Civil Penalties Inflation Adjustment Act of 1990, as
amended), computed from the date of the administrator's failure or
refusal to file the annual report and, except as provided in paragraph
(b)(2) of this section, continuing up to the date on which an annual
report satisfactory to the Secretary is filed.
* * * * *
(d) Reconsideration or waiver of penalty to be assessed. The
Department may determine that all or part of the penalty amount in the
notice of intent to assess a penalty shall not be assessed on a showing
that the administrator complied with the requirements of section
101(b)(1) of the Act or on a showing by the administrator of mitigating
circumstances regarding the degree or willfulness of the noncompliance.
(e) Showing of reasonable cause. Upon issuance by the Department of
a notice of intent to assess a penalty, the administrator shall have
thirty (30) days from the date of service of the notice, as described
in paragraph (i) of this section, to file a statement of reasonable
cause explaining why the penalty, as calculated, should be reduced, or
not be assessed, for the reasons set forth in paragraph (d) of this
section. Such statement must be made in writing and set forth all the
facts alleged as reasonable cause for the reduction or nonassessment of
the penalty. The statement must contain a declaration by the
administrator that the statement is made under the penalties of
perjury.
(f) Failure to file a statement of reasonable cause. Failure of an
administrator to file a statement of reasonable cause within the thirty
(30) day period described in paragraph (e) of this section shall be
deemed to constitute a waiver of the right to appear and contest the
facts alleged in the notice of intent, and such failure shall be deemed
an admission of the facts alleged in the notice for purposes of any
proceeding involving the assessment of a civil penalty under section
502(c)(2) of the Act. Such notice shall then become a final order of
the Secretary, within the meaning of Sec. 2570.61(g) of this chapter,
forty-five (45) days from the date of service of the notice.
(g) Notice of the determination on statement of reasonable cause.
(1) The Department, following a review of all the facts alleged in
support of no assessment or a complete or partial waiver of the
penalty, shall notify the administrator, in writing, of its
determination to waive the penalty, in whole or in part, and/or assess
a penalty. If it is the determination of the Department to assess a
penalty, the notice shall indicate the amount of the penalty, not to
exceed the amount described in paragraph (c) of this section. This
notice is a ``pleading'' for purposes of Sec. 2570.61(m) of this
chapter.
(2) Except as provided in paragraph (h) of this section, a notice
issued pursuant to paragraph (g)(1) of this section, indicating the
Department's intention to assess a penalty, shall become a final order,
within the meaning of Sec. 2570.61(g) of this chapter, forty-five (45)
days from the date of service of the notice.
(h) Administrative hearing. A notice issued pursuant to paragraph
(g) of this section will not become a final order, within the meaning
of Sec. 2570.61(g) of this chapter, if, within thirty (30) days from
the date of the service of the notice, the administrator or a
representative thereof files a request for a hearing under Sec. Sec.
2570.60 through 2570.71 of this chapter, and files an answer to the
notice. The request for hearing and answer must be filed in accordance
with Sec. 2570.62 of this chapter and Sec. 18.4 of this title. The
answer opposing the proposed sanction shall be in writing, and
supported by reference to specific circumstances or facts surrounding
the notice of determination issued pursuant to paragraph (g) of this
section.
(i) Service of notices and filing of statements. (1) Service of a
notice for purposes of paragraphs (c) and (g) of this section shall be
made:
(i) By delivering a copy to the administrator or representative
thereof;
(ii) By leaving a copy at the principal office, place of business,
or residence of the administrator or representative thereof; or
(iii) By mailing a copy to the last known address of the
administrator or representative thereof.
(2) If service is accomplished by certified mail, service is
complete upon mailing. If service is by regular mail, service is
complete upon receipt by the addressee. When service of a notice under
paragraph (c) or (g) of this section is by certified mail, five (5)
days shall be added to the time allowed by these rules for the filing
of a statement, or a request for hearing and answer, as applicable.
(3) For purposes of this section, a statement of reasonable cause
shall be considered filed:
(i) Upon mailing, if accomplished using United States Postal
Service certified mail or Express Mail;
(ii) Upon receipt by the delivery service, if accomplished using a
``designated private delivery service'' within the meaning of 26 U.S.C.
7502(f);
(iii) Upon transmittal, if transmitted in a manner specified in the
notice of intent to assess a penalty as a method of transmittal to be
accorded such special treatment; or
(iv) In the case of any other method of filing, upon receipt by the
Department at the address provided in the notice of intent to assess a
penalty.
* * * * *
3. Revise Sec. 2560.502c-5, paragraphs (b)(1), (d), (e), (f), (g),
(h), and (i) to read as follows:
Sec. 2560.502c-5 Civil penalties under section 502(c)(5).
* * * * *
(b) Amount assessed. (1) The amount assessed under section
502(c)(5) of the Act shall be determined by the Department of Labor,
taking into consideration the degree and/or willfulness of the failure
or refusal to file the report. However, the amount assessed under
section 502(c)(5) of the Act shall not exceed $1,000 a day (or such
other maximum amount as may be established by regulation pursuant to
the Federal Civil Penalties Inflation Adjustment Act of 1990, as
amended), computed from the date of the administrator's failure or
refusal to file the report and, except as provided in paragraph (b)(2)
of this section, continuing up to the date on which a report meeting
the requirements of
[[Page 3735]]
section 101(g) and Sec. 2520.101-2, as determined by the Secretary, is
filed.
* * * * *
(d) Reconsideration or waiver of penalty to be assessed. The
Department may determine that all or part of the penalty amount in the
notice of intent to assess a penalty shall not be assessed on a showing
that the administrator complied with the requirements of section 101(g)
of the Act or on a showing by the administrator of mitigating
circumstances regarding the degree or willfulness of the noncompliance.
(e) Showing of reasonable cause. Upon issuance by the Department of
a notice of intent to assess a penalty, the administrator shall have
thirty (30) days from the date of service of the notice, as described
in paragraph (i) of this section, to file a statement of reasonable
cause explaining why the penalty, as calculated, should be reduced, or
not be assessed, for the reasons set forth in paragraph (d) of this
section. Such statement must be made in writing and set forth all the
facts alleged as reasonable cause for the reduction or nonassessment of
the penalty. The statement must contain a declaration by the
administrator that the statement is made under the penalties of
perjury.
(f) Failure to file a statement of reasonable cause. Failure of an
administrator to file a statement of reasonable cause within the thirty
(30) day period described in paragraph (e) of this section shall be
deemed to constitute a waiver of the right to appear and contest the
facts alleged in the notice of intent, and such failure shall be deemed
an admission of the facts alleged in the notice for purposes of any
proceeding involving the assessment of a civil penalty under section
502(c)(5) of the Act. Such notice shall then become a final order of
the Secretary, within the meaning of Sec. 2570.91(g) of this chapter,
forty-five (45) days from the date of service of the notice.
(g) Notice of the determination on statement of reasonable cause.
(1) The Department, following a review of all the facts alleged in
support of no assessment or a complete or partial waiver of the
penalty, shall notify the administrator, in writing, of its
determination to waive the penalty, in whole or in part, and/or assess
a penalty. If it is the determination of the Department to assess a
penalty, the notice shall indicate the amount of the penalty, not to
exceed the amount described in paragraph (c) of this section, and a
brief statement of the reasons for assessing the penalty. This notice
is a ``pleading'' for purposes of Sec. 2570.91(m) of this chapter.
(2) Except as provided in paragraph (h) of this section, a notice
issued pursuant to paragraph (g)(1) of this section, indicating the
Department's intention to assess a penalty, shall become a final order,
within the meaning of Sec. 2570.91(g) of this chapter, forty-five (45)
days from the date of service of the notice.
(h) Administrative hearing. A notice issued pursuant to paragraph
(g) of this section will not become a final order, within the meaning
of Sec. 2570.91(g) of this chapter, if, within thirty (30) days from
the date of the service of the notice, the administrator or a
representative thereof files a request for a hearing under Sec. Sec.
2570.90 through 2570.101 of this chapter, and files an answer to the
notice. The request for hearing and answer must be filed in accordance
with Sec. 2570.92 of this chapter and Sec. 18.4 of this title. The
answer opposing the proposed sanction shall be in writing, and
supported by reference to specific circumstances or facts surrounding
the notice of determination issued pursuant to paragraph (g) of this
section.
(i) Service of notices and filing of statements. (1) Service of a
notice for purposes of paragraphs (c) and (g) of this section shall be
made:
(i) By delivering a copy to the administrator or representative
thereof;
(ii) By leaving a copy at the principal office, place of business,
or residence of the administrator or representative thereof; or
(iii) By mailing a copy to the last known address of the
administrator or representative thereof.
(2) If service is accomplished by certified mail, service is
complete upon mailing. If service is by regular mail, service is
complete upon receipt by the addressee. When service of a notice under
paragraph (c) or (g) of this section is by certified mail, five (5)
days shall be added to the time allowed by these rules for the filing
of a statement, or a request for hearing and answer, as applicable.
(3) For purposes of this section, a statement of reasonable cause
shall be considered filed:
(i) Upon mailing, if accomplished using United States Postal
Service certified mail or Express Mail;
(ii) Upon receipt by the delivery service, if accomplished using a
``designated private delivery service'' within the meaning of 26 U.S.C.
7502(f);
(iii) Upon transmittal, if transmitted in a manner specified in the
notice of intent to assess a penalty as a method of transmittal to be
accorded such special treatment; or
(iv) In the case of any other method of filing, upon receipt by the
Department at the address provided in the notice of intent to assess a
penalty.
* * * * *
4. Revise Sec. 2560.502c-6, paragraphs (b)(1), (d), (e), (f), (g),
(h), and (i) to read as follows:
Sec. 2560.502c-6 Civil penalties under section 502(c)(6).
* * * * *
(b) Amount assessed. (1) The amount assessed under section
502(c)(6) of the Act shall be determined by the Department of Labor,
taking into consideration the degree and/or willfulness of the failure
or refusal to furnish any document or documents requested by the
Department under section 104(a)(6) of the Act. However, the amount
assessed under section 502(c)(6) of the Act shall not exceed $100 a day
or $1,000 per request (or such other maximum amounts as may be
established by regulation pursuant to the Federal Civil Penalties
Inflation Adjustment Act of 1990, as amended), computed from the date
of the administrator's failure or refusal to furnish any document or
documents requested by the Department.
* * * * *
(d) Reconsideration or waiver of penalty to be assessed. The
Department may determine that all or part of the penalty amount in the
notice of intent to assess a penalty shall not be assessed on a showing
that the administrator complied with the requirements of section
104(a)(6) of the Act or on a showing by the administrator of mitigating
circumstances regarding the degree or willfulness of the noncompliance.
(e) Showing of reasonable cause. Upon issuance by the Department of
a notice of intent to assess a penalty, the administrator shall have
thirty (30) days from the date of service of the notice, as described
in paragraph (i) of this section, to file a statement of reasonable
cause explaining why the penalty, as calculated, should be reduced or
not be assessed, for the reasons set forth in paragraph (d) of this
section. Such statement must be made in writing and set forth all the
facts alleged as reasonable cause for the reduction or nonassessment of
the penalty. The statement must contain a declaration by the
administrator that the statement is made under the penalties of
perjury.
(f) Failure to file a statement of reasonable cause. Failure to
file a statement of reasonable cause within the 30 day period described
in paragraph (e)
[[Page 3736]]
of this section shall be deemed to constitute a waiver of the right to
appear and contest the facts alleged in the notice of intent, and such
failure shall be deemed an admission of the facts alleged in the notice
for purposes of any proceeding involving the assessment of a civil
penalty under section 502(c)(6) of the Act. Such notice shall then
become a final order of the Secretary, within the meaning of Sec.
2570.111(g) of this chapter, forty-five (45) days from the date of
service of the notice.
(g) Notice of determination on statement of reasonable cause. (1)
The Department, following a review of all of the facts alleged in
support of no assessment or a complete or partial waiver of the
penalty, shall notify the administrator, in writing, of its
determination not to assess or to waive the penalty, in whole or in
part, and/or assess a penalty. If it is the determination of the
Department to assess a penalty, the notice shall indicate the amount of
the penalty, not to exceed the amount described in paragraph (c) of
this section. This notice is a ``pleading'' for purposes of Sec.
2570.111(m) of this chapter.
(2) Except as provided in paragraph (h) of this section, a notice
issued pursuant to paragraph (g)(1) of this section, indicating the
Department's intention to assess a penalty, shall become a final order,
within the meaning of Sec. 2570.111(g) of this chapter, forty-five
(45) days from the date of service of the notice.
(h) Administrative hearing. A notice issued pursuant to paragraph
(g) of this section will not become a final order, within the meaning
of Sec. 2570.91(g) of this chapter, if, within thirty (30) days from
the date of the service of the notice, the administrator or a
representative thereof files a request for a hearing under Sec. Sec.
2570.110 through 2570.121 of this chapter, and files an answer to the
notice. The request for hearing and answer must be filed in accordance
with Sec. 2570.112 of this chapter and Sec. 18.4 of this title. The
answer opposing the proposed sanction shall be in writing, and
supported by reference to specific circumstances or facts surrounding
the notice of determination issued pursuant to paragraph (g) of this
section.
(i) Service of notices and filing of statements. (1) Service of a
notice for purposes of paragraphs (c) and (g) of this section shall be
made:
(i) By delivering a copy to the administrator or representative
thereof;
(ii) By leaving a copy at the principal office, place of business,
or residence of the administrator or representative thereof; or
(iii) By mailing a copy to the last known address of the
administrator or representative thereof.
(2) If service is accomplished by certified mail, service is
complete upon mailing. If service is by regular mail, service is
complete upon receipt by the addressee. When service of a notice under
paragraph (c) or (g) of this section is by certified mail, five (5)
days shall be added to the time allowed by these rules for the filing
of a statement, or a request for hearing and answer, as applicable.
(3) For purposes of this section, a statement of reasonable cause
shall be considered filed:
(i) Upon mailing, if accomplished using United States Postal
Service certified mail or Express Mail;
(ii) Upon receipt by the delivery service, if accomplished using a
``designated private delivery service'' within the meaning of 26 U.S.C.
7502(f);
(iii) Upon transmittal, if transmitted in a manner specified in the
notice of intent to assess a penalty as a method of transmittal to be
accorded such special treatment; or
(iv) In the case of any other method of filing, upon receipt by the
Department at the address provided in the notice of intent to assess a
penalty.
* * * * *
5. Revise Sec. 2560.502c-7 to read as follows:
Sec. 2560.502c-7 Civil penalties under section 502(c)(7).
(a) In general. (1) Pursuant to the authority granted the Secretary
under section 502(c)(7) of the Employee Retirement Income Security Act
of 1974, as amended (the Act), the administrator (within the meaning of
section 3(16)(A) of the Act) of an individual account plan (within the
meaning of section 101(i)(8) of the Act and Sec. 2520.101-3(d)(2) of
this chapter), shall be liable for civil penalties assessed by the
Secretary under section 502(c)(7) of the Act for failure or refusal to
provide notice of a blackout period to affected participants and
beneficiaries in accordance with section 101(i) of the Act and Sec.
2520.101-3 of this chapter.
(2) For purposes of this section, a failure or refusal to provide a
notice of blackout period shall mean a failure or refusal, in whole or
in part, to provide notice of a blackout period to an affected plan
participant or beneficiary at the time and in the manner prescribed by
section 101(i) of the Act and Sec. 2520.101-3 of this chapter.
(b) Amount assessed. (1) The amount assessed under section
502(c)(7) of the Act for each separate violation shall be determined by
the Department of Labor, taking into consideration the degree and/or
willfulness of the failure or refusal to provide a notice of blackout
period. However, the amount assessed for each violation under section
502(c)(7) of the Act shall not exceed $100 a day (or such other maximum
amount as may be established by regulation pursuant to the Federal
Civil Penalties Inflation Adjustment Act of 1990, as amended), computed
from the date of the administrator's failure or refusal to provide a
notice of blackout period up to and including the date that is the
final day of the blackout period for which the notice was required.
(2) For purposes of calculating the amount to be assessed under
this section, a failure or refusal to provide a notice of blackout
period with respect to any single participant or beneficiary shall be
treated as a separate violation under section 101(i) of the Act and
Sec. 2520.101-3 of this chapter.
(c) Notice of intent to assess a penalty. Prior to the assessment
of any penalty under section 502(c)(7) of the Act, the Department shall
provide to the administrator of the plan a written notice indicating
the Department's intent to assess a penalty under section 502(c)(7) of
the Act, the amount of such penalty, the number of participants and
beneficiaries on which the penalty is based, the period to which the
penalty applies, and the reason(s) for the penalty.
(d) Reconsideration or waiver of penalty to be assessed. The
Department may determine that all or part of the penalty amount in the
notice of intent to assess a penalty shall not be assessed on a showing
that the administrator complied with the requirements of section 101(i)
of the Act or on a showing by the administrator of mitigating
circumstances regarding the degree or willfulness of the noncompliance.
(e) Showing of reasonable cause. Upon issuance by the Department of
a notice of intent to assess a penalty, the administrator shall have
thirty (30) days from the date of service of the notice, as described
in paragraph (i) of this section, to file a statement of reasonable
cause explaining why the penalty, as calculated, should be reduced, or
not be assessed, for the reasons set forth in paragraph (d) of this
section. Such statement must be made in writing and set forth all the
facts alleged as reasonable cause for the reduction or nonassessment of
the penalty. The statement must contain a declaration by the
administrator that the statement is made under the penalties of
perjury.
(f) Failure to file a statement of reasonable cause. Failure to
file a statement of reasonable cause within the
[[Page 3737]]
30 day period described in paragraph (e) of this section shall be
deemed to constitute a waiver of the right to appear and contest the
facts alleged in the notice of intent, and such failure shall be deemed
an admission of the facts alleged in the notice for purposes of any
proceeding involving the assessment of a civil penalty under section
502(c)(7) of the Act. Such notice shall then become a final order of
the Secretary, within the meaning of Sec. 2570.131(g) of this chapter,
forty-five (45) days from the date of service of the notice.
(g) Notice of determination on statement of reasonable cause. (1)
The Department, following a review of all of the facts in a statement
of reasonable cause alleged in support of no assessment or a complete
or partial waiver of the penalty, shall notify the administrator, in
writing, of its determination on the statement of reasonable cause and
its determination whether to waive the penalty in whole or in part,
and/or assess a penalty. If it is the determination of the Department
to assess a penalty, the notice shall indicate the amount of the
penalty assessment, not to exceed the amount described in paragraph (c)
of this section. This notice is a ``pleading'' for purposes of Sec.
2570.131(m) of this chapter.
(2) Except as provided in paragraph (h) of this section, a notice
issued pursuant to paragraph (g)(1) of this section, indicating the
Department's determination to assess a penalty, shall become a final
order, within the meaning of Sec. 2570.131(g) of this chapter, forty-
five (45) days from the date of service of the notice.
(h) Administrative hearing. A notice issued pursuant to paragraph
(g) of this section will not become a final order, within the meaning
of Sec. 2570.131(g) of this chapter, if, within thirty (30) days from
the date of the service of the notice, the administrator or a
representative thereof files a request for a hearing under Sec. Sec.
2570.130 through 2570.141 of this chapter, and files an answer to the
notice. The request for hearing and answer must be filed in accordance
with Sec. 2570.132 of this chapter and Sec. 18.4 of this title. The
answer opposing the proposed sanction shall be in writing, and
supported by reference to specific circumstances or facts surrounding
the notice of determination issued pursuant to paragraph (g) of this
section.
(i) Service of notices and filing of statements. (1) Service of a
notice for purposes of paragraphs (c) and (g) of this section shall be
made:
(i) By delivering a copy to the administrator or representative
thereof;
(ii) By leaving a copy at the principal office, place of business,
or residence of the administrator or representative thereof; or
(iii) By mailing a copy to the last known address of the
administrator or representative thereof.
(2) If service is accomplished by certified mail, service is
complete upon mailing. If service is by regular mail, service is
complete upon receipt by the addressee. When service of a notice under
paragraph (c) or (g) of this section is by certified mail, five (5)
days shall be added to the time allowed by these rules for the filing
of a statement or a request for hearing and answer, as applicable.
(3) For purposes of this section, a statement of reasonable cause
shall be considered filed:
(i) Upon mailing, if accomplished using United States Postal
Service certified mail or Express Mail;
(ii) Upon receipt by the delivery service, if accomplished using a
``designated private delivery service'' within the meaning of 26 U.S.C.
7502(f);
(iii) Upon transmittal, if transmitted in a manner specified in the
notice of intent to assess a penalty as a method of transmittal to be
accorded such special treatment; or
(iv) In the case of any other method of filing, upon receipt by the
Department at the address provided in the notice of intent to assess a
penalty.
(j) Liability. (1) If more than one person is responsible as
administrator for the failure to provide a notice of blackout period
under section 101(i) of the Act and its implementing regulations (Sec.
2520.101-3 of this chapter), all such persons shall be jointly and
severally liable for such failure.
(2) Any person, or persons under paragraph (j)(1) of this section,
against whom a civil penalty has been assessed under section 502(c)(7)
of the Act, pursuant to a final order, within the meaning of Sec.
2570.131(g) of this chapter, shall be personally liable for the payment
of such penalty.
(k) Cross-reference. See Sec. Sec. 2570.130 through 2570.141 of
this chapter for procedural rules relating to administrative hearings
under section 502(c)(7) of the Act.
PART 2570--PROCEDURAL REGULATIONS UNDER THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT
6. The authority citation for Part 2570 continues to read as
follows:
Authority: 29 U.S.C. 1021, 1108, 1132, 1135, 5 U.S.C. 8477;
Reorganization Plan No. 4 of 1978; Secretary of Labor's Order 1-87.
Subpart G is also issued under sec. 306(b)(2) of Pub.L. 107-204,
116 Stat. 745.
7. Revise Sec. 2570.61(c) to read as follows:
Sec. 2570.61 Definitions.
* * * * *
(c) Answer means a written statement that is supported by reference
to specific circumstances or facts surrounding the notice of
determination issued pursuant to Sec. 2560.502c-2(g) of this chapter.
* * * * *
8. Revise Sec. 2570.64 to read as follows:
Sec. 2570.64 Consequences of default.
For 502(c)(2) civil penalty proceedings, this section shall apply
in lieu of Sec. 18.5(a) and (b) of this title. Failure of the
respondent to file an answer to the notice of determination described
in Sec. 2560.502c-2(g) of this chapter within the 30 day period
provided by Sec. 2560.502c-2(h) of this chapter shall be deemed to
constitute a waiver of his or her right to appear and contest the
allegations of the notice of determination, and such failure shall be
deemed to be an admission of the facts as alleged in the notice for
purposes of any proceeding involving the assessment of a civil penalty
under section 502(c)(2) of the Act. Such notice shall then become the
final order of the Secretary, within the meaning of Sec. 2570.61(g) of
this subpart, forty-five (45) days from the date of service of the
notice.
9. Revise Sec. 2570.94 to read as follows:
Sec. 2570.94 Consequences of default.
For 502(c)(5) civil penalty proceedings, this section shall apply
in lieu of Sec. 18.5(a) and (b) of this title. Failure of the
respondent to file an answer to the notice of determination described
in Sec. 2560.502c-5(g) of this chapter within the 30 day period
provided by Sec. 2560.502c-5(h) of this chapter shall be deemed to
constitute a waiver of his or her right to appear and contest the
allegations of the notice of determination, and such failure shall be
deemed to be an admission of the facts as alleged in the notice for
purposes of any proceeding involving the assessment of a civil penalty
under section 502(c)(5) of the Act. Such notice shall then become a
final order of the Secretary, within the meaning of Sec. 2570.91(g) of
this subpart, forty-five (45) days from the date of the service of the
notice.
[[Page 3738]]
10. Revise Sec. 2570.114 to read as follows:
Sec. 2570.114 Consequences of default.
For 502(c)(6) civil penalty proceedings, this section shall apply
in lieu of Sec. 18.5(a) and (b) of this title. Failure of the
respondent to file an answer to the notice of determination described
in Sec. 2560.502c-6(g) of this chapter within the 30 day period
provided by Sec. 2560.502c-6(h) of this chapter shall be deemed to
constitute a waiver of his or her right to appear and contest the
allegations of the notice of determination, and such failure shall be
deemed to be an admission of the facts as alleged in the notice for
purposes of any proceeding involving the assessment of a civil penalty
under section 502(c)(6) of the Act. Such notice shall then become the
final order of the Secretary, within the meaning of Sec. 2570.111(g)
of this subpart, forty-five (45) days from the date of service of the
notice.
11. Revise Subpart G to Part 2570 to read as follows:
Subpart G--Procedures for the Assessment of Civil Penalties under
ERISA Section 502(c)(7)
Sec.
2570.130 Scope of rules.
2570.131 Definitions.
2570.132 Service: Copies of documents and pleadings.
2570.133 Parties, how designated.
2570.134 Consequences of default.
2570.135 Consent order or settlement.
2570.136 Scope of discovery.
2570.137 Summary decision.
2570.138 Decision of the administrative law judge.
2570.139 Review by the Secretary.
2570.140 Scope of review.
2570.141 Procedures for review by the Secretary.
Subpart G--Procedures for the Assessment of Civil Penalties Under
ERISA Section 502(c)(7)
Sec. 2570.130 Scope of rules.
The rules of practice set forth in this subpart are applicable to
``502(c)(7) civil penalty proceedings'' (as defined in Sec.
2570.131(n) of this subpart) under section 502(c)(7) of the Employee
Retirement Income Security Act of 1974, as amended (the Act). The rules
of procedure for administrative hearings published by the Department's
Office of Administrative Law Judges at Part 18 of this title will apply
to matters arising under ERISA section 502(c)(7) except as modified by
this subpart. These proceedings shall be conducted as expeditiously as
possible, and the parties shall make every effort to avoid delay at
each stage of the proceedings.
Sec. 2570.131 Definitions.
For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of the definitions in Sec. 18.2 of this title:
(a) Adjudicatory proceeding means a judicial-type proceeding before
an administrative law judge leading to the formulation of a final
order;
(b) Administrative law judge means an administrative law judge
appointed pursuant to the provisions of 5 U.S.C. 3105;
(c) Answer means a written statement that is supported by reference
to specific circumstances or facts surrounding the notice of
determination issued pursuant to Sec. 2560.502c-7(g) of this chapter;
(d) Commencement of proceeding is the filing of an answer by the
respondent;
(e) Consent agreement means any written document containing a
specified proposed remedy or other relief acceptable to the Department
and consenting parties;
(f) ERISA means the Employee Retirement Income Security Act of
1974, as amended;
(g) Final order means the final decision or action of the
Department of Labor concerning the assessment of a civil penalty under
ERISA section 502(c)(7) against a particular party. Such final order
may result from a decision of an administrative law judge or the
Secretary, the failure of a party to file a statement of reasonable
cause described in Sec. 2560.502c-7(e) of this chapter within the
prescribed time limits, or the failure of a party to invoke the
procedures for hearings or appeals under this title within the
prescribed time limits. Such a final order shall constitute final
agency action within the meaning of 5 U.S.C. 704;
(h) Hearing means that part of a proceeding which involves the
submission of evidence, by either oral presentation or written
submission, to the administrative law judge;
(i) Order means the whole or any part of a final procedural or
substantive disposition of a matter under ERISA section 502(c)(7);
(j) Party includes a person or agency named or admitted as a party
to a proceeding;
(k) Person includes an individual, partnership, corporation,
employee benefit plan, association, exchange or other entity or
organization;
(l) Petition means a written request, made by a person or party,
for some affirmative action;
(m) Pleading means the notice as defined in Sec. 2560.502c-7(g) of
this chapter, the answer to the notice, any supplement or amendment
thereto, and any reply that may be permitted to any answer, supplement
or amendment;
(n) 502(c)(7) civil penalty proceeding means an adjudicatory
proceeding relating to the assessment of a civil penalty provided for
in section 502(c)(7) of ERISA;
(o) Respondent means the party against whom the Department is
seeking to assess a civil sanction under ERISA section 502(c)(7);
(p) Secretary means the Secretary of Labor and includes, pursuant
to any delegation of authority by the Secretary, any assistant
secretary (including the Assistant Secretary for Pension and Welfare
Benefits), administrator, commissioner, appellate body, board, or other
official; and
(q) Solicitor means the Solicitor of Labor or his or her delegate.
Sec. 2570.132 Service: Copies of documents and pleadings.
For 502(c)(7) penalty proceedings, this section shall apply in lieu
of Sec. 18.3 of this title.
(a) General. Copies of all documents shall be served on all parties
of record. All documents should clearly designate the docket number, if
any, and short title of all matters. All documents to be filed shall be
delivered or mailed to the Chief Docket Clerk, Office of Administrative
Law Judges, 800 K Street, NW., Suite 400, Washington, DC 20001-8002, or
to the OALJ Regional Office to which the proceeding may have been
transferred for hearing. Each document filed shall be clear and
legible.
(b) By parties. All motions, petitions, pleadings, briefs, or other
documents shall be filed with the Office of Administrative Law Judges
with a copy, including any attachments, to all other parties of record.
When a party is represented by an attorney, service shall be made upon
the attorney. Service of any document upon any party may be made by
personal delivery or by mailing a copy to the last known address. The
Department shall be served by delivery to the Associate Solicitor, Plan
Benefits Security Division, ERISA section 502(c)(7) Proceeding, P.O.
Box 1914, Washington, DC 20013. The person serving the document shall
certify to the manner and date of service.
(c) By the Office of Administrative Law Judges. Service of orders,
decisions and all other documents shall be made by regular mail to the
last known address.
(d) Form of pleadings. (1) Every pleading shall contain information
indicating the name of the Pension and
[[Page 3739]]
Welfare Benefits Administration (PWBA) as the agency under which the
proceeding is instituted, the title of the proceeding, the docket
number (if any) assigned by the Office of Administrative Law Judges and
a designation of the type of pleading or paper (e.g., notice, motion to
dismiss, etc.). The pleading or paper shall be signed and shall contain
the address and telephone number of the party or person representing
the party. Although there are no formal specifications for documents,
they should be typewritten when possible on standard size 8\1/2\ x 11
inch paper.
(2) Illegible documents, whether handwritten, typewritten,
photocopied, or otherwise, will not be accepted. Papers may be
reproduced by any duplicating process provided all copies are clear and
legible.
Sec. 2570.133 Parties, how designated.
For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec. 18.10 of this title.
(a) The term ``party'' wherever used in this subpart shall include
any natural person, corporation, employee benefit plan, association,
firm, partnership, trustee, receiver, agency, public or private
organization, or government agency. A party against whom a civil
penalty is sought shall be designated as ``respondent.'' The Department
shall be designated as the ``complainant.''
(b) Other persons or organizations shall be permitted to
participate as parties only if the administrative law judge finds that
the final decision could directly and adversely affect them or the
class they represent, that they may contribute materially to the
disposition of the proceedings and their interest is not adequately
represented by existing parties, and that in the discretion of the
administrative law judge the participation of such persons or
organizations would be appropriate.
(c) A person or organization not named as a respondent wishing to
participate as a party under this section shall submit a petition to
the administrative law judge within fifteen (15) days after the person
or organization has knowledge of or should have known about the
proceeding. The petition shall be filed with the administrative law
judge and served on each person who or organization that has been made
a party at the time of filing. Such petition shall concisely state:
(1) Petitioner's interest in the proceeding;
(2) How his or her participation as a party will contribute
materially to the disposition of the proceeding;
(3) Who will appear for petitioner;
(4) The issues on which petitioner wishes to participate; and
(5) Whether petitioner intends to present witnesses.
(d) Objections to the petition may be filed by a party within
fifteen (15) days of the filing of the petition. If objections to the
petition are filed, the administrative law judge shall then determine
whether petitioner has the requisite interest to be a party in the
proceedings, as defined in paragraph (b) of this section, and shall
permit or deny participation accordingly. Where petitions to
participate as parties are made by individuals or groups with common
interests, the administrative law judge may request all such
petitioners to designate a single representative, or he or she may
recognize one or more of such petitioners. The administrative law judge
shall give each such petitioner, as well as the parties, written notice
of the decision on his or her petition. For each petition granted, the
administrative law judge shall provide a brief statement of the basis
of the decision. If the petition is denied, he or she shall briefly
state the grounds for denial and shall then treat the petition as a
request for participation as amicus curiae.
Sec. 2570.134 Consequences of default.
For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec. 18.5(a) and (b) of this title. Failure of the
respondent to file an answer to the notice of determination described
in Sec. 2560.502c-7(g) of this chapter within the 30 day period
provided by Sec. 2560.502c-7(h) of this chapter shall be deemed to
constitute a waiver of his or her right to appear and contest the
allegations of the notice of determination, and such failure shall be
deemed to be an admission of the facts as alleged in the notice for
purposes of any proceeding involving the assessment of a civil penalty
under section 502(c)(7) of the Act. Such notice shall then become the
final order of the Secretary, within the meaning of Sec. 2570.131(g)
of this subpart, forty-five (45) days from the date of service of the
notice.
Sec. 2570.135 Consent order or settlement.
For 502(c)(7) civil penalty proceedings, the following shall apply
in lieu of Sec. 18.9 of this title.
(a) General. At any time after the commencement of a proceeding,
but at least five (5) days prior to the date set for hearing, the
parties jointly may move to defer the hearing for a reasonable time to
permit negotiation of a settlement or an agreement containing findings
and an order disposing of the whole or any part of the proceeding. The
allowance of such a deferral and the duration thereof shall be in the
discretion of the administrative law judge, after consideration of such
factors as the nature of the proceeding, the requirements of the public
interest, the representations of the parties, and the probability of
reaching an agreement which will result in a just disposition of the
issues involved.
(b) Content. Any agreement containing consent findings and an order
disposing of a proceeding or any part thereof shall also provide:
(1) That the order shall have the same force and effect as an order
made after full hearing;
(2) That the entire record on which any order may be based shall
consist solely of the notice and the agreement;
(3) A waiver of any further procedural steps before the
administrative law judge;
(4) A waiver of any right to challenge or contest the validity of
the order and decision entered into in accordance with the agreement;
and
(5) That the order and decision of the administrative law judge
shall be final agency action.
(c) Submission. On or before the expiration of the time granted for
negotiations, but, in any case, at least five (5) days prior to the
date set for hearing, the parties or their authorized representative or
their counsel may:
(1) Submit the proposed agreement containing consent findings and
an order to the administrative law judge; or
(2) Notify the administrative law judge that the parties have
reached a full settlement and have agreed to dismissal of the action
subject to compliance with the terms of the settlement; or
(3) Inform the administrative law judge that agreement cannot be
reached.
(d) Disposition. In the event a settlement agreement containing
consent findings and an order is submitted within the time allowed
therefor, the administrative law judge shall issue a decision
incorporating such findings and agreement within 30 days of his receipt
of such document. The decision of the administrative law judge shall
incorporate all of the findings, terms, and conditions of the
settlement agreement and consent order of the parties. Such decision
shall become final agency action within the meaning of 5 U.S.C. 704.
(e) Settlement without consent of all parties. In cases in which
some, but not all, of the parties to a proceeding submit a consent
agreement to the administrative law judge, the following procedure
shall apply:
[[Page 3740]]
(1) If all of the parties have not consented to the proposed
settlement submitted to the administrative law judge, then such non-
consenting parties must receive notice, and a copy, of the proposed
settlement at the time it is submitted to the administrative law judge;
(2) Any non-consenting party shall have fifteen (15) days to file
any objections to the proposed settlement with the administrative law
judge and all other parties;
(3) If any party submits an objection to the proposed settlement,
the administrative law judge shall decide within 30 days after receipt
of such objections whether he shall sign or reject the proposed
settlement. Where the record lacks substantial evidence upon which to
base a decision or there is a genuine issue of material fact, then the
administrative law judge may establish procedures for the purpose of
receiving additional evidence upon which a decision on the contested
issues may reasonably be based;
(4) If there are no objections to the proposed settlement, or if
the administrative law judge decides to sign the proposed settlement
after reviewing any such objections, the administrative law judge shall
incorporate the consent agreement into a decision meeting the
requirements of paragraph (d) of this section.
Sec. 2570.136 Scope of discovery.
For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec. 18.14 of this title.
(a) A party may file a motion to conduct discovery with the
administrative law judge. The motion for discovery shall be granted by
the administrative law judge only upon a showing of good cause. In
order to establish ``good cause'' for the purposes of this section, a
party must show that the discovery requested relates to a genuine issue
as to a material fact that is relevant to the proceeding. The order of
the administrative law judge shall expressly limit the scope and terms
of discovery to that for which ``good cause'' has been shown, as
provided in this paragraph.
(b) A party may obtain discovery of documents and tangible things
otherwise discoverable under paragraph (a) of this section and prepared
in anticipation of or for the hearing by or for another party's
representative (including his or her attorney, consultant, surety,
indemnitor, insurer, or agent) only upon showing that the party seeking
discovery has substantial need of the materials or information in the
preparation of his or her case and that he or she is unable without
undue hardship to obtain the substantial equivalent of the materials or
information by other means. In ordering discovery of such materials
when the required showing has been made, the administrative law judge
shall protect against disclosure of the mental impressions,
conclusions, opinions, or legal theories of an attorney or other
representatives of a party concerning the proceeding.
Sec. 2570.137 Summary decision.
For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec. 18.41 of this title.
(a) No genuine issue of material fact. (1) Where no issue of a
material fact is found to have been raised, the administrative law
judge may issue a decision which, in the absence of an appeal pursuant
to Sec. Sec. 2570.139 through 2570.141 of this subpart, shall become a
final order.
(2) A decision made under paragraph (a) of this section shall
include a statement of:
(i) Findings of fact and conclusions of law, and the reasons
therefor, on all issues presented; and
(ii) Any terms and conditions of the rule or order.
(3) A copy of any decision under this paragraph shall be served on
each party.
(b) Hearings on issues of fact. Where a genuine question of a
material fact is raised, the administrative law judge shall, and in any
other case may, set the case for an evidentiary hearing.
Sec. 2570.138 Decision of the administrative law judge.
For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec. 18.57 of this title.
(a) Proposed findings of fact, conclusions, and order. Within
twenty (20) days of the filing of the transcript of the testimony, or
such additional time as the administrative law judge may allow, each
party may file with the administrative law judge, subject to the
judge's discretion, proposed findings of fact, conclusions of law, and
order together with a supporting brief expressing the reasons for such
proposals. Such proposals and briefs shall be served on all parties,
and shall refer to all portions of the record and to all authorities
relied upon in support of each proposal.
(b) Decision of the administrative law judge. Within a reasonable
time after the time allowed for the filing of the proposed findings of
fact, conclusions of law, and order, or within thirty (30) days after
receipt of an agreement containing consent findings and order disposing
of the disputed matter in whole, the administrative law judge shall
make his or her decision. The decision of the administrative law judge
shall include findings of fact and conclusions of law with reasons
therefor upon each material issue of fact or law presented on the
record. The decision of the administrative law judge shall be based
upon the whole record. In a contested case in which the Department and
the Respondent have presented their positions to the administrative law
judge pursuant to the procedures for 502(c)(7) civil penalty
proceedings as set forth in this subpart, the penalty (if any) which
may be included in the decision of the administrative law judge shall
be limited to the penalty expressly provided for in section 502(c)(7)
of ERISA. It shall be supported by reliable and probative evidence. The
decision of the administrative law judge shall become final agency
action within the meaning of 5 U.S.C. 704 unless an appeal is made
pursuant to the procedures set forth in Sec. Sec. 2570.139 through
2570.141 of this subpart.
Sec. 2570.139 Review by the Secretary.
(a) The Secretary may review a decision of an administrative law
judge. Such a review may occur only when a party files a notice of
appeal from a decision of an administrative law judge within twenty
(20) days of the issuance of such decision. In all other cases, the
decision of the administrative law judge shall become final agency
action within the meaning of 5 U.S.C. 704.
(b) A notice of appeal to the Secretary shall state with
specificity the issue(s) in the decision of the administrative law
judge on which the party is seeking review. Such notice of appeal must
be served on all parties of record.
(c) Upon receipt of a notice of appeal, the Secretary shall request
the Chief Administrative Law Judge to submit to him or her a copy of
the entire record before the administrative law judge.
Sec. 2570.140 Scope of review.
The review of the Secretary shall not be a de novo proceeding but
rather a review of the record established before the administrative law
judge. There shall be no opportunity for oral argument.
Sec. 2570.141 Procedures for review by the Secretary.
(a) Upon receipt of the notice of appeal, the Secretary shall
establish a briefing schedule which shall be served on all parties of
record. Upon motion of one or more of the parties, the Secretary may,
in his or her discretion, permit the submission of reply briefs.
[[Page 3741]]
(b) The Secretary shall issue a decision as promptly as possible
after receipt of the briefs of the parties. The Secretary may affirm,
modify, or set aside, in whole or in part, the decision on appeal and
shall issue a statement of reasons and bases for the action(s) taken.
Such decision by the Secretary shall be final agency action within the
meaning of 5 U.S.C. 704.
Signed at Washington, DC this 16th day of January, 2003.
Ann L. Combs,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S.
Department of Labor.
[FR Doc. 03-1431 Filed 1-23-03; 8:45 am]
BILLING CODE 4510-29-P
|
