For 2020, legislation enacted in December 2019 dramatically increased penalties imposed by the Internal Revenue Code for late filing of certain employee benefit plan notices and reports. In addition, a final rule published by the Department of Labour (DOL) made inflation adjustments to a wide range of penalties. This article compiles the penalty amounts that apply from 2020.
Sharply increased Internal Revenue Code penalties
To raise government revenue, the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2019 increased tenfold the penalties for failure to:
- timely file a plan's annual return on Internal Revenue Service (IRS) Form 5500;
- timely file notice of a plan merger, transfer of assets or spin-off on IRS Form 5310-A;
- timely file the registration statement for deferred vested benefits under a retirement plan on IRS Form 8955-SSA;
- timely file notification of certain changes in a plan's registration information on IRS Form 5500; and
- timely provide a required withholding notice to retirement plan participants on IRS Form W-4P.
A late filing of Form 5500 may result in penalties under both the Employee Retirement Income Security Act 1974 (ERISA) and the Internal Revenue Code. For Form 5500, penalty relief may be available under the DOL's Delinquent Filer Voluntary Compliance Programme, and that relief may result in IRS penalty relief.
The SECURE Act's increased penalties are generally effective for returns, statements and notices required after 31 December 2019. The table below compares penalty amounts before and after the SECURE Act.
Internal Revenue Code penalties |
|||
Code penalty section |
Description of code violations subject to penalty |
2019 penalty amount |
2020 penalty amount |
Section 6652(e) |
Failure to timely file an annual report (Form 5500) under Section 6058 |
$25 per day, up to $15,000 |
$250 per day, up to $150,000 |
Section 6652(e) |
Failure to timely file a notice of plan merger, spin-off or asset transfer (Form 5310-A) under Section 6058 |
$25 per day, up to $15,000 |
$250 per day, up to $150,000 |
Section 6652(d)(1) |
Failure to timely file the registration statement for deferred vested benefits (Form 8955-SSA) under Section 6057(a) |
$1 per participant per day, up to $5,000 |
$10 per participant per day, up to $50,000 |
Section 6652(d)(2) |
Failure to timely file notification of certain changes (Form 5500) in a plan's information (name, plan administrator, plan termination, plan merger or spin-off) under Section 6057(b) |
$1 per day, up to $1,000 |
$10 per day, up to $10,000 |
Section 6652(h) |
Failure to timely provide a required withholding notice (Form W-4P) under Section 3405(e)(10)(B) |
$10 per failure, up to $5,000 per year |
$100 per failure, up to $50,000 per year |
Inflation-adjusted penalties announced by DOL
The Federal Civil Penalties Inflation Adjustment Act 2015 directs the DOL to make annual inflation adjustments for penalties due to specified ERISA violations. The increased penalties generally apply to reporting and disclosure failures if:
- the penalty is assessed after 15 January 2020; and
- the violation occurred after 2 November 2015.
The table below compares penalty amounts assessed for violations between 23 January 2019 and 15 January 2020 (the column labelled 2019 penalty amount) with penalty amounts assessed after 15 January 2020 (the column labelled 2020 penalty amount).
DOL penalties |
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ERISA penalty statute |
Description of ERISA violations subject to penalty |
2019 penalty amount |
2020 penalty amount |
Section 209(b) |
|
$30 per affected participant and beneficiary |
$31 per affected participant and beneficiary |
Section 502(c)(2) |
|
Up to $2,194 per day |
Up to $2,233 per day |
Section 502(c)(4) |
|
Up to $1,736 per day per affected participant |
Up to $1,767 per day per affected participant |
Section 502(c)(5) |
|
Up to $1,597 per day |
Up to $1,625 per day |
Section 502(c)(6) |
|
Up to $156 per day, not to exceed $1,566 per request |
Up to $159 per day, not to exceed $1,594 per request |
Section 502(c)(7) |
|
Up to $139 per day per affected participant |
Up to $141 per day per affected participant |
Section 502(c)(8) |
|
Up to $1,378 per day |
Up to $1,402 per day |
Section 502(c)(9)(A) |
|
Up to $117 per day per affected employee |
Up to $119 per day per affected employee |
Section 502(c)(9)(B) |
|
Up to $117 per day per affected participant and beneficiary |
Up to $119 per day per affected participant and beneficiary |
Section 502(c)(10)(B)(i) |
|
$117 per day during non-compliance period |
$119 per day during non-compliance period |
Section 502(c)(10)(C)(i) |
|
$2,919 minimum |
$2,970 minimum |
Section 502(c)(10)(C)(ii) |
|
$17,515 minimum |
$17,824 minimum |
Section 502(c)(10)(D)(iii)(ll) |
|
$583,830 maximum |
$594,129 maximum |
Section 502(c)(12) |
|
Up to $107 per day |
Up to $109 per day |
Section 502(m) |
|
Amount distributed but no more than $16,915 per distribution |
Amount distributed but no more than $17,213 per distribution |
Section 715 |
|
Up to $1,156 per failure |
Up to $1,176 per failure |
Rick Stepanovic, associate, assisted in the preparation of this article.