Skip to page content
Employee Benefits Security Administration

EBSA Final Rule

Final Rule Relating to Adjustment of Civil Monetary Penalties [01/22/2003]

[PDF Version]

Volume 68, Number 14, Page 2875-2879


=======================================================================
-----------------------------------------------------------------------


DEPARTMENT OF LABOR


Pension and Welfare Benefits Administration


29 CFR Part 2575


RIN 1210-AA95


 
Final Rule Relating to Adjustment of Civil Monetary Penalties


AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.


ACTION: Final rule.


-----------------------------------------------------------------------


SUMMARY: This document contains a final rule that adjusts the civil 
monetary penalties under title I of the Employee Retirement Income 
Security Act of 1974, as amended (ERISA), pursuant to the requirements 
of the Federal Civil Penalties Inflation Adjustment Act of 1990 (1990 
Act), as amended by the Debt Collection Improvement Act of 1996 (Act). 
The Act amended the 1990 Act to require generally the adjustment of 
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 final rule affects employee benefit plans, plan administrators, 
plan sponsors, fiduciaries of employee benefit plans, plan participants 
and beneficiaries, and other persons subject to the civil monetary 
penalties under title I of ERISA.


DATES: This final rule is effective on March 24, 2003, and applies only 
to violations occurring after March 24, 2003.


FOR FURTHER INFORMATION CONTACT: Eric A. Raps, Office of Regulations 
and


[[Page 2876]]


Interpretations, Pension and Welfare Benefits Administration, (202) 
219-8515. This is not a toll free number.


SUPPLEMENTARY INFORMATION: Section 31001(s) of the Debt Collection 
Improvement Act of 1996 (Act), Pub. L. 104-134, 110 Stat. 1321-373, 
amended section 4 of the Federal Civil Penalties Inflation Adjustment 
Act of 1990 (1990 Act), Pub. L. 101-410, 104 Stat. 890, to require, 
with certain exceptions, by a regulation published in the Federal 
Register, that each civil monetary penalty (CMP) be adjusted once every 
four years in accordance with guidelines specified in the amendment. 
The Act specifies that any such increase in a CMP shall apply only to 
violations that occur after the date the increase takes effect. The 
term ``civil monetary penalty'' is defined in the 1990 Act to mean any 
penalty, fine or other sanction that is for a specific monetary amount 
as provided by Federal law; or has a maximum amount provided for by 
Federal law; and is assessed or enforced by an agency pursuant to 
Federal law; and is assessed or enforced pursuant to an administrative 
proceeding or a civil action in the Federal courts.
    Only CMPs that are specified by statute or regulation in dollar 
amounts are adjusted under the 1990 Act, as amended. CMPs that are 
specified as percentages are not adjusted. The first adjustment to the 
CMPs under title I of ERISA was published in the Federal Register on 
July 29, 1997 (62 FR 40696), for incorporation into subpart E of part 
2570 of chapter XXV of title 29 of the Code of Federal Regulations 
(CFR). These regulatory provisions were redesignated and transferred to 
subpart A of part 2575 of chapter XXV of title 29 of the CFR on August 
3, 1999. See 64 FR 42246.
    The table set forth below, entitled ``Inflation Adjustment of Civil 
Monetary Penalties Under Title I of ERISA--2003'' (table) contains a 
list of civil penalties under title I of ERISA for which a 
determination must be made as to whether an inflation adjustment is 
mandated by the 1990 Act, as amended. The statutory citations for each 
of the CMPs under title I of ERISA that are subject to adjustment are 
set forth in columns (A) and (B) of the table.\1\ Column (C) briefly 
describes the nature of the violations associated with these citations. 
Column (D) of the table indicates the dollar amount of each CMP to be 
adjusted, and column (E) sets forth the year that each penalty was 
established by law or last adjusted. Columns (F), (G), (H), (I), and 
(J) contain the intermediate results of applying the series of steps 
mandated by the 1990 Act, as amended. Reference should be made to 
column (K) of the table to determine the effect of the dollar amounts 
of the final penalty adjustments by the rule contained in this document 
pursuant to the requirements of the 1990 Act, as amended.
---------------------------------------------------------------------------


    \1\ The section 502(c)(7) civil penalty, that was added to title 
I of ERISA by the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 
Stat. 745), is not included in the Table. Under this provision, 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). The methodology of the 1990 Act, as amended, could 
not result in a cost-of-living adjustment for CMPs enacted in 2002, 
for purposes of this final rule, by virtue of how the adjustment is 
calculated. See the discussion following the table, including 
footnote 2.


                                                          Inflation Adjustment of Civil Monetary Penalties Under Title I of ERISA--2003
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                   (G)
                                                                                                         (E)  Year               Penalty
                                                                                                          Penalty   (F)  CPI-   After Raw      (H)        (I)        (J)      (K)  New  Penalty
     (A)  U.S. Code Citation           (B)  ERISA Title I        (C)  Nature of     (D)  Penalty Amount   Last Set    U for     Adjustment  Unrounded  Round  to   Rounded   Amount = Col. (D) +
                                            Section                 Violation         to be  Adjusted        or       Col. E    = Col. D x   Penalty      the      Penalty         Col. (J)
                                                                                                          Adjusted     year    (538.9*/Col   Increase   Nearest    Increase
                                                                                                                                    F)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
29 U.S.C. 1059(b)................  209(b)...................  Failure to furnish    $11 per employee...       1997      480.2        12.34       1.34        $10         $0  $11 per employee.
                                                               or maintain records.
29 U.S.C. 1132(c)(1)(A)..........  502(c)(1)(A).............  Failure to notify     Up to $110 a day...       1997      480.2       123.45      13.45        100          0  Up to $110 a day.
                                                               plan participants
                                                               of group health
                                                               plan benefits under
                                                               COBRA.
                                                              Failure to notify     Up to $110 a day...       1997      480.2       123.45      13.45        100          0  Up to $110 a day.
                                                               participants and
                                                               beneficiaries of
                                                               asset transfer.
29 U.S.C. 1132(c)(1)(B)..........  502(c)(1)(B).............  Refusal to provide    Up to $110 a day...       1997      480.2       123.45      13.45        100          0  Up to $110 a day.
                                                               required
                                                               information in a
                                                               timely manner.
29 U.S.C. 1132(c)(2).............  502(c)(2)................  Failure or refusal    Up to $1,100 a day.       1997      480.2     1,234.46     134.46      1,000          0  Up to $1,100 a day.
                                                               to file an annual
                                                               report.
29 U.S.C. 1132(c)(3).............  502(c)(3)................  Failure to notify     Up to $110 a day...       1997      480.2       123.45      13.45        100          0  Up to $110 a day.
                                                               certain
                                                               participants and
                                                               beneficiaries of a
                                                               failure to meet
                                                               minimum funding
                                                               requirements.
                                                              Failure to notify     Up to $110 a day...       1997      480.2       123.45      13.45        100          0  Up to $110 a day.
                                                               certain persons of
                                                               a transfer of
                                                               excess pension
                                                               assets to health
                                                               account.


[[Page 2877]]




29 U.S.C. 1132(c)(5).............  502(c)(5)................  Failure or refusal    Up to $1,000 a day.       1996      469.5     1,147.82     147.82        100        100  Up to $1,100 a day.
                                                               to file information
                                                               required under
                                                               section 101(g).
29 U.S.C. 1132(c)(6).............  502(c)(6)................  Failure to furnish    Up to $100 a day...       1997      480.2       112.22      12.22         10         10  Up to $110 a day.
                                                               documents under
                                                               section 104(a)(6)
                                                               upon request.
                                                                                    But not $1,000 per                                                                            eq>$1,100 per
                                                                                     request.                                                                                 request.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* The value of the CPI-U average for all U.S. cities in June 2002 using 1967 as the base year was 538.9.


    Specifically, the 1990 Act, as amended, provides that the required 
inflation adjustment shall be determined by increasing the maximum CMP 
amount or the range of maximum and minimum CMP amounts, as applicable, 
for each CMP by a cost-of-living adjustment (COLA). The term ``cost-of-
living adjustment'' is defined in the Act as the percentage for each 
CMP by which the Consumer Price Index (CPI) for the month of June of 
the calendar year preceding the adjustment exceeds the CPI for the 
month of June of the calendar year in which the amount of such CMP was 
last set or adjusted by law. The term ``Consumer Price Index'' is 
defined in the 1990 Act, as amended, to mean the Consumer Price Index 
for All-Urban Consumers published by the U.S. Department of Labor.
    Accordingly, to calculate the COLA it is necessary to divide the 
CPI for June of the calendar year preceding the adjustment \2\ by the 
CPI for June of the calendar year in which the CMP was last set by law 
or adjusted for inflation. In order to calculate the raw inflation 
adjustment, it is necessary to multiply the penalty amount to be 
adjusted by the relevant COLA. See column (G) of the table. The 
subtraction of the penalty amount to be adjusted from this product 
yields the unrounded penalty increase. See column (H) of the table.
---------------------------------------------------------------------------


    \2\ The Pension and Welfare Benefits Administration has 
determined for purposes of title I of ERISA that the year of 
adjustment is the year during which the applicability date of the 
final rule first applies. Because the applicability date applies to 
violations occurring after March 24, 2003, the year of adjustment is 
2003. Accordingly, the CPI for June 2002 (i.e., the CPI for the year 
prior to the adjustment) is used for this calculation and its value 
is 538.9 using the 1967-year as the base year.
---------------------------------------------------------------------------


    Section 5 of the 1990 Act, as amended, sets forth the manner in 
which inflation adjustments must be rounded. Specifically, any increase 
in the maximum CMP or the range of maximum and minimum CMPs, as 
applicable, must be rounded to the nearest:
    (1) Multiple of $10 in the case of penalties less than or equal to 
$100;
    (2) Multiple of $100 in the case of penalties greater than $100 but 
less than or equal to $1,000;
    (3) Multiple of $1,000 in the case of penalties greater than $1,000 
but less than or equal to $10,000;
    (4) Multiple of $5,000 in the case of penalties greater than 
$10,000 but less than or equal to $100,000;
    (5) Multiple of $10,000 in the case of penalties greater than 
$100,000 but less than or equal to $200,000; and
    (6) Multiple of $25,000 in the case of penalties greater than 
$200,000.
    These amounts are determined for each penalty according to these 
rules and appear in column (I) of the table.
    Once the penalty increase has been rounded in accordance with the 
procedures set forth in the 1990 Act, as amended (see column (J) of the 
table) the rounded increase must be added to the penalty to be adjusted 
to determine the revised penalty amounts. See column (K) of the table.
    Upon application of the COLA rules previously described, and as 
reflected in the table set forth above, the following CMPs under title 
I of ERISA are affected:
    (1) The CMP of up to $1,000 a day set by ERISA section 502(c)(5) 
for the failure or refusal on the part of a person to file the 
information required to be filed pursuant to ERISA section 101(g) is 
adjusted to $1,100 a day; and
    (2) The CMP of up to $100 a day but in no event in excess of $1,000 
per request set by ERISA section 502(c)(6) for the failure on the part 
of the plan administrator to furnish the material requested by the 
Secretary under ERISA section 104(a)(6) is adjusted to $110 a day but 
in no event in excess of $1,100 per request.\3\
---------------------------------------------------------------------------


    \3\ The first adjustment under the Act, as amended, to any CMP 
may not exceed 10 percent of the penalty being adjusted. This is the 
first COLA adjustment to the section 502(c)(5) and 502(c)(6) CMPs 
and the adjustment to each CMP does not exceed the statutory cap. 
Section 502(c)(5) was added to title I of ERISA by the Health 
Insurance Portability and Accountability Act of 1996, and section 
502(c)(6) was added to title I of ERISA by the Taxpayer Relief Act 
of 1997.
---------------------------------------------------------------------------


    In view of the foregoing, the final rule contained in this document 
amends subpart A of part 2575 (``Adjustment of Civil Penalties under 
ERISA Title I'') of title 29 of the Code of Federal Regulations (CFR) 
by adding the two new regulations on the adjustment for inflation of 
the civil monetary penalties discussed above.


Notice and Public Comment


    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 the two CMP adjustments is unnecessary pursuant to section 
553(b)(3)(B) of the APA. The Department, in this final rule is merely 
implementing the specific statutory methodology, prescribed by


[[Page 2878]]


the 1990 Act, as amended, to determine whether the CMPs under title I 
of ERISA must be adjusted for inflation. The Department did not 
exercise discretion as to the calculation of the CMP adjustments and 
the final rule involves minor technical amendments to part 2575 of 
title 29 of the CFR for only two CMPs. Accordingly, the regulation is 
being published as a final rule.


Executive Order 12866


    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the 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. Pursuant to the terms 
of the Executive Order, it has been determined that this action is not 
``significant'' and therefore is not subject to review by OMB.
    As required by the Act for each civil monetary penalty, the 
Department has applied the relevant COLA to the penalty amount to be 
adjusted, rounded the penalty increase as prescribed under the 1990 
Act, and added the increase to the unadjusted penalty to determine 
changes, if any, in the penalty amounts. The recalculation resulted in 
a small penalty increase of 10 percent to the penalty amounts contained 
in sections 502(c)(5) and 502(c)(6) of ERISA. No other adjustments are 
required for civil penalties under ERISA as a result of the 
recalculation. The amendments implement the statutory adjustment 
required by the 1990 Act, as amended, and having no impact that is 
separate from that of the statutory provisions, are not ``significant'' 
under Executive Order 12866.


Regulatory Flexibility Act


    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires each Federal agency to perform a regulatory flexibility 
analysis for all rules subject to the notice and comment requirements 
of section 553(b) of the Administrative Procedure Act (5 U.S.C 551 et 
seq.) unless the head of the agency certifies that the rule will not, 
if promulgated, have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
organizations, and governmental jurisdictions.
    Because this rule is being issued as a final rule without notice 
and comment under the provision of section 553(b)(3)(B) of the APA, the 
RFA does not apply and the Department is not required to either certify 
that the rule will not have a significant impact on a substantial 
number of small entities or conduct a regulatory flexibility analysis. 
The Department does not anticipate that this final rule will impose a 
significant impact on a substantial number of small entities because it 
is expected to have no impact that is separate from the statutory 
adjustment required by the 1990 Act, as amended.


Paperwork Reduction Act


    This rule is not subject to the requirements of the Paperwork 
Reduction Act of 1995 (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).


Congressional Review Act


    The final rule is subject to the provisions of the Congressional 
Review Act (5 U.S.C. 801 et seq.) and will be transmitted to Congress 
and the Controller General for review. The final 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 
the United States-based enterprises to compete with foreign-based 
enterprises in domestic or 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, this rule does 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.


Executive Order 13132


    The Department has reviewed this regulation in accordance with 
Executive Order 13132 regarding federalism, and has determined that it 
does not have ``federalism implications.'' The rule does not have 
substantial direct effects on the States, or on the distribution of 
power and responsibilities among the various levels of government. 
Section 514 of ERISA provides, with certain specifically enumerated 
exceptions not applicable here, 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.


Statutory Authority


    This regulation is adopted pursuant to the authority contained in 
the Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. L. 
101-410, 104 Stat. 890, 28 U.S.C. 2461 note), as amended by the Debt 
Collection Improvement Act of 1996 (Pub. L. 104-134, title III, section 
31001(s), 110 Stat. 1321-373), and the authority contained in sections 
502(c) and 505 of ERISA, 29 U.S.C. 1132(c) and 1135.


List of Subjects in 29 CFR Part 2575


    Administrative practice and procedure, Employee benefit plans, 
Employee Retirement Income Security Act, Penalties, Pensions, Pension 
and Welfare Benefits Administration.


Final Rule


    In view of the foregoing, subpart A of part 2575 of chapter XXV of 
title 29 of the Code of Federal Regulations is amended as follows:


PART 2575--[AMENDED]


    1. The authority citation for part 2575 is revised to read as 
follows:


    Authority: Pub. L. 101-410, 104 Stat. 890 (28 U.S.C. 2461 note), 
as amended by section 31001(s) of Pub. L. 104-134, 110 Stat. 1321-
373; 29 U.S.C. 1059(b), 1132(c) and 1135; Secretary of Labor Order 
No. 1-87.




    2. Amend part 2575 by revising Sec.  2575.100 and adding in the 
appropriate place Sec. Sec.  2575.502c-5 and 2575.502c-6 to read as 
follows:




Sec.  2575.100  In general.


    Section 31001(s) of the Debt Collection Improvement Act of 1996 
(the Act, Public Law 104-134, 110 Stat. 1321-373) amended the Federal 
Civil Penalties Inflation Adjustment Act of 1990 (the 1990 Act, Public 
Law 101-


[[Page 2879]]


410, 104 Stat. 890) to require generally that the head of each Federal 
agency adjust the civil monetary penalties subject to its jurisdiction 
for inflation within 180 days after enactment of the Act and at least 
once every four years thereafter.




Sec.  2575.502c-5  Adjusted civil penalty under section 502(c)(5).


    In accordance with the requirements of the 1990 Act, as amended, 
the maximum amount of the civil monetary penalty established by section 
502(c)(5) of the Employee Retirement Income Security Act of 1974, as 
amended (ERISA), is hereby increased from $1,000 a day to $1,100 a day. 
This adjusted penalty applies only to violations occurring after March 
24, 2003.




Sec.  2575.502c-6  Adjusted civil penalty under section 502(c)(6).


    In accordance with the requirements of the 1990 Act, as amended, 
the maximum amount of the civil monetary penalty established by section 
502(c)(6) of the Employee Retirement Income Security Act of 1974, as 
amended (ERISA), is hereby increased from $100 a day but in no event in 
excess of $1,000 per request to $110 a day but in no event in excess of 
$1,100 per request. This adjusted penalty applies only to violations 
occurring after March 24, 2003.


    Signed in Washington, DC, this 15th day of January, 2003.
Ann L. Combs,
Assistant Secretary, Pension and Welfare Benefits Administration, 
Department of Labor.
[FR Doc. 03-1271 Filed 1-21-03; 8:45 am]

BILLING CODE 4510-29-P