Final Rule Relating to Adjustment of Civil Monetary Penalties [01/22/2003]
Volume 68, Number 14, Page 2875-2879
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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.
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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.
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\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
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(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)
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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.
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* 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.
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\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.
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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\
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\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.
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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]
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