Jul 8, 2016 – Compliance Observer Alert – DOL Increases Penalties for Health Plan Violations

Compl Obs Header Alert_2016

July 8, 2016

DOL Increases Penalties for Health Plan Violations

Applies to: All Employers

Background

The 2015 Bipartisan Budget Act (the “Act”) includes provisions to strengthen the civil monetary penalties under various federal laws, including the Employee Retirement Income Security Act (“ERISA”). Pursuant to the Act, the Department of Labor (“DOL”) must adjust ERISA’s civil monetary penalties by instituting:

  • An initial ‘‘catch-up’’ increase to the penalty amounts, effective Aug. 1, 2016; and
  • Subsequent annual adjustments for inflation, beginning in January 2017.

In response to the Act, on July 1, 2016, the DOL issued an interim final rule that increases the civil penalty amounts that may be imposed under ERISA and other federal laws. The interim final rule increases the civil penalty amounts (some rather significantly) for certain failures including, for example, failure to file an annual Form 5500 and failure to provide the Summary of Benefits and Coverage (“SBC”), as required by the Affordable Care Act (“ACA”).

The DOL’s interim final rule implements the initial catch-up increases to ERISA’s civil monetary penalties. The increased penalty amounts will become effective Aug. 1, 2016, and may apply for any violations occurring after Nov. 2, 2015. The updated maximum penalty amounts are shown in the table on pages 2-3 of this Alert.

After the initial catch-up amounts become effective on Aug. 1, 2016, the DOL must update its maximum penalty amounts based on the Consumer Price Index each year. The first annual inflation adjustment will be allowed for 2017. The DOL is required to publish annual updates reflecting the annual increases. These updates must be published in the Federal Register by Jan. 15 of each year.

Notably, the excise tax for group health plan violations, including violations of the ACA’s market reforms, is not impacted by these adjustments. This excise tax is generally $100 per day, per individual, per violation, subject to certain minimum and maximum amounts.

Table of Initial Catch-up Increases

REQUIREMENT CURRENT PENALTY AMOUNT NEW PENALTY AMOUNT
Failure to file an annual report (Form 5500) with the DOL (unless a filing exemption applies) Up to $1,100 per day Up to $2,063 per day
Failure of a multiple employer welfare arrangement (MEWA) to file an annual report(Form M-1) with the DOL Up to $1,100 per day Up to $1,502 per day

Failure to furnish plan-related information requested by the DOL

*Under ERISA, administrators of employee benefit plans must furnish to the DOL, upon request, any documents relating to the employee benefit plan, including but not limited to, the latest summary plan description (including any summaries of plan changes not contained in the summary plan description), and the bargaining agreement, trust agreement, contract or other instrument under which the plan is established or operated.

Up to $110 per day, but not to exceed $1,100 per request Up to $147 per day, but not to exceed $1,472 per request

Failing to provide the annual notice regarding CHIP coverage opportunities

*This notice applies to employers with group health plans that cover residents of states that provide a premium assistance subsidy under CHIPRA.

Up to $100 per day for each failure (each employee is a separate violation) Up to $110 per day for each failure (each employee is a separate violation)
Failure to timely disclose information to a state regarding group health plan coverage of an individual who is covered under a Medicaid or CHIP plan Up to $100 per day (each participant/beneficiary is a separate violation) Up to $110 per day (each participant/beneficiary is a separate violation)

Failure by any health plan sponsor (or any health insurance issuer offering health insurance coverage in connection with the plan), to comply with the requirements of the Genetic Information Nondiscrimination Act (GINA) for health plans

 

$100 per participant or beneficiary per day during noncompliance period

·         Minimum penalty of $2,500 per participant or beneficiary for de minimis failures not corrected prior to notice from the DOL

·         Minimum penalty of $15,000 per participant or beneficiary for failures which are not corrected prior to notice from the DOL and are not de minimis

·         $500,000 cap on unintentional failures

 

$110 per participant or beneficiary per day during noncompliance period

·         Minimum penalty of $2,745 per participant or beneficiary for de minimis failures not corrected prior to notice from the DOL

·         Minimum penalty of $16,473 per participant or beneficiary for failures which are not corrected prior to notice from the DOL and are not de minimis

·         $549,095 cap on unintentional failures

 

Failure to provide Summary of Benefits and Coverage (SBC)

Up to $1,000 per failure to provide the SBC

 

Up to $1,087 per failure to provide the SBC

 

 

Important Dates

The new penalty amounts were published in the Federal Register on July 1, 2016 and become effective on August 1, 2016. The increased amounts apply to civil penalties that are assessed after Aug. 1, 2016, for violations that occurred after Nov. 2, 2015.

 

What Should Employers Do Now?

Employers should become familiar with the new penalty amounts and review their health plans to ensure compliance with ERISA’s requirements. For example, employers should make sure they are complying with ERISA’s reporting and disclosure rules, including the Form 5500, annual CHIP notice, SBC requirements and others.  If your company has not reviewed its health and welfare plan compliance in some time, we recommend doing a thorough review to ensure you are prepared in case of a DOL audit and not subject to these increased penalties.

 

Resources

Interim final rule

EBSA Fact Sheet

DOL FAQs

Source: Zywave; Thomson Reuters/EBIA

 

Please contact your AssuredPartners NL Benefits Team if you have questions or need assistance with this topic or other compliance matters

 As part of our services to you, AssuredPartners NL and its partner agencies strive to provide you with insurance and benefit related information that is both accurate and informative. Laws, regulations and circumstances change frequently, and similar situations or slight changes to laws and regulations can lead to entirely different results. The information contained herein is for educational and/or informational purposes only and is not, nor is it intended to be legal advice. You should always seek the advice of legal counsel for guidance regarding individual situations.

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