Guest Article from Nathan Fisher, Managing Director, Fisher Investments 401(k) Solutions.

If you manage a 401(k) plan, you are probably familiar with the ERISA requirements (the Employee Retirement Income Security Act of 1974) for certain management duties. Enforced by the Department of Labor, these responsibilities range from filing your 5500 annual report detailing your plan’s activities for the year, to monitoring service providers. DOL fines—penalties levied for not filing on time, for not fixing plan errors, or for not providing requested documents—can add up quickly, especially because this year, the fines are increasing.

By the Numbers

2017 ERISA Civil Penalty Increases

The Department of Labor (DOL) has recently published this year’s numbers, which represent fees mostly tied to ERISA requirements involving reporting, plan management, and corrective measures deemed necessary due to failed compliance tests. Passed in 1990 (and revised in 2015), the Federal Civil Penalties Inflation Adjustment Act requires that federal agencies increase their fines each year to keep up with rising cost of living. Here are a few of the increased fees of note for failures:

2017 ERISA Civil Penalty Increases

Penalty Fee
Failure to file the required 5500 annual report $2,097 per day
Failure to supply documents requested by the DOL (with total fees for any one request capped at $1,496) $149 per day
To correct technical violations $2,790 minimum
To correct serious violations $16,742 minimum

You can find a complete list of the updated fees in the Federal Register (see the chart on pages 5384-85). 401(k)-specific fees will be labeled with “Employee Retirement Income Security Act” under the “Law” column.

Why This Matters

Of course, many of these fees are quite large, and even the smallest fee of $149 per day can compound if the root problem isn’t corrected quickly. I’ve written at great length about the need for any employer to work hard to minimize fees and expenses associated with their retirement plans, and these 401(k) penalty fines are part and parcel of the broader expense of offering retirement benefits.

Every penny you spend on these fines is one less penny you have to provide your employees with an actual retirement planning benefit.

We’ve recently published an article on how you can survive compliance testing season with confidence. As we address in this article, your plan adviser should be on top of any compliance risks associated with your plan, making sure that you meet all reporting deadlines, testing your plan for compliance, and working directly with you to review your results and to build a plan to address any potential issues.

As an employer, you can educate yourself on these fees, and actively engage with your 401(k) provider not just during compliance testing season but throughout the year to make sure that your plan meets all ERISA requirements. If you’re at risk of failing any compliance tests, work with your provider to build a strategy to improve your plan, and be sure that your provider responds immediately to all DOL reporting requests as they come.

If you are concerned about your provider’s approach to compliance testing, or find that your adviser is unresponsive during this critical period, you may want to get a second opinion on your plan.