One of Congress’s “Offset” to Pay for the SECURE Act: Tenfold Penalty Increase for Retirement Plan Filing and Notice Failures

In order to help pay for the changes that the SECURE Act will bring to the retirement system, as well as to increase compliance with filing reports and providing notices, the legislature also included a significant increase in penalties for late filing of plan returns and plan notices.  These new penalties apply to all returns, plan statements, and require plan notices that must be provided after the end of 2019.

Form 5500

The largest multi increase is for the Form 5500, the annual report employers provide on various retirement plans as that includes important information about the financial condition and operation of the plan.  The penalty increase for failure to file a Form 5500 rose tenfold from where it was previously, from $25.00 each day after it should have been filed with a maximum penalty of $15,000 to $250 per day with a maximum penalty of $150,000.

Registration Statements and Notification of Changes

Retirement plans subject to ERISA are required to file a registration statement with the IRS anytime a plan participant has a deferred vested benefit.  The tenfold penalty increase also applies in a situation where businesses fail to file their registration statement or fail to file required notifications of changes.  Previously, the penalty was $1.00 per participant per day.  The SECURE Act raises this penalty to $10 per participant per day with a maximum penalty of $50,000 per year.  The maximum penalty for failure to file a notification of change is not to exceed $10,000 per failure.

Withholding Notices

Withholding notices come from the plan administrator or the IRA plan and inform plan participants of their right to elect to have no withholding.  Tax-favored retirement plans and similar IRAs have withholding requirements on distributions, with some exceptions.  Failure to provide plan participants with notice of required withholding has also been subject to a tenfold increase due to the SECURE Act.  The penalty has been raised from $10.00 per failure up to $100 per failure and is capped at $50,000 per calendar year for all failures to provide withholding notices.

The new significant penalty increases are designed to encourage compliance with reporting requirements.  Previous penalties were low enough that many companies paid the fine instead of staying on top of reporting.  It is hoped that the larger penalties will increase compliance and make it easier to monitor retirement plans and benefits.

Plan administrators need to be aware of these changes and be prepared to provide required notices in a timely fashion. The experienced benefits attorneys at Hall Benefits Law can help your business design and implement the processes and procedures necessary to ensure compliance and avoid a costly fee. To learn more, call 678-439-6236 today or visit the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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