The Expensive Benefit Plan Penalties You'll Want to Avoid
2016 has been a whirlwind year for employer legislation and compliance, and things aren't slowing down. In July, the Department of Labor (DOL) finalized a list of increased penalty amounts for violations related to employee benefits and pay -- some of which haven't been updated since 1997.
With so many updated penalties, regulatory agencies including the DOL and IRS are bound to pay closer attention to compliance, and employers need to be ready. Here's a look at some regulations with the biggest increased penalties and how to ensure compliance:
Form 5500 Filing
Most employers who offer a 401(k) plan are required to file Form 5500 every year, and the penalty for missing it is steep. The current penalty from the DOL can run up to $1,100 per day, and it's set to almost double -- $2,063 per day with no maximum.
How to avoid: Employers who offer 401(k) plans should mark their calendars to remind them when the return is due. The return must be filed by the last day of the seventh month after the plan year ends. So for calendar-year plans, the due date is July 31.
Determine who is responsible to file the return -- don't just assume that someone will do it. Talk with HR and decide exactly who will file the return and when.
If the form does get missed, file it late anyway. After all, better late than never, and the IRS does offer penalty relief for late filers under certain conditions.
Group Health Plan Notices
Before the start of each plan year, employers must provide their employees with a summary of benefits and coverage. In addition, those who provide coverage in states with premium assistance through Medicaid or Children's Health Insurance Programs (CHIP) must inform employees of (CHIP) coverage opportunities, as well. The penalty for failing to provide a summary of benefits will increase from $1,000 to $1,087 per failure, while penalties for CHIP notices will be $110 per day, up from $100.
How to avoid: Even if employers aren't located in a state that provides Medicaid or CHIP, they have to notify all employees who live in such states. For organizations with employees spanning multiple states or with employees who work out of state, staying compliant can get tricky.
First, employers need to determine whether they will supply CHIP notices to all employees to cover their bases, or whether they will take the time to determine which employees live in states that require the notices.
Either way, coupling CHIP notices and summary of benefits together can make compliance easier. Package the information together and send them to employees at the same time. That way, employers are much less likely to forget an important piece of information.
Automatic Enrollment Information
Employers who offer retirement plans with automatic contribution arrangements, most commonly 401(k) plans, are required to inform employees of their rights and obligations under the plan. If they don't provide the required notices, they face a penalty of $1,632 per day, up from $1,000.
How to avoid: The type of notices required will depend on the kind of plan the employer offers. So to stay compliant, review the plan type and what is needed in the notice. Overall, notices need to be comprehensive, accurate and understandable by the average employee.
Usually, 401(k) plans allow employees to adjust their investment options, but blackout periods prevent employees from doing so. Blackouts happen when employers change plan service providers. They can last days, weeks or months and block participants from making any changes to their plans.
Although there is no legal limit to a blackout period, employers must let employees know when a significant one is coming, or face penalty amounts up to $131 per day, up from $100.
How to avoid: If a blackout period will last more than three days, employers must provide a written notice to all plan participants and beneficiaries at least 30 days before the blackout begins. Staying compliant is all about preparation.
Plan provider changes well in advance and let employees know as soon as possible. If notices are sent out early, they're less likely to get lost in the shuffle of a provider switch.
Entrepreneur Editors' Picks
How an Encounter With the 'Armpit of Destiny' Helped the Founder of Grubhub Take His Business From His Apartment to a $2 Billion IPO
You Can Train Your Brain to React to Stressful Situations Better. Here's the 3-Step Process.
A Disastrous Valentine's Day Inspired This Founder to Launch Her Own Floral Brand. It Became a Celebrity Magnet With Retail Revenue Up 450% Since 2019.
What Is Your Dream Job? Ask Yourself These 4 Questions to Find Out.
This Is the Crazy Process This Juice Franchise Went Through to Get USDA-Certified Organic. But It Sure Has Paid Off.
No One Would Rent Me a Café in Trendy NYC Neighborhoods, So I Tried Something Risky. Now I Have 3 Coffee Shops.