The Department of Labor (DOL) recently sent formal Notice of Rejection (NOR) letters to approximately 370 plan administrators of large plans (based on plan asset size) that failed to attach an audit report to their 2008 Form 5500. The DOL anticipates sending additional NOR letters to smaller plans in the future for missing audit report. These large plans were determined based on the size of their assets in the plan. The DOL anticipates sending a second wave of letters in the near term to the next tier plans based on the size of assets in the plan.
Upon receipt of a NOR, the plan administrator has 45 days to make any necessary corrections to the Form 5500 filing. This may involve the auditors having to correct their audit reports or even perform additional fieldwork in audit areas where work was previously not performed or deemed by the DOL to be insufficient. At the end of the 45-day period, if the Form 5500 filing remains deficient, the DOL issues a notice of intent to assess a penalty (NOI), potentially subjecting the plan administrator to civil penalties of up to $1,100 per day (imposed from the day after the original due date of the filing). As a policy matter, however, most deficiencies are penalized at $150 per day with penalties capped at $50,000.
When plan administrators receive an NOI, they have 35 days to submit to the DOL a statement of reasonable cause, submitted under penalty of perjury, in which they set forth any reasons why the penalty should be abated in part or in full. (It is important to note that traditionally the DOL will not consider abatement of any penalties in cases where deficiencies still exist.) If the plan administrator fails to comply with the requirements of the NOI, the penalty becomes a final agency action, and the plan administrator forfeits all appeal rights.
After the DOL reviews the statement of reasonable cause, the agency issues a notice of determination that contains the final penalty amount assessed against the plan administrator. The plan administrators may choose to pay the penalty amount or, within 35 days as provided for in the letter, file an answer with the administrative law judge, appealing the penalty.
Failure to make all efforts to file an accurate and complete Form 5500 may result in future enforcement correspondence from the DOL, IRS, or PBGC. Any questions regarding the DOL penalty process should be directed to the DOL Employee Benefit Security Administration’s Office of Chief Accountant (OCA) at (202) 693-8360.