My Flash Drive is Nearly Full - Disclosures and Notices 2017

My Flash Drive is Nearly Full - Disclosures and Notices 2017 William C. Grossman, Managing Member WCG ERISA CONSULTING, LLC William C. Grossman, Managing Member, WCG ERISA CONSULTING, LLC Until December 31, 2016, William Grossman was with McKay Hochman Co., Inc. During Bill s 15 years at McKay, he held various positions including Director of Education and Communication and Senior Consultant. Bill was the primary author of most of the McKay Hochman Co. website articles and the firm s three newsletters. Bill is an ERPA. Bill was Director of 401(k) Training for a major record keeper, and has over 20 years experience running a bank s 1 billion small retirement plan and IRA business. Bill has a BA from New Jersey City University, an MBA from Fairleigh Dickinson University and is a graduate of the NY AIB where he served as an instructor for 17 years. Bill was NIPA s Volunteer of the year in 2011. 1

Agenda IRS Notices Safe Harbor 401(k) Notices Automatic Contribution, EACA, QACA Notice SIMPLE IRA Notice Divestiture of ER Stock Notice Participant Loan Related Notices/Disclosures Notice to Interested Parties IRS Distribution Related Notices 402(f) or rollover notice, Tax withholding notice QJSA, QOSA and QPSA Notice Agenda ERISA/DOL Disclosures 404(a)(5) Participant Disclosure Summary Plan Description Summary of Material Modifications Summary Annual Report Documents Available for Review/Copy ERISA 404(c) Related Disclosures Mapping Notice Blackout Notice ERISA 204(h) Notice Benefit Statements QDIA Notice QDRO Related Notices ERISA Civil Monetary Penalties Increased for Inflation 2

IRS NOTICES Safe Harbor 401(k) Plan Notice Annual: reasonable time before each plan year 30 to 90 days is deemed reasonable e.g. Calendar year plan: Oct 2 to Dec. 1 Otherwise: Facts and circumstances New 401(k) plan: 90 days before plan effective date, through to the effective date of the plan Newly eligible participants: 90 days before becoming a participant; up to date a participant Citation: IRC section 401(k)(12)(D), Regulations 1.401(k)-3(d) Failure to provide: Operational failure 3

Safe Harbor 401(k) Notice: Failure to Provide Notice Each eligible employee must get annual SH Notice If Notice is not timely provided, an operational failure and IRS may disqualify plan safe harbor contribution still required Awaiting formal IRS EPCRS procedures, but IRS Fall 2008 Retirement News for Employers Newsletter provides correction Facts and circumstances examples based on whether participant was affected by not having received notice Safe Harbor 401(k) Notice Maybe Not Notice Content Requirements Safe Harbor formula Other contributions available and conditions available Plan to which the safe harbor contribution will be made Amount and type of compensation that can be deferred How to make the deferral election Time period for making deferral elections Withdrawal and vesting provisions How to obtain additional info about the plan May cross reference SPD for: Any other contributions, Plan to which safe harbor contribution made, or Type or amount of compensation that may be deferred Plan may be amended mid-year to stop or reduce the safe harbor contribution, in such event a supplemental notice will be provided 4

Safe Harbor 401(k) Plan Flexible or Maybe Notice Flexible or Maybe Safe Harbor Notice 30 to 90 days before each plan year Supplemental Notice if providing safe harbor contribution by December 1 of year stating that plan is making SH NEC Able to be combined with next year s safe harbor notice Citation: IRC section 401(k)(12)(D), Reg. 1.401(k)-3(f) Failure to provide: Plan is ADP/ACP tested Supplemental Notice to Reduce/Suspend Safe Harbor 401(k) Mid-year To stop safe harbor contributions mid-year: A board resolution must be passed Amend plan to remove the safe harbor provisions A supplemental notice must be provided to all eligible employees 30 days in advance of the safe harbor contribution being stopped To stop safe harbor NEC/match, the employer must have provided a safe harbor notice with language about the safe harbor being stopped mid-year or the employer must be operating at an economic loss as described in code section 412(c)(2)(A) for the plan year Plan must be tested for the year SH Contribution must be provided through end of 30 days after notice 5

Automatic Contribution Notice All Automatic Enrollment Plans, must provide the notice: Prior to the pay date for the pay period that includes the employees eligibility date Annually, 30 to 90 days before the plan year, 1.401(k)-1(e)(2)(ii) Must be provided each year for affected employees May be combined with QDIA or safe harbor notice Some provide at date of hire as a best practice Model notice provided by IRS Automatic Contribution Notices Spells out the rights and obligations to employees: Explanation of automatic enrollment Level of elective contributions that will be deducted if an affirmative election is not made Explanation that the employee has the right to elect not to have default deferrals made on his/her behalf, or that he/she may choose a different deferral percentage How investments will be made if there is no investment election form returned Permissible withdrawals, if applicable 6

Automatic Contribution Notice What if the automatic enrollment notice is not provided? EACA, IRC Section 414(w) Failure to give notice means plan fails to be EACA, may lose: permissible withdrawal, 6 months to test ADP/ACP May not implement mid-year ACA, ERISA Section 514(e) Failure to give notice under ERISA 514(e), results in Title I penalty, but ERISA preemption of state law is preserved QACA, IRC Section 401(k)(13) Failure to give safe harbor notice under a QACA may cause an incomplete auto enrollment feature a failure that could impact the QACA safe harbor ERISA section 502(c)(4) penalty of up to $1,632 per day SIMPLE IRA Notice and Summary Description within a reasonable time prior to 60 days before each plan year (allows for 60 day election period) New participant /new plan: 60 days before, through date a participant/plan effective date Notice = Content similar to safe harbor 401(k) notice Summary description = Providing a Completed Form 5305 SIMPLE or 5304 SIMPLE Citation: SIMPLE IRA Code section 408(p)(5)(C),Notice 98-4, Q&A, E-1, Failure to provide: Employer liable under Sec. 6693(c)(1) for penalty = $50 per day until notice provided; Notice 98-4: penalty shall not apply if employer can show reasonable cause for failure NOTE: SIMPLE 401(k) Notice Prior to 60 days before each plan year to provide a 60 day election period; Regulation 1.401(k)-4(d)(3) 7

Divestiture of Employer Stock Notice Requirements Defined contribution (other than ESOP) plans holding employer stock provide for divestiture of the employer stock Elective deferrals and after-tax contributions have the right to immediate divestiture Employer contributions are required to be able to be divested upon the completion of three years of vesting service Notice to be provided no later than 30 days before the first date the diversification applies to a participant or beneficiary Citation: IRC section 401(a)(35), IRS Notice 2006-107, ERISA sections 101(m) & 204(j), PPA sections 507 & 901 Failure to provide: Up to $100 per day per failure ERISA 502(c)(7) Participant Loan Related Disclosures To qualify for the participant loan prohibited transaction exemption, the plan must provide the following to a participant requesting a loan: Participant loan policy program (if not provided in the SPD); DOL Regulation 2550.408b-1(d)(2) Failure to provide: $110/day maximum $1,100/occurrence Loan application; IRC 72(p) Failure to provide: If participants do not have equal opportunity to request a loan, then a qualification failure Promissory note; Reg. 1.72(p)-1, Q/A 3(b) Failure to provide: Deemed distribution tax/penalty; 15% prohibited transaction tax if no enforceable agreement Amortization schedule; IRC 72(p) Failure to provide: no penalty. Failure to pay on amortized schedule: deemed distribution and 15% PT tax 8

Participant Loan Related Disclosures Truth-in-lending disclosure not required for loans issued after July 1, 2010, provided: Loan is direct investment within participant s account i.e. loan is not part of a pooled investment The loan satisfies IRC; Satisfies the amount limitation, repayment and amortization requirements Loan must satisfy the PT requirements: reasonable rate of interest and adequate security Exemption applies whether plan is Title I or not Plan may use Truth-in-Lending disclosure, if desired Notice to Interested Parties If submitting for a determination letter, applicant provides notice to interested parties Interested parties: generally all present employees eligible to participate in plan and other employees who work in the same place Provides employees a chance to notify DOL or IRS of any plan issues or concerns Citation: 1.7476-2 Penalty for failure to provide: DL application is invalid 9

Notice to Interested Parties Must be given upon installment, amendment or termination of plan Must be provided no later than 10 and no more than 24 days before the date of the application letter It may be necessary to use more than one method of delivery in order to ensure timely and adequate notice to all interested parties May be provided as paper or electronic (IRS regs.) Citation for notice timing: Treas. Reg. 601.201(o)(3) Distribution Related Notices Tax withholding (WH) notice For distributions not eligible for rollover Inform participant of Option to elect out Proper WH or estimated WH or Penalty Withholding Certificate W4-P W4-P usually built into distribution form Citation: Treasury Regulation 35.3405-1; Failure to provide: $10/failure, $5,000 maximum 10

402(f) Notice aka Rollover or Special Tax Notice Written explanation of distribution, rollover & tax rules Provided 30-180 days before distribution Provides participant time to study distribution options; e.g. direct rollover Participant may waive 30 day wait for distribution QJSA plans waive down to 7 days Citation: IRC 402(f), Regulation 1.402(f)-1 Failure to provide penalty Up to $100/occurrence, maximum $50,000 all failures in a calendar year Code 6642(i) 402(f) Notice Original Purpose Original Purpose of 402(f) Notice Participant s right to direct rollover To avoid 20% mandatory withholding Mandatory 20% withholding tax if an eligible rollover distribution is not directly rolled to a traditional IRA or another eligible retirement plan Example $100,000 eligible rollover distribution amount Participant requests payment in cash $20,000 mandatory withholding $80,000 paid to participant, age 30 Within 60 days of receipt, participant rolls over $80,000 to IRA 11

402(f) Contents Generally, all tax options explained Special distribution taxation rules Employer securities 10-year averaging, grandfathered Capital gains treatment, grandfathered After-tax Mandatory and Voluntary Withholding Tax result if not rolled over, generally: Subject to ordinary income tax Penalty of 10% if under age 59½ 402(f) IRS Model Forms of 2015 Updated IRS model 402(f) notices, Notice 2014-74 (prior N. 2009-68) Last updated model went into effect as of Jan. 1, 2015 Q & A format, emphasis on 20% withholding blurred IRS provides two models One for designated Roth distributions One for non-roth distributions IRS working on Spanish versions 12

402(f) IRS Model Forms of 2015 The updated Sec. 402(f) notices incorporated the following items: Partial Direct Rollover: Pre-tax first rule: Notice 2014-54 included A summary of the current tax treatment of rollovers to Roth IRAs Information regarding the ineligibility of a rollover of a permissible withdrawal of an automatic contribution requested by a participant within 90 days of automatic enrollment Information regarding penalty-free distributions of amounts rolled over to an IRA to pay for certain health insurance premiums Change after Model issued: waiver of missing the 60-day rollover requirement, not by PLR, but by self-certifying to one of the 11 reasons in Rev. Proc. 2016-47. IRS Model 402(f) and Notice 2007-7 Section 1102 of PPA and Notice 2007-7: Q&A 33, Require in IRS 402(f): A description must be written to include: For DBs, a description of how much larger benefits will be if the commencement of distributions is deferred; For DCs, and a description of the available investment options (including fees) if distribution is deferred; DB & DC, portion of SPD that describes any special rules, i.e. fees, that might materially affect participant s decision to defer. A plan administrator of a DB may use a description that includes the financial effect of deferring distributions, as described in 1.417(a)(3)-1(d)(2)(i), based solely on the normal form of benefit 13

QJSA Notice Rules Qualified Joint and Survivor Annuity (QJSA) Notice timeframe 30-180 days prior to annuity starting date. Notice must explain: normal form and optional forms of payment, the relative differences in the amount and term of the forms of payment, and the procedures to elect an optional form of payment. must provide a financial comparison of the various available distribution options Citation: IRC 411(a)(11), Regulations 1.411(a)-11 Failure to provide: Operational Failure QOSA Rules Typically incorporated onto QJSA Notice Qualified Pre-Retirement Survivor Annuity (QPSA) Notice For QJSA Plans, QPSAs apply if participant dies before benefits have commenced. A QPSA is an annuity for surviving spouse QPSA may be waived (before 35 & again at 35) QPSA waiver: must be notarized signature of both spouses QPSA language often on beneficiary designation form QPSA Notice Explains QPSA Rules Citation: ERISA section 205(a), IRC 417(a)(3) Failure to provide: Operational Failure 14

ERISA/DOL DISCLOSURES Participant Fee and Expense Disclosure, ERISA 404(a)(5) Disclosure 3 Categories of Disclosures 1. Quarterly benefit statements to reflect fees and expenses actually charged to participants accounts 2. Plan-related information administrative and individual fees, investment: alternatives, instructions & limitations 3. Investment-related information: Chart of info on each investment, Benchmark, performance, fee/expense data Website for current/additional info Glossary of terms Citation: ERISA 404(a); Reg, sec. 2520.404a-5 Failure to provide: Fiduciary Breach 15

404(a)(5) Annual Disclosure The annual 404(a)(5) disclosure is required to be provided within 12 months of the previous disclosure. For calendar year plans the initial disclosure had to be provided by August 30, 2012. The DOL interprets the within 12 months of the prior disclosure as exactly that. For example: An employer beat the August 30th, 2012 deadline and provided the disclosure on August 10th, 2012 the within 12 month deadline is not August 30th, which was the deadline for the mailing but rather that August 10th. This is referred to as deadline creep. 404(a)(5) Annual Disclosure An employer wanting to provide this annual disclosure at an alternative date could by sending two notices in 12 months. E.G. to provide it with in November with other year end notices, first send it August 30th and then again at the beginning of November. Expensive, negatively impacting return March 2015, DOL final rule provided a 14 month period from the last disclosure, rather than 12 months. Suppose the disclosure was sent on August 12, next August the notice can be sent at any time in August without worrying about date creep. 16

Summary Plan Description Plain Language Requirement Plain language description of plan s major highlights Written to be understood by the average participant Generally, at no more than an 8th grade level Details of required content defined in the DOL regulations, Section 2520.102-3, 2520.104b-4 SPD must include a claims procedure Citations: ERISA Section 102(b); also, ERISA section 503, regulation 2560.503-1 Failure to provide: Up to $110/day maximum of $1,100 for failure to provide DOL Providing the SPD upon the Initial Establishment of Plan SPD should be given to participant no later than 120 days after the later of: Effective date of plan, or Date of the adoption of the plan 17

Providing the SPD- Existing Plan, On-going Requirements SPD must be updated: every 10 years if there have been no changes to the plan (law has not caught up to 5 and 6 year cycles), or every 5 years if material changes, no later than 210 days after the end of the fifth year Example: SPD to report plan changes, such as, PPA document restatement: SPD due within 210 days after the plan year in which the amendment was effective Providing the SPD Existing Plan For new participants: Provide SPD no later than 90 days after the employee first becomes a participant For a beneficiary: Provide SPD no later than 90 days of first benefits provided to the beneficiary - Likewise for an alternate payee under QDRO For a rehire: If a rehire had taken full distribution, then treated as a new participant at rehire for SPD purposes 18

Summary Plan Description Foreign Language Rules If participants are only literate in a particular foreign language, the plan administrator must provide a cover notice written in their language, with the SPD: stating that assistance in understanding the SPD is available. The employer need not provide an SPD written in that language. The notice must include: plan administrator s phone number information about where and when the assistance will be made available. Summary Plan Description Foreign Language Rules The rules are applied differently based on whether it is a small or large plan For small plans, fewer than 100 participants on first day of plan year, the rules apply if: 25% or more are literate only in a particular foreign language Example: Plan has 90 participants, 40 are literate only in Spanish. The notice must be provided in Spanish. 19

Summary Plan Description Foreign Language Rules For large plans, 100 or more participants on first day of plan year, the rules apply if: The lesser of 500 participants or 10% of all participants are literate only in a particular foreign language Example 1 10% rule A plan has 3,000 participants, 350 are literate only in Vietnamese and 50 are literate only in Japanese. The notice must be provided in Vietnamese, but not Japanese Example 2 500-employee rule A plan has 9,000 participants. There are 700 who speak only Spanish. Even though less than 10%, since there are more than 500, the foreign language notice must be provided. Summary Plan Description Enforcement DOL may request, or audit, an SPD at any time Up to $110/day maximum of $1,100 for failure to provide DOL with an SPD that the DOL has requested. ERISA 104(a)(6) and ERISA 502(c)(6) Participant enforcement Failure to provide SPD or failure to provide adequate information DOL court enforcement DOL can seek injunction and seek other equitable relief to handle any harm done to participants 20

Summary Plan Description Enforcement ERISA Section 501 provides criminal penalties for anyone who willfully violates the disclosure requirements: Personal liability of $5,000, and/or up to 1 year imprisonment Corporate liability, if culpable person is not an individual: $100,000 Summary Plan Description Enforcement Participant enforcement Failure to provide SPD or failure to provide adequate information CAVEAT: If SPD and plan document do not match There had been a number of court cases and generally, the SPD will be deemed to override the plan document if the participant was prejudiced or harmed, or there was detrimental reliance Supreme Court Case: Cigna v. Mara (No. 09-804, May 16, 2011) 21

Summary of Material Modifications SMM may be given instead of whole SPD, if there is a material modification to the plan or when information in the SPD has been changed Due within 210 days (7 months) after the close of the plan year in which the amendment was adopted If a new participant is receiving an SPD for the first time, he or she must receive any SMM that describes an amendment not yet incorporated into the SPD SMM no longer required once the SMM information is incorporated into the SPD Citation: ERISA sec. 104(b); regulations: 2520.104b-3 and 4 Failure to provide: Up to $110/day maximum of $1,100 for failure to provide DOL Summary Annual Report (SAR) Summary of Form 5500 financial transactions Due within 60 days after the Form 5500 filing deadline 5500 extension extends the SAR deadline To be delivered to each participant and beneficiary (not posted on bulletin board) Same enforcement as SPD Annual Funding Notice for a DB Plan instead of SAR Citation: ERISA section 104(b)(3); DOL Regulations 2520.104b-10(c) Failure to provide: Up to $110 per day; If willful: court enforcement or civil penalties 22

Documents Available for Review and to Be Provided Upon Written Request When Participants/Beneficiaries File a Written Request for Documents, They Must Be Provided within 30 days After Receipt of Written Request Applications for Determination Letter Form 5500 Plan Documents under which the plan is established and operated Note: Employer can t provide documents about other participants (privacy laws) A reasonable charge for providing copies is permitted. Citation: ERISA section 104(b)(4) Failure to provide: Up to $110 per day Documents Required to Be Provided Upon Written Request No charge to provide required disclosures. i.e. no charge for providing initial copy of SPD, however, if participant request another copy, plan could charge for the additional copy Reasonable charge for providing copies of a maximum of 25 cents per page. Guidelines for charging in DOL Regulation 2520.104b-30 Penalty to plan administrator for not providing copies within 30 days of a written requested is $110 per day late that the court my award to the participant. ERISA 502(c)(1)(B) Penalty does not apply if it is lateness is beyond the reasonable control of the plan administrator 23

Form 5500 Display For electronically filed Form 5500s, within 90 days after the date the Form 5500 is filed with the DOL: DOL to display the Form 5500 information on the DOL website Companies with an intranet site for the purpose of communicating with employees and not the public must display the Form 5500 information on their intranet site for a DB plan Citations: ERISA section 104(b)(5), PPA 504 ERISA 404(c) Related Disclosures List of investment options including general description of risk/return characteristics; Summary Prospectus List of investment managers; Description of fees; Limitations on the exercise of voting rights; and Contact information for a responsible plan fiduciary Mapping Notice 24

Mapping Notice Mapping notice is sent to participants 30 to 60 days before changes made and provides: information comparing the existing and new investment options characteristics of remaining or new investment options, including risk and rate of return, are reasonably similar to those of investment options immediately before the change. an explanation that, in the absence of affirmative investment instructions from the participant or beneficiary to the contrary, the account will be invested as described in the notice Failure to provide: No 404(c) protection after qualified change in investment options Blackout Notice Sarbanes-Oxley Act Blackout notice to be provided 30 to 60 days in advance of a blackout A blackout is defined as a period of at least 3 business days during which a participant is unable to: Request a distribution, Request a loan, or Transfer assets from one investment to another Occurrence of any one of the three events brings notice requirement Citation: ERISA section 101(i), DOL Regulation 2520.101-3; PPA sections 509, 621 Failure to provide: Up to $131 per day per participant, ERISA 101(i) 25

Blackout Notice Contents DOL issued a model blackout notice Notice is to contain: Reason for blackout Name/phone number of plan admin/contact Identification of investments or other rights affected Statement about evaluating investments before blackout Expected beginning and ending date If using the week of method, provide info to obtain exact date via web and/or toll-free phone number Blackout Notice 30-days in advance may be waived in event of unforeseen events such as a hostile take-over, regs state that notice must be provided ASAP. If 30 days advance notice not provided, the reason why Notice not required if: Participant investment direction is being removed from plan. This is not be a blackout. 26

ERISA 204(h) Notice ERISA 204(h) Notice is a reduction of benefit notice 45 days before effective date for plans with 100 or more 15 days before effective date for plans with less than 100 For example, used when Money Purchase Merged into 401(k) Money Purchase terminated DB terminated Citation: ERISA section 204(h) and IRC section 4980F(e) and IRS Regulation 54.4980F-1 Failure to Provide: Amendment is invalid Benefit Statements Defined Benefit (DB) Statement Requirements DB statements must be provided once every three years, OR A notice must be provided every year: informing the participants that a statement is available upon request. Statements must include the vested benefit Citations: ERISA section 105, DOL FABs 2006-3, 2007-3, PPA section 508 Failure to provide: Civil penalty, up to $110 per day 27

Defined Contribution Statements Employer Directed Investments ANNUAL STATEMENT REQUIREMENT for plans in which Employer Directs All Plan Investments i.e. where no participant direction of any investments in the plan value of each investment as of the valuation date, including employer securities Deadline: same as Form 5500 deadline; i.e. last day of 7th month after plan year end Possibility of 2 month extension Citation for deadline: FABs 2006-3, 2007-3 DC Quarterly Benefit Statements Employee Investment Direction Quarterly statement required for DC plans with any participant investment direction Deadline: within 45 days after end of quarter Sources of funds and balance Investments and balance Optional plan Provisions to be included: Permitted Disparity Floor offset Any plan limits on investing Diversification language must be provided to participants, sample language in FAB 2006-3 Must provide DOL investment diversification web site: http://www.dol.gov/ebsa/investing.html 28

Benefit Statements FAB 2006-3, good faith compliance, Permits multiple documents from various vendors Employees must receive notice of multiple statement pieces before statement pieces Electronic statement rules, (covered later) Vested account balance to be provided at least once a year, not every quarter Vesting percentage is sufficient Model Benefit Statements were to be issued by DOL 1 year after PPA, i.e. by August 17, 2007, still pending, but Qualified Default Investment Alternative (QDIA) Notice QDIA Provides employer fiduciary relief when making investment selection for participants not responding to the request to make investment elections. i.e. automatic enrollment plans change of investment provider Citations: ERISA section 404(c)(5), DOL regulation 2550.404c-5(d), PPA section 624 Failure to provide: fiduciary has no QDIA protection 29

Qualified Default Investment Alternative (QDIA) Notice QDIA Notice must be provided: at least 30 days before the first investment in a QDIA, and annually at least 30 days before the start of each plan year Guidance unclear as to who to provide the annual QDIA notice to -- best practice is to provide to all participants QDIA Notice Content Requirements Continued Circumstances causing participant s assets to be invested in QDIA; plan s ACA provisions, if applicable A description of the QDIA, including a description of: the investment objectives, risk and return characteristics (if applicable), and fees and expenses for the investment alternative; A description of participant s right to direct QDIA into other plan investment(s), and a description of any restrictions, fees or expenses with such transfer; and Where participant can obtain investment information concerning the other investment alternatives available under the plan. 30

QDIA Notice Must be written in a manner to be understood by the average plan participant. The notice may not be part of the SPD or SMM. QDIA Notice may stand alone. any participant directed plan may have a QDIA. may be combined with the safe harbor notice and/or the automatic enrollment notice. 30 to 90 days before beginning of plan year may be provided electronically, provided the DOL or IRS rules for providing electronic communications are satisfied. IRS included default investment language in ACA notice. DOL did not provide a model. QDIA Proposed Regulations Reflect Target Date Proposed Regulations When the Proposed Target Date Fund (TDF) and QDIA Regulations are finalized the Notice will change because the proposed regulations require new comprehensive TDF disclosure, to include: Narrative of when fund changes and how Graphical depiction of allocation changes (glide path) over time and when the most conservative investment point (landing point) will be reached If a fund uses a particular date, i.e. 2050 retirement fund, an explanation of the relevance of that date TDF QDIA mechanism may be redefined TBD: TDF change may impact participant disclosures 31

QDRO Related Disclosures DRO notice to notify participant, and all alternate payees of receipt of DRO, Failure to provide = qualification failure Required by Code Sec. 414(p)(6) QDRO determination notice, notifies participant and all alternate payees of DRO meeting requirements to be a QDRO Failure to provide = qualification failure Required by Code Sec. 414(p)(6) Failure to provide: Up to $110 per day penalty QDRO Related Disclosures Plan must have QDRO procedures Required by Code section 414(p)(6) and ERISA section 206(d)(3)(G) If plan pays a benefit on a DRO that is not a QDRO: potential disqualification, fiduciary liability 32

ERISA Civil Monetary Penalties Increased for Inflation The Federal Civil Monetary Inflation Adjustment Act Improvements of 2015 ERISA Civil Monetary Penalties Inflation Adjustment The Federal Civil Monetary Inflation Adjustment Act Improvements of 2015 requires federal agencies to issue an interim final rule by July 1, 2016, adjusting their civil monetary penalties for inflation through October 2015. DOL issued its interim final rule June 30, 2016. There will be annual review and possible increases going forward. Last prior information adjustment was in 2003 33

New Penalty Amounts Adjusted for Inflation Examples ERISA Penalty Statute ERISA 209(b) ERISA 502(c)(2) Description of ERISA Violations Subject to Penalty Failure to furnish reports (e.g. pension benefit statements) to certain former participants and beneficiaries or maintain records Failure or refusal to file annual report (Form 5500) required by ERISA 104; and Failure of multiemployer plan to certify endangered or critical status under ERISA 305(b)(3)(C) treated as failure to file annual report Current Penalty Amount Up to $11 per employee Up to $1,100 per day New Penalty Amount Up to $28 per employee Up to $2,063 per day 6 8 New Penalty Amounts Adjusted for Inflation Examples ERISA Penalty Statute ERISA 502(c)(4) Description of ERISA Violations Subject to Penalty Failure to notify participants under ERISA 101(j) of certain benefit restrictions and/or limitations under Code 436; Failure to furnish certain multiemployer plan financial and actuarial reports upon request under ERISA 101(k); Failure to furnish estimate of withdrawal liability upon request under ERISA 101(l); Failure to furnish automatic contribution arrangement notice under ERISA 514(e)(3) Current Penalty Amount Up to $1,000 per day New Penalty Amount Up to $1,632 per day 34

New Penalty Amounts Adjusted for Inflation Examples ERISA Penalty Statute ERISA 502(c)(6) Description of ERISA Violations Subject to Penalty Failure to furnish information requested by the Secretary of Labor under ERISA 104(a)(6) Current Penalty Amount Up to $110 per day not to exceed $1,100 per request New Penalty Amount Up to $147 per day not to exceed $1,472 per request ERISA 502(7) Failure to furnish a blackout notice under ERISA 101(i), or notice of the right to divest employer securities under ERISA 101(m) Up to $100 per day Up to $131 per day https://www.dol.gov/ebsa/pdf/fs-interim-final-rule-adjusting-erisa-civil-monetary-penalties-for-inflation.pdf https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/fs-interim-final-ruleadjusting-erisa-civil-monetary-penalties-for-inflation.pdf 7 0 ERISA Civil Monetary Penalties Inflation Adjustment Transition Rules New fees assessed after Aug. 1, 2016, where associated violations occurred after Nov. 2, 2015. Violations occurring on or before Nov. 2, 2015 and assessments made on or before Aug. 1, 2016 for violations occurring after Nov. 2, 2015, use old rates. Starting 2017, there may be an annual fee adjustment, by January 15 of each year. E.G. by Jan. 15, 2017, DOL may adjust penalties for inflation increase from Oct. 2015 to Oct. 2016. Changes will be posted on EBSA website. 35

Questions or Comments 36