The Department of Labor (DOL) has issued both a direct final rule and a proposed rule assessing civil penalties against administrators of defined contribution plans who fail to notify plan participants of their right to sell company stock.
The Department of Labor (DOL) has issued both a direct final rule and a proposed rule assessing civil penalties against administrators of defined contribution plans who fail to notify plan participants of their right to sell company stock. The penalty shall not exceed $100 per day for each violation.
The Pension Protection Act of 2006 (PPA) amended the Internal Revenue Code and ERISA to establish the right of plan participants and beneficiaries to sell the company stock in their accounts and reinvest the proceeds into other investments available under a plan. The amendments to ERISA require a plan administrator to provide applicable individuals with a notice of diversification rights no later than 30 days before the first date on which the individuals are eligible to exercise their rights. The notice must set forth the individual’s diversification rights and describe the importance of diversifying the investment of retirement account assets.
The PPA also amended ERISA to authorize the DOL to assess a civil penalty of up to $100 a day (for each violation) from the date of the plan administrator's failure or refusal to provide this notice. The DOL’s new rule, which it describes as a “technical” modification of its regulations, does not change the existing penalty assessment procedures or the related procedures for contesting a penalty. Instead the changes extend the DOL’s procedures for assessing penalties for violations of ERISA’s blackout notice provisions to include violations of the diversification notice requirement.
Because of the technical nature of the new final rule, the DOL issued the final rule without prior notice and comment procedures. However, the agency has stated that if it receives significant adverse comments during the comment period, it will withdraw the final rule and address the public comments in a subsequent final rule based upon the proposed rule, which was issued at the same time as the final rule. The DOL will not institute a second comment period on the rule; accordingly, any comments must be submitted during the current comment period.
Comments on the new rule must be submitted by September 10, 2007. If no significant adverse comments are received, the amendments made by the final rule will be effective October 9, 2007, without further action or notice.
If you have any questions regarding this new rule or any other employee benefits related issue, please contact Beth Ward, an attorney in Ford & Harrison’s Chicago office, or any member of Ford & Harrison’s Employee Benefits Practice Group.