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DOL Regulations Spell Out Penalties for Noncompliance by Multiemployer Plans in Developing Funding Plan

The Department of Labor ("DOL") issued a final regulation for imposing statutory civil penalties on Trustees of multiemployer plans in critical or endangered status that fail to adopt a Funding Improvement or Rehabilitation Plan by the statutory deadline. The sanctions also apply to Trustees of endangered (but not seriously endangered) plans that fail to meet the benchmarks for improving their funded ratio by the end of the Funding Improvement Period. The amount of the sanction will be based on the degree of willfulness involved in the failure, but it cannot exceed $1,100 per day. The regulation is effective March 29, 2010, and contains a detailed procedure for plans to challenge any proposed civil penalties.

Trustees should take into account these critical points:

1. The Trustees are jointly and severally personally liable for the civil penalties. Thus, the plan cannot reimburse the Trustees for the civil penalties;

2. The amount of the penalties is based on the degree of willfulness. If the failure is due to circumstances beyond the Trustee's control, it would seem that the Trustees have a good case for arguing that the proposed penalties should be reduced or eliminated. For example, if the Trustees are unable to agree on a default rehabilitation schedule for a critical status plan because of a difference in opinion whether adjustable benefits may be reduced or eliminated in the default plan and have submitted their dispute to arbitration, they could argue that the reason for the delay in adopting a rehabilitation plan was due to a good faith difference in the interpretation of the statute, and the failure was not willful; and

3. If the Trustees fail to contest the initial notice of proposed sanctions, they are deemed to accept the factual allegations in the notice and have waived their rights to further challenges.

The procedure for issuing and challenging proposed sanctions is as follows:

1. Notice of Intent to Assess -- The DOL issues a notice of intent to assess a civil penalty to the plan, which contains the amount of the penalty, the reasons for the action, and the period to which the penalty applies. For example, the notice may state that the DOL intends to assess a penalty of $1,100 per day from the due date of the Funding Improvement Plan to the date such plan is adopted because the parties failed to adopt a plan by the statutory deadline.

2. Statement of Reasonable Cause -- Within 30 days of service of the notice of intent to assess from DOL, the Trustees may file a statement of reasonable cause why the penalty should be reduced or not assessed. The statement must be filed under penalties of perjury and may include a statement that the statute was complied with or a description of mitigating circumstances why the penalty should be reduced or not assessed.

Cheiron observation: Possible examples of lack of willfulness on the part of Trustees include a deadlock among the Trustees concerning the details of an alternative plan, an unanticipated significant loss in the plan's investments, or failure of the bargaining parties to negotiate the increased contribution rates required by the funding improvement plan adopted by the Trustees.

If the Trustees fail to file a statement of reasonable cause, they are deemed to have admitted the facts set forth DOL's notice, waived the right to appear before DOL or contest the facts, and the DOL notice becomes a final order assessing the proposed penalty 45 days from the date of service of the notice on the Trustees.

3. DOL will review the statement of reasonable cause and make a determination whether to assess the proposed penalty or reduce it. DOL will then send the Trustees a notice of its determination. If DOL determines it will assess any penalty, even a reduced penalty, the DOL notice is treated as a pleading for purposes of the rules governing administrative proceedings. There is no time limit imposed on DOL to issue a determination on the notice of reasonable cause. If the Trustees do not request a hearing within 45 days of issuance of DOL's determination, it will become final and binding.

4. Request For Hearing -- If the DOL determines that it will assess a penalty, the Trustees may request a hearing under sections 2570.150 through 2570.171 and file an answer in writing opposing DOL's determination setting forth specific circumstances or facts surrounding DOL's notice of determination that render it inappropriate.1

Cheiron observation: The Trustees should be careful to follow the above procedures, including requesting a hearing, to avoid an argument by DOL that they are foreclosed from challenging the assessment because they failed to exhaust their administrative remedies.

Service of DOL notices and determinations may be accomplished by serving the notice or request in person, by leaving a copy of the item at the Trustees' principal place of business, principal office or home address, by depositing it in the regular mail first class to the last known address of the Trustee, or by sending it by certified mail. If service is by regular mail, service is complete only upon actual receipt by the addressee; if by certified mail, five days are added to the time for reply. Statements of Reasonable Cause by Trustees are deemed filed upon mailing with the United States Postal Service by certified or express mail.

Conclusion

The DOL regulation establishes the basis and procedure by which DOL will assess civil penalties against Trustees for failure to timely adopt a Funding Improvement or Rehabilitation Plan, and failure of an endangered pension plan to meet the funding improvement benchmarks. The civil penalties are based on the DOL's determination of the degree to which the failure was willful and offers the Trustees a procedure for challenging any proposed penalties. Trustees should be careful to follow the DOL procedures to avoid waiving their right to contest the sanction. There are legal questions regarding whether the plan can pay for the Trustees contesting the penalties. If the plan receives a notice of intent to impose civil penalties, it should be referred to fund counsel immediately.

See other timely articles in our Spring Client Advisory.


1 The regulation also adds sections 160 to 171 to Part 2570 of the DOL regulations to establish the procedures and rules governing hearings on any penalties assessed under the regulation.

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