The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) has published a final rule clarifying the penalty that may be imposed on a plan administrator for failing to provide a written notice to participants and beneficiaries of their rights to diversify the portions of plan accounts that are invested in the employer’s publicly traded securities.
The notice requirement was imposed by the Pension Protection Act of 2006, and the IRS recently issued a model notice for plan administrators’ use. The notice must be provided no later than 30 days prior to when the participant or beneficiary first becomes eligible to diversify. The diversification right kicks in immediately with respect to any portion of an account balance that’s attributable to participant contributions. For account portions attributable to employer contributions, the right begins following the participant’s completion of three years of service. The law was effective as of Jan. 1, 2007.
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The EBSA’s new rule specifies that a plan administrator may be assessed a penalty of up to $100 per day, per violation, for the failure to timely provide the diversification notice. For purposes of calculating the penalty, a failure or refusal to provide the notice to any single participant or beneficiary is treated as a separate violation. Note that these are the same penalties that are imposed for failure to provide a blackout notice.
Additional Resources:
DOL Final Rule Regarding Diversification Notice Penalties