Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

DOL Formal Notices of Rejection: What to Expect if You Receive One

Formal Notice of Rejection (NOR) letters were recently sent by the Department of Labor (DOL) to over 300 plan administrators for failing to attach an audit report to their 2008 Form 5500. Currently, these notices were sent to plans deemed to be large based on the size of the plan’s assets. A second round of notices is being anticipated for smaller plans. The Form 5500 is due within seven months after its year end. An extension can be filed prior to that time which would extend the deadline up to two and a half months. Generally, an audit is required when the number of participants in the plan exceeds one hundred participants at the beginning of the plan year. When a Form 5500 is received without an attached audit report, the DOL will send a series of notices to the plan administrator.

When a NOR is received, the plan administrator has forty-five days to make the necessary corrections to the Form 5500 filing. At the end of the 45-day period, if the Form 5500 filing remains deficient, the DOL will issue a Notice of Intent (NOI) to assess a penalty. Penalties are imposed from the day after the original due date and can amount to $1,100 per day up to $50,000.

Upon receipt of a NOI, plan administrators have 35 days to submit a Statement of Reasonable Cause, submitted under penalty of perjury, describing the reasons why the penalty should be abated in part or in full. In general, the DOL does not consider abatement of penalties when deficiencies still exist. The DOL, after reviewing the Statement of Reasonable Cause, will issue a Notice of Determination describing the final penalty amount assessed against the plan administrator. At that time, the plan administrator can choose to pay the amount of the penalty or file an appeal with the administrative law judge. This must be done within 35 days of the issuance of the Notice of Determination.

If a plan administrator does not comply with the requirements in the Notice of Intent, all appeal rights are forfeited and the penalty becomes a final agency action. If you receive a Notice of Rejection, you can contact the Office of the Chief Accountant at the DOL Employee Benefit Security Administration with questions.

Joe Goodmiller