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June 25, 1990
TO: PENSION MEMBERS NO. 29-90
INVESTMENT ADVISER MEMBERS NO. 26-90
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 24-90
RE: PROPOSED AND INTERIM REGULATIONS RELATING TO ERISA 502(1)
__________________________________________________________
The Department of Labor recently released a proposed
regulation relating to the 20 percent civil penalty under ERISA
section 502(l) for violation of fiduciary responsibilities and an
interim regulation regarding the procedures for assessing this
penalty. Copies of the regulations are attached.
Section 502(l) of ERISA requires the Department of Labor to
assess a civil penalty against a person who breaches a fiduciary
responsibility under or commits a violation of ERISA or any other
person who knowingly participates in such breach or violation.
The penalty under section 502(l) is equal to 20 percent of the
applicable recovery amount paid pursuant to a court order or
settlement, reduced by any prohibited transaction penalty taxes
paid under section 4975 of the Internal Revenue Code.
The proposed regulation defines the terms used in section
502(l) and generally provides that the penalty will apply to all
violations of fiduciary responsibilities under ERISA, including
continuing violations such as ongoing prohibited loans. The
regulation provides for pro rata reduction of the penalty for
continuing fiduciary violations which began before December 19,
1989, the effective date of section 502(l). Although the
proposed regulation will be effective 30 days after its
publication in final form, the Department of Labor indicated that
the proposal constitutes a statement of policy such that its
provisions will be used for any breach or violation occurring on
or after December 19, 1989.
The interim regulation sets forth the procedures under
which the 20 percent penalty will be assessed, when an assessed
penalty must be paid, and the circumstances pursuant to which the
penalty may be waived or reduced by the Department of Labor. The
interim regulation allows a 60 day period from the date of
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service of notice of assessment to pay the penalty and to request
a conference to waive or reduce the penalty on the basis that the
person assessed (1) acted reasonably and in good faith in
engaging in the breach or violation or (2) will not be able to
restore all losses to the plan or any participant or beneficiary
without severe financial hardship unless the waiver or reduction
is granted.
We will keep you informed of further developments.
W. Richard Mason
Assistant General Counsel
Attachment