[Code of Federal Regulations]
[Title 29, Volume 9]
[Revised as of July 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR2560.502c-5]

[Page 532-536]
 
                             TITLE 29--LABOR
 
 CHAPTER XXV--EMPLOYEE BENEFITS SECURITY ADMINISTRATION, DEPARTMENT OF 
                                  LABOR
 
PART 2560--RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT--Table of Contents
 
Sec. 2560.502c-5  Civil penalties under section 502(c)(5).

    (a) In general. (1) Pursuant to the authority granted the Secretary 
under section 502(c)(5) of the Employee Retirement Income Security Act 
of 1974 Pub.L. 93-406, 88 Stat. 840-52, as amended by Pub. L. 104-191, 
101 Stat. 1936) (the Act), the administrator of a multiple employer 
welfare arrangement (MEWA) (within the meaning of section 3(40)(A) of 
the Act) that is not a group health plan, and that provides benefits 
consisting of medical care (within the meaning of section 733(a)(2)), 
for which a report is required to be filed under section 101(g){h{time}  
of the Act and Sec. 2520.101-2, shall be liable for civil penalties 
assessed by the Secretary under section 502(c)(5) of the Act for each 
failure or refusal to file a completed report required to be filed under 
section 101(g){h{time}  and Sec. 2520.101-2. The term ``administrator'' 
is defined in Sec. 2520.101-2(b).

[[Page 533]]

    (2) For purposes of this section, a failure or refusal to file the 
report required to be filed under section 101(g){h{time}  shall mean a 
failure or refusal to file, in whole or in part, that information 
described in section 101(g){h{time}  and Sec. 2520.101-2, on behalf of 
the MEWA, at the time and in the manner prescribed therefor.
    (b) Amount assessed. (1) The amount assessed under section 502(c)(5) 
of the Act shall be determined by the Department of Labor, taking into 
consideration the degree and/or willfulness of the failure or refusal to 
file the report. However, the amount assessed under section 502(c)(5) of 
the Act shall not exceed $1,000 a day (or such other maximum amount as 
may be established by regulation pursuant to the Federal Civil Penalties 
Inflation Adjustment Act of 1990, as amended), computed from the date of 
the administrator's failure or refusal to file the report and, except as 
provided in paragraph (b)(2) of this section, continuing up to the date 
on which a report meeting the requirements of section 101(g) and 
Sec. 2520.101-2, as determined by the Secretary, is filed.
    (2) If, upon receipt of a notice of intent to assess a penalty (as 
described in paragraph (c) of this section), the administrator files a 
statement of reasonable cause for the failure to file, in accordance 
with paragraph (e) of this section, a penalty shall not be assessed for 
any day from the date the Department serves the administrator with a 
copy of such notice until the day after the Department serves notice on 
the administrator of its determination on reasonable cause and its 
intention to assess a penalty (as described in paragraph (g) of this 
section).
    (3) For purposes of this paragraph, the date on which the 
administrator failed or refused to file the report shall be the date on 
which the report was due (determined without regard to any extension of 
time for filing). A report which is rejected under Sec. 2520.101-2 shall 
be treated as a failure to file a report when a revised report meeting 
the requirements of this section is not filed within 45 days of the date 
of the Department's notice of rejection. If a revised report meeting the 
requirements of this section, as determined by the Secretary, is not 
submitted within 45 days of the date of the notice of rejection by the 
Department, a penalty shall be assessed under section 502(c)(5) 
beginning on the day after the date of the administrator's failure or 
refusal to file the report.
    (c) Notice of intent to assess a penalty. Prior to the assessment of 
any penalty under section 502(c)(5), the Department shall provide to the 
administrator of the MEWA a written notice indicating the Department's 
intent to assess a penalty under section 502(c)(5), the amount of such 
penalty, the period to which the penalty applies, and a statement of the 
facts and the reason(s) for the penalty.
    (d) Reconsideration or waiver of penalty to be assessed. The 
Department may determine that all or part of the penalty amount in the 
notice of intent to assess a penalty shall not be assessed on a showing 
that the administrator complied with the requirements of section 101(g) 
of the Act or on a showing by the administrator of mitigating 
circumstances regarding the degree or willfulness of the noncompliance.
    (e) Showing of reasonable cause. Upon issuance by the Department of 
a notice of intent to assess a penalty, the administrator shall have 
thirty (30) days from the date of service of the notice, as described in 
paragraph (i) of this section, to file a statement of reasonable cause 
explaining why the penalty, as calculated, should be reduced, or not be 
assessed, for the reasons set forth in paragraph (d) of this section. 
Such statement must be made in writing and set forth all the facts 
alleged as reasonable cause for the reduction or nonassessment of the 
penalty. The statement must contain a declaration by the administrator 
that the statement is made under the penalties of perjury.
    (f) Failure to file a statement of reasonable cause. Failure of an 
administrator to file a statement of reasonable cause within the thirty 
(30) day period described in paragraph (e) of this section shall be 
deemed to constitute a waiver of the right to appear and contest the 
facts alleged in the notice of intent,

[[Page 534]]

and such failure shall be deemed an admission of the facts alleged in 
the notice for purposes of any proceeding involving the assessment of a 
civil penalty under section 502(c)(5) of the Act. Such notice shall then 
become a final order of the Secretary, within the meaning of 
Sec. 2570.91(g) of this chapter, forty-five (45) days from the date of 
service of the notice.
    (g) Notice of the determination on statement of reasonable cause. 
(1) The Department, following a review of all the facts alleged in 
support of no assessment or a complete or partial waiver of the penalty, 
shall notify the administrator, in writing, of its determination to 
waive the penalty, in whole or in part, and/or assess a penalty. If it 
is the determination of the Department to assess a penalty, the notice 
shall indicate the amount of the penalty, not to exceed the amount 
described in paragraph (c) of this section, and a brief statement of the 
reasons for assessing the penalty. This notice is a ``pleading'' for 
purposes of Sec. 2570.91(m) of this chapter.
    (2) Except as provided in paragraph (h) of this section, a notice 
issued pursuant to paragraph (g)(1) of this section, indicating the 
Department's intention to assess a penalty, shall become a final order, 
within the meaning of Sec. 2570.91(g) of this chapter, forty-five (45) 
days from the date of service of the notice.
    (h) Administrative hearing. A notice issued pursuant to paragraph 
(g) of this section will not become a final order, within the meaning of 
Sec. 2570.91(g) of this chapter, if, within thirty (30) days from the 
date of the service of the notice, the administrator or a representative 
thereof files a request for a hearing under Secs. 2570.90 through 
2570.101 of this chapter, and files an answer to the notice. The request 
for hearing and answer must be filed in accordance with Sec. 2570.92 of 
this chapter and Sec. 18.4 of this title. The answer opposing the 
proposed sanction shall be in writing, and supported by reference to 
specific circumstances or facts surrounding the notice of determination 
issued pursuant to paragraph (g) of this section.
    (i) Service of notices and filing of statements. (1) Service of a 
notice for purposes of paragraphs (c) and (g) of this section shall be 
made:
    (i) By delivering a copy to the administrator or representative 
thereof;
    (ii) By leaving a copy at the principal office, place of business, 
or residence of the administrator or representative thereof; or
    (iii) By mailing a copy to the last known address of the 
administrator or representative thereof.
    (2) If service is accomplished by certified mail, service is 
complete upon mailing. If service is by regular mail, service is 
complete upon receipt by the addressee. When service of a notice under 
paragraph (c) or (g) of this section is by certified mail, five (5) days 
shall be added to the time allowed by these rules for the filing of a 
statement, or a request for hearing and answer, as applicable.
    (3) For purposes of this section, a statement of reasonable cause 
shall be considered filed:
    (i) Upon mailing, if accomplished using United States Postal Service 
certified mail or Express Mail;
    (ii) Upon receipt by the delivery service, if accomplished using a 
``designated private delivery service'' within the meaning of 26 U.S.C. 
7502(f);
    (iii) Upon transmittal, if transmitted in a manner specified in the 
notice of intent to assess a penalty as a method of transmittal to be 
accorded such special treatment; or
    (iv) In the case of any other method of filing, upon receipt by the 
Department at the address provided in the notice of intent to assess a 
penalty.
    (j) Liability--(1) If more than one person is responsible as 
administrator for the failure to file the report, all such persons shall 
be jointly and severally liable with respect to such failure.
    (2) Any person against whom a civil penalty has been assessed under 
section 502(c)(5) pursuant to a final order, within the meaning of 
Sec. 2570.91(g), shall be personally liable for the payment of such 
penalty.
    (k) Cross-reference. See Secs. 2570.90 through 101 of this chapter 
for procedural rules relating to administrative hearings under section 
502(c)(5) of the Act.
    (l) Applicability date--(1) In general. This section applies to 
administrators

[[Page 535]]

of multiple employer welfare arrangements that are not group health 
plans beginning May 1, 2000.
    (2) Transitional safe harbor period. No civil penalty will be 
assessed against an administrator that has made a good faith effort to 
comply with a Sec. 2520.101-2 filing that is due in the Year 2000.

[65 FR 7184, Feb. 11, 2000, as amended at 68 FR 3734, Jan. 24, 2003]

    Effective Date Note: At 68 FR 17505, Apr. 9, 2003, Sec. 2560.502c-5 
was revised, effective Jan. 1, 2004. For the convenience of the user, 
the revised text is set forth as follows:

Sec. 2560.502c-5--Civil  penalties under section 502(c)(5).

    (a) In general--(1) Pursuant to the authority granted the Secretary 
under section 502(c)(5) of the Employee Retirement Income Security Act 
of 1974, as amended (the Act), the administrator of a multiple employer 
welfare arrangement (MEWA) (within the meaning of section 3(40)(A) of 
the Act) that is not a group health plan, and that provides benefits 
consisting of medical care (within the meaning of section 733(a)(2)), 
for which a report is required to be filed under section 101(g) of the 
Act and 29 CFR 2520.101-2, shall be liable for civil penalties assessed 
by the Secretary under section 502(c)(5) of the Act for each failure or 
refusal to file a completed report required to be filed under section 
101(g) and 29 CFR 2520.101-2. The term ``administrator'' is defined in 
29 CFR 2520.101-2(b).
    (2) For purposes of this section, a failure or refusal to file the 
report required to be filed under section 101(g) shall mean a failure or 
refusal to file, in whole or in part, that information described in 
section 101(g) and 29 CFR 2520.101-2, on behalf of the MEWA, at the time 
and in the manner prescribed therefor.
    (b) Amount assessed--(1) The amount assessed under section 502(c)(5) 
shall be determined by the Department of Labor, taking into 
consideration the degree and/or willfulness of the failure to file the 
report. However, the amount assessed under section 502(c)(5) of the Act 
shall not exceed $1,000 a day, computed from the date of the 
administrator's failure or refusal to file the report and, except as 
provided in paragraph (b)(2) of this section, continuing up to the date 
on which a report meeting the requirements of section 101(g) and 29 CFR 
2520.101-2, as determined by the Secretary, is filed.
    (2) If, upon receipt of a notice of intent to assess a penalty (as 
described in paragraph (c) of this section), the administrator files a 
statement of reasonable cause for the failure to file, in accordance 
with paragraph (e) of this section, a penalty shall not be assessed for 
any day from the date the Department serves the administrator with a 
copy of such notice until the day after the Department serves notice on 
the administrator of its determination on reasonable cause and its 
intention to assess a penalty (as described in paragraph (g) of this 
section).
    (3) For purposes of this paragraph, the date on which the 
administrator failed or refused to file the report shall be the date on 
which the report was due (determined without regard to any extension of 
time for filing). A report which is rejected under 29 CFR 2520.101-2 
shall be treated as a failure to file a report when a revised report 
meeting the requirements of this section is not filed within 45 days of 
the date of the Department's notice of rejection. If a revised report 
meeting the requirements of this section, as determined by the 
Secretary, is not submitted within 45 days of the date of the notice of 
rejection by the Department, a penalty shall be assessed under section 
502(c)(5) beginning on the day after the date of the administrator's 
failure or refusal to file the report.
    (c) Notice of intent to assess a penalty. Prior to the assessment of 
any penalty under section 502(c)(5), the Department shall provide to the 
administrator of the MEWA a written notice indicating the Department's 
intent to assess a penalty under section 502(c)(5), the amount of such 
penalty, the period to which the penalty applies, and a statement of the 
facts and the reason(s) for the penalty.
    (d) Reconsideration or waiver of penalty to be assessed. The 
Department may determine that all or part of the penalty amount in the 
notice of intent to assess a penalty shall not be assessed on a showing 
that the administrator complied with the requirements of section 101(g) 
of the Act or on a showing by the administrator of mitigating 
circumstances regarding the degree or willfulness of the noncompliance.
    (e) Showing of reasonable cause. Upon issuance by the Department of 
a notice of intent to assess a penalty, the administrator shall have 
thirty (30) days from the date of service of the notice, as described in 
paragraph (i) of this section, to file a statement of reasonable cause 
explaining why the penalty, as calculated, should be reduced, or not be 
assessed, for the reasons set forth in paragraph (d) of this section. 
Such statement must be made in writing and set forth all the facts 
alleged as reasonable cause for the reduction or nonassessment of the 
penalty. The statement must contain a declaration by the administrator 
that the statement is made under the penalties of perjury.
    (f) Failure to file a statement of reasonable cause. Failure of an 
administrator to file a statement of reasonable cause within the thirty 
(30) day period described in paragraph (e) of this section shall be 
deemed to constitute a waiver of the right to appear and

[[Page 536]]

contest the facts alleged in the notice of intent, and such failure 
shall be deemed an admission of the facts alleged in the notice for 
purposes of any proceeding involving the assessment of a civil penalty 
under section 502(c)(5) of the Act. Such notice shall then become a 
final order of the Secretary, within the meaning of 29 CFR 2570.91(g), 
forty-five (45) days from the date of service of the notice.
    (g) Notice of the determination on statement of reasonable cause--
(1) The Department, following a review of all the facts alleged in 
support of no assessment or a complete or partial waiver of the penalty, 
shall notify the administrator, in writing, of its determination to 
waive the penalty, in whole or in part, and/or assess a penalty. If it 
is the determination of the Department to assess a penalty, the notice 
shall indicate the amount of the penalty, not to exceed the amount 
described in paragraph (c) of this section, and a brief statement of the 
reasons for assessing the penalty. This notice is a ``pleading'' for 
purposes of 29 CFR 2570.91(m).
    (2) Except as provided in paragraph (h) of this section, a notice 
issued pursuant to paragraph (g)(1) of this section, indicating the 
Department's intention to assess a penalty, shall become a final order, 
within the meaning of 29 CFR 2570.91(g), forty-five (45) days from the 
date of service of the notice.
    (h) Administrative hearing. A notice issued pursuant to paragraph 
(g) of this section will not become a final order, within the meaning of 
29 CFR 2570.91(g), if, within thirty (30) days from the date of the 
service of the notice, the administrator or a representative thereof 
files a request for a hearing under 29 CFR 2570.90 through 2570.101, and 
files an answer to the notice. The request for hearing and answer must 
be filed in accordance with 29 CFR 2570.92 and 18.4. The answer opposing 
the proposed sanction shall be in writing, and supported by reference to 
specific circumstances or facts surrounding the notice of determination 
issued pursuant to paragraph (g) of this section.
    (i) Service of notices and filing of statements--(1) Service of a 
notice for purposes of paragraphs (c) and (g) of this section shall be 
made:
    (i) By delivering a copy to the administrator or representative 
thereof;
    (ii) By leaving a copy at the principal office, place of business, 
or residence of the administrator or representative thereof; or
    (iii) By mailing a copy to the last known address of the 
administrator or representative thereof.
    (2) If service is accomplished by certified mail, service is 
complete upon mailing. If service is by regular mail, service is 
complete upon receipt by the addressee. When service of a notice under 
paragraph (c) or (g) of this section is by certified mail, five (5) days 
shall be added to the time allowed by these rules for the filing of a 
statement, or a request for hearing and answer, as applicable.
    (3) For purposes of this section, a statement of reasonable cause 
shall be considered filed:
    (i) Upon mailing, if accomplished using United States Postal Service 
certified mail or Express Mail;
    (ii) Upon receipt by the delivery service, if accomplished using a 
``designated private delivery service'' within the meaning of 26 U.S.C. 
7502(f);
    (iii) Upon transmittal, if transmitted in a manner specified in the 
notice of intent to assess a penalty as a method of transmittal to be 
accorded such special treatment; or
    (iv) In the case of any other method of filing, upon receipt by the 
Department at the address provided in the notice of intent to assess a 
penalty.
    (j) Liability--(1) If more than one person is responsible as 
administrator for the failure to file the report, all such persons shall 
be jointly and severally liable with respect to such failure.
    (2) Any person against whom a civil penalty has been assessed under 
section 502(c)(5) pursuant to a final order, within the meaning of 29 
CFR 2570.91(g), shall be personally liable for the payment of such 
penalty.
    (k) Cross-reference. See 29 CFR 2570.90 through 2570.101 for 
procedural rules relating to administrative hearings under section 
502(c)(5) of the Act.