Editor's Note: These interim rules have been modified and adopted in final form, at https://benefitslink.com/erisaregs/sarbanespenalties-final-2003.html (click)

Interim Rules: Civil Penalties Under ERISA Pursuant to the Sarbanes-Oxley Act of 2002

[Federal Register: October 21, 2002 (Volume 67, Number 203)]
[Rules and Regulations]
[Page 64774-64786]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21oc02-15]

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Parts 2560 and 2570

RIN 1210-AA91, RIN 1210-AA93


Civil Penalties Under ERISA Section 502(c)(7) and Conforming
Technical Changes on Civil Penalties Under ERISA Sections 502(c)(2),
502(c)(5) and 502(c)(6)

AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.

ACTION: Interim final rules and request for comments.

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SUMMARY: This document contains interim final rules under the Employee
Retirement Income Security Act of 1974 (ERISA) that implement certain
amendments to ERISA added as part of the Sarbanes-Oxley Act of 2002
(SOA). The interim final rules establish procedures relating to the
assessment of civil penalties by the Department of Labor (Department)
under section 502(c)(7) of ERISA for failures or refusals by plan
administrators to provide notices of a blackout period as required by
section 101(i) of ERISA. These rules are being published as interim
final rules pursuant to the authority granted the Department by section
306(b)(2) of SOA. This document also contains interim final rules
making conforming technical changes to the agency's rules of practice
and procedure for other civil penalties under section 502(c) of ERISA.
The interim final rules affect employee benefit plans, plan sponsors,
administrators and fiduciaries, and plan participants and
beneficiaries.

DATES: This regulation is effective January 26, 2003. Written comments
are invited and must be received by the

[[Page 64775]]

Department on or before November 20, 2002.

ADDRESSES: Interested persons are invited to submit written comments
(preferably three copies) to: Pension and Welfare Benefits
Administration, Room N-5669, U.S. Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210. Attention: Blackout Civil Penalty
Regulation. Written comments may also be sent by Internet to the
following address: e-ORI@pwba.dol.gov. All submissions will be open to
public inspection and copying from 8:00 a.m. to 4:30 p.m. in the Public
Disclosure Room, Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Susan Elizabeth Rees, Office of
Regulations and Interpretations, Pension and Welfare Benefits
Administration, (202) 693-8505 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

A. Background

        The Sarbanes-Oxley Act of 2002 (SOA), Public Law 107-204, enacted
on July 30, 2002, provides that the Secretary of Labor (the Secretary)
shall promulgate, within 75 days of enactment, interim final rules
necessary to carry out the provisions of section 306(b) of the SOA and,
accordingly, these interim final rules will become effective without
advance notice and comment.

        Section 306(b)(1) of SOA amended section 101 of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), to add a
new subsection (i) requiring that administrators of individual account
plans provide notice to affected participants and beneficiaries in
advance of the commencement of any blackout period. Elsewhere in the
Federal Register today, the Department has published an interim final
rule, to be codified at 29 CFR 2520.101-3, implementing the notice
requirements in ERISA section 101(i).

        Section 306(b)(3) of SOA amended section 502(c) of ERISA to add a
new paragraph (7) establishing a civil penalty for an administrator's
failure or refusal to provide timely notice of a blackout period to
participants and beneficiaries. Specifically, section 502(c)(7)
provides that the Secretary may assess a civil penalty of up to $100 a
day from the date of the plan administrator's failure or refusal to
provide notice to a participant or beneficiary in accordance with ERISA
section 101(i).

        This document contains interim final rules to be published at 29
CFR parts 2560 and 2570, that implement the civil penalty provision in
ERISA section 502(c)(7). The interim final rules establish procedures
relating to the assessment and administrative review of civil penalties
by the Department of Labor (Department) under section 502(c)(7) of
ERISA for failures or refusals by plan administrators to provide notice
of a blackout period as required by section 101(i) of ERISA and Sec.
2520.101-3. This document also contains interim final rules that make
changes to the existing civil penalty rules under ERISA sections
502(c)(2), 502(c)(5), and 502(c)(6) to incorporate certain technical
improvements being adopted as part of the section 502(c)(7)
implementing regulations. Set forth below is a general description of
the interim final rules.

B. Description of Regulations

Authority to Assess Civil Penalties for Violations of Section 101(i) of
ERISA--Sec.  2560.502c-7

        Section 2560.502c-7(a) addresses the general application of section
502(c)(7) of ERISA. Paragraph (a)(1) provides that the administrator,
as defined in ERISA section 3(16)(A), of an individual account plan
shall be liable for civil penalties assessed by the Secretary under
section 502(c)(7) in each case in which there is a failure or refusal
to provide to an affected participant or beneficiary notice of a
blackout period as required under section 101(i) of ERISA and Sec.
2520.101-3. Paragraph (a)(2) defines such a failure or refusal as a
failure or refusal, in whole or in part, to furnish the blackout notice
at the time and in the manner as required under section 101(i) of ERISA
and the Department's regulation at Sec.  2520.101-3.

        Section 2560.502c-7(b) sets forth the amount of penalties that may
be assessed under section 502(c)(7) of ERISA. Paragraph (b)(1) provides
that the Department may assess a penalty of up to $100 per day per each
affected participant or beneficiary. The amount assessed for each
violation under the regulation is computed from the date of the
administrator's failure or refusal to provide a notice of blackout
period up to and including the date that is the final day of the
blackout period for which the notice was required. Section 2560.502c-
7(b)(2) provides that for purposes of calculating the amount, each
violation with respect to each participant or beneficiary shall be
treated as a separate violation of section 101(i) of ERISA.

        Section 2560.502c-7(c) provides that, prior to assessing a penalty
under ERISA section 502(c)(7), the Department shall provide the plan
administrator with written notice indicating the Department's intent to
assess a penalty under section 502(c)(7), the amount of such penalty,
the number of participants and beneficiaries on which the penalty is
based, the period to which the penalty applies, and the reason(s) for
the penalty. The notice is to be served in accordance with Sec.
2560.502c-7(i) (service of notice provision).

        Section 2560.502c-7(d) provides that the Department may determine
not to assess a penalty, or to waive all or part of the penalty to be
assessed, under ERISA section 502(c)(7), upon a showing by the
administrator, under paragraph (e), of compliance with ERISA section
101(i) or that there were mitigating circumstances for noncompliance.
Under paragraph (e), the administrator has 30 days from the date of
service of the notice issued under Sec.  2560.502c-7(c) within which to
file a statement making such a showing. When the Department serves the
notice under paragraph (c) by certified mail, service is complete upon
mailing but five (5) days are added to the time allowed for the filing
of the statement (see Sec.  2560.502c-7(i)(2)).

        Section 2560.502c-7(f) provides that a failure to file a timely
statement under paragraph (e) shall be deemed to be a waiver of the
right to appear and contest the facts alleged in the Department's
notice of intent to assess a penalty for purposes of any adjudicatory
proceeding involving the assessment of the penalty under section
502(c)(7) of ERISA, and to be an admission of the facts alleged in the
notice of intent to assess. Such notice then becomes a final order of
the Secretary 45 days from the date of service of the notice.

        Section 2560.502c-7(g)(1) provides that, following a review of the
facts alleged in the plan administrator's statement under paragraph
(e), the Department shall notify the administrator of its determination
whether to assess the penalty, or to waive the penalty, in whole or in
part. Under paragraph (g)(2), such notice then becomes a final order 45
days from the date of service of the notice, except as provided in
paragraph (h).

        Section 2560.502c-7(h) provides that the notice described in
paragraph (g) will not become a final order of the Department if,
within 30 days of the date of service of the notice, the administrator
or representative files a request for a hearing under " 2570.130 et
seq. (also published as part of this interim final rulemaking) and
files an

[[Page 64776]]

answer, in writing, supported by reference to specific circumstances or
facts surrounding the notice. When the Department serves the notice
under paragraph (g) by mail, service is complete upon mailing but five
(5) days are added to the time allowed for the filing of a request for
hearing and answer (see Sec.  2560.502c-7(i)(2)).

        Section 2560.502c-7(i)(1) describes the rules relating to service
of the Department's notice of penalty assessment (Sec.  2560.502c-7(c))
and the Department's notice of determination on a statement of
reasonable cause (Sec.  2560.502c-7(g)). Paragraph (i)(1) provides that
service by the Department shall be made by delivering a copy to the
administrator or representative thereof; by leaving a copy at the
principal office, place of business, or residence of the administrator
or representative thereof; or by mailing a copy to the last known
address of the administrator or representative thereof. As noted above,
paragraph (i)(2) of this section provides that when service of a notice
under paragraph (c) or (g) is by certified mail, service is complete
upon mailing, but five (5) days are added to the time allowed for the
filing of a statement or a request for hearing and answer, as
applicable. Service by regular mail is complete upon receipt by the
addressee.

        Section 2560.502c-7(i)(3), which relates to the filing of
statements of reasonable cause, provides that 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. This provision does not apply to the filing of
requests for hearing and answers with the Office of the Administrative
Law Judge (OALJ) which are governed by the Department's OALJ rules in
29 CFR 18.4.

        Section 2560.502c-7(j) clarifies the liability of the parties for
penalties assessed under section 502(c)(7) of ERISA. Paragraph (j)(1)
provides that, if more than one person is responsible as administrator
for the failure to provide the required blackout notice, all such
persons shall be jointly and severally liable for such failure.
Paragraph (j)(2) provides that any person against whom a penalty is
assessed under section 502(c)(7) of ERISA, pursuant to a final order,
is personally liable for the payment of such penalty. Paragraph (j)(2)
provides that liability for the payment of penalties assessed under
section 502(c)(7) of ERISA is a personal liability of the person
against whom the penalty is assessed and not a liability of the plan.
It is the Department's view that payment of penalties assessed under
ERISA section 502(c) from plan assets would not constitute a reasonable
expense of administering a plan for purposes of ERISA Sec.  403 and
Sec.  404.

Procedures for Assessment of Civil Penalties Under ERISA Section
502(c)(7)--Sec.  2570.130 et seq.

        Section 2570.130 et seq., establishes procedures for hearings
before an Administrative Law Judge (ALJ) with respect to assessment by
the Department of a civil penalty under ERISA section 502(c)(7), and
for appealing an ALJ decision to the Secretary or her delegate. With
regard to such procedures, the Secretary has established the Pension
and Welfare Benefits Administration (PWBA) within the Department for
purposes of carrying out most of the Secretary's responsibilities under
ERISA. See Secretary's Order 1-87, 52 FR 13139 (April 27, 1987).

        The Department has already published rules of practice and
procedure for administrative hearings before the OALJ at 29 CFR part 18
(48 FR 32538 (1983)). As explained in 29 CFR 18.1, those provisions
generally govern administrative hearings before ALJs assigned to the
Department and are intended to provide uniformity in the conduct of
administrative hearings. However, in the event of an inconsistency or
conflict between the provisions of 29 CFR part 18 and a rule or
procedure required by statute, executive order or regulation, the
latter controls.

        The Department has reviewed the applicability of the provisions of
29 CFR part 18 to the assessment of civil penalties under ERISA section
502(c)(7) and has decided to adopt many, though not all, of the
provisions thereunder for ERISA 502(c)(7) proceedings. The interim
final rule relates specifically to procedures for assessing civil
penalties under section 502(c)(7) of ERISA and is controlling to the
extent it is inconsistent with any portion of 29 CFR part 18. The final
rule is designed to maintain the rules set forth at 29 CFR part 18
consistent with the need for an expedited procedure, while recognizing
the special characteristics of proceedings under ERISA section
502(c)(7). For purposes of clarity, where a particular section of part
18 would be affected by the final rule, the entire section (with
appropriate modifications) has been set out in this document. Thus,
only a portion of the provisions of the procedural regulations set
forth below involves changes from, or additions to, the rules in 29 CFR
part 18. The specific modifications to the rules in 29 CFR part 18, and
their relationship to the conduct of these proceedings generally, are
outlined below.

        The general applicability of the procedural rules under section
502(c)(7) of ERISA is set forth in Sec.  2570.130. The definition
section (Sec.  2570.131) incorporates the basic adjudicatory principles
set forth at 29 CFR part 18, but includes terms and concepts of
specific relevance to proceedings under ERISA section 502(c)(7). For
instance, Sec.  2570.131(c) defines the term "Answer," as "a written
statement that is supported by reference to specific circumstances or
facts surrounding the notice of determination issued pursuant to Sec.
2560.502c-7(g) of this chapter." Also, Sec.  2570.131(p) states that
the term "Secretary" means the Secretary of Labor and includes
various individuals to whom the Secretary may delegate authority. The
Department contemplates that the duties assigned to the Secretary under
the procedural regulation will in fact be discharged by the Assistant
Secretary for Pension and Welfare Benefits or his or her delegate.

        In general, the burden to initiate adjudicatory proceedings before
an ALJ will be on the party (respondent) against whom the Department is
seeking to assess a civil penalty under ERISA section 502(c)(7).
However, a respondent must comply with the procedures relating to
agency review set forth in Sec.  2560.502c-7 before initiating
adjudicatory proceedings. Section 2570.131(c) and (d), together with
Sec.  2560.502c-7(h), provide that a notice issued pursuant to Sec.
2560.502c-7(g) will not become the final order of the Department, if,
within 30 days from the date of the service of the notice, the
administrator or representative thereof files a request for a hearing
under Sec.  2570.130 et seq., and files an answer to the notice.

        The service of documents by the parties to an adjudicatory
proceeding, as well as by the ALJ, are governed by Sec.  2570.132.
Section 2570.133 describes how the parties are designated and provides
a procedure for interested parties other than the complainant (the
Department) and the respondent (the party against whom the civil
penalty is sought) to participate. Section 2570.134 provides that if
the respondent fails to request a hearing and file an answer to

[[Page 64777]]

the Department's notice of determination (Sec.  2560.502c-7(g)) within
the 30 day period provided by "2560.502c-7(h), such failure shall be
deemed to constitute a waiver of the right to appear and contest the
facts alleged in the notice and shall be deemed to constitute 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)(7) of ERISA. Section 2570.134 also, in conjunction with Sec.
2570.131(g), makes clear that, in the event of such failure, the
assessment of penalty becomes final 45 days from the service of the
notice of determination.

        Section 2570.135 provides that the ALJ's decision shall include the
terms and conditions of any consent order or settlement which has been
agreed to by the parties. This section also prescribes the content of
any such agreement, and provides for settlements without the consent of
all parties. This section provides that the decision of the ALJ which
incorporates such consent order shall become a final agency action
within the meaning of 5 U.S.C. 704.

        The rules in 29 CFR part 18 concerning the computation of time,
pleadings, prehearing conferences and statements, and settlements are
adopted in these procedures for adjudications under ERISA section
502(c)(7). However, Sec.  2570.136 states that discovery may be ordered
by the ALJ only upon a showing of good cause by the party seeking
discovery. This differs from the more liberal standard for discovery
contained in 29 CFR 18.14. In cases in which discovery is ordered by
the ALJ, the order shall expressly limit the scope and terms of
discovery to that for which good cause has been shown. To the extent
that the order of the ALJ does not specify rules for the conduct of the
discovery permitted by such order, the rules governing the conduct of
discovery from 29 CFR part 18 are to be applied in any proceeding under
section 502(c)(7) of ERISA. For example, if the order of the ALJ states
only that interrogatories on certain subjects may be permitted, the
rules under 29 CFR part 18 concerning the service and answering of such
interrogatories shall apply. The procedures under 29 CFR part 18 for
the submission of facts to the ALJ during the hearing are also to be
applied in proceedings under ERISA section 502(c)(7).

        The section on summary decisions (Sec.  2570.137) provides
authorization for an ALJ to issue a summary decision which may become
final when there are no genuine issues of material fact in a case
arising under ERISA section 502(c)(7). The section concerning the
decision of the ALJ (Sec.  2570.138) differs from its counterpart at
Sec.  18.57 of this title in that Sec.  2570.138 states that the
decision of the ALJ in an ERISA section 502(c)(7) case shall become the
final agency action unless a timely appeal is filed.

        The procedures for appeals of ALJ decisions under ERISA section
502(c)(7) of ERISA would be governed solely by Sec. Sec.  2570.139
through 2570.141, as acknowledged in 29 CFR 18.58. Section 2570.139
establishes the time limit within which such appeals must be filed, the
manner in which the issues for appeal are determined and the procedure
for making the entire record before the ALJ available to the Secretary.
Section 2570.140 provides that review of the Secretary shall not be on
a de novo basis, but rather on the basis of the record before the ALJ
and without an opportunity for oral argument. Section 2570.141 sets
forth the procedure for establishing a briefing schedule for such
appeals and states that the decision of the Secretary on such an appeal
shall be a final agency action within the meaning of 5 U.S.C. 704. As
required by the Administrative Procedure Act (5 U.S.C. 552(a)(2)(A))
all final decisions of the Department under section 502(c)(7) of ERISA
shall be compiled in the Public Disclosure Room of the Pension and
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor,
200 Constitution Avenue, NW, Washington, DC 20210.

Conforming Changes to Existing Civil Penalties Rules

        This document also contains interim final rules amending the
existing civil penalty assessment regulations under ERISA section
502(c)(2), 502(c)(5) and 502(c)(7) in part 2560 and part 2570 of
subchapter G, to conform them to the rules of practice and procedure
being adopted for penalty proceedings under ERISA section 502(c)(7) in
29 CFR 2560.502c-7 and part 2570 subpart G. The amendments, described
below, affect certain rules for penalty assessment and administrative
review in Sec.  2560.502c-2, Sec.  2560.502c-5, Sec.  2560.502c-6, and
subparts C, E, and F of part 2570.

        The primary amendments are intended to conform the filing and
service rules under Sec.  2560.502c-2, Sec.  2560.502c-5 and Sec.
2560.502c-6 to those being adopted for proceedings under Sec.
2560.502c-7. Specifically, Sec.  2560.502c-2(i)(2), Sec.  2560.502c-
5(i)(2) and Sec.  2560.502c-6(i)(2) are being amended to provide an
additional five days in which to file a statement of reasonable cause
or a request for hearing and answer, as applicable, when the Department
serves a notice of intent to assess a penalty or a notice of penalty
determination by certified mail, and to provide that service of a
notice by the Department by regular mail is complete upon receipt.
Sections 2560.502c-2(i)(3), 2560.502c-5(i)(3), and 2560.502c-6(i)(3)
are also amended to conform to the provisions in Sec.  2560.502c-7
under which statements of reasonable cause are treated as filed on
mailing or on transmittal under certain circumstances.

        The remaining amendments were necessary to accommodate those
changes in the filing and service rules, or were technical
clarifications. Specifically, Sec.  2560.502c-2(f), Sec.  2560.502c-
5(f), and Sec.  2560.502c-6(f) are being amended to provide that if an
administrator failed to timely file a statement of reasonable cause,
notices of intent to assess became final orders 45 days from the date
of service of the notice. Sections 2560.502c-2(g) and (h), 2560.502c-
5(g) and (h) and 2560.502c-6(g) and (h) are being amended to provide
that notices of determination would become final orders 45 days from
the date of service except that the determinations do not become final
orders if the administrator files a timely request for a hearing and an
answer. Corresponding amendments are being made to Sec.  2570.64, Sec.
2570.94, and Sec.  2570.114, which describe the "consequences of
default" for ERISA section 502(c)(2), section 502(c)(5), and section
502(c)(6) civil penalty proceedings, respectively.

        Sections 2560.502c-2(d) and (e), 2560.502c-5(d) and (e), and
2560.502c-6(d) and (e) are being amended to use the clarifying language
adopted in Sec. Sec.  2560.502c-7(d) and (e) that better describes the
statement of reasonable cause and penalty waiver procedures.

        Finally, section 2570.61(c) is being amended to clarify that for
purposes of a civil penalty proceeding under ERISA section 502 (c)(2),
"Answer" is defined as a written statement that is supported by
reference to specific circumstances or facts surrounding the notice of
determination issued pursuant to Sec.  2560.502c-2(g) of this chapter.

        These amendments are made under section 505 of ERISA which
authorizes the Department to prescribe such regulations as the
Secretary finds necessary or appropriate to carry out the provisions of
Title I of ERISA. These technical changes affect rules of agency
practice and procedure which the Secretary has determined are
appropriate to issue in interim final form in order to conform the
penalty assessment and administrative hearing procedures under section
502(c) of

[[Page 64778]]

ERISA and ensure the Secretary's ability to continue to effectively
enforce the requirements of section 502(c) of ERISA.

C. Request for Comments

        The Department invites all interested persons to submit their
comments, suggestions and views concerning any of the provisions of any
of these interim final rules. Written comments (preferably three
copies) should be submitted to: Pension and Welfare Benefits
Administration, Room N-5669, U.S. Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210. Attention: Blackout Civil Penalty
Regulation. Written comments may also be sent by Internet to the
following address: e-ORI@pwba.dol.gov. Comments must be received by the
Department on or before November 20, 2002. The comment period is being
limited to 30 days to enable the Department to adopt changes to the
interim final rule prior to the effective date of the SOA amendments.

        All submissions will be open to public inspection and copying from
8:00 a.m. to 4:30 p.m. in the Public Disclosure Room, Pension and
Welfare Benefits Administration, U.S. Department of Labor, Room N-1513,
200 Constitution Avenue, NW., Washington, DC 20210.

D. Regulatory Impact Analysis

Executive Order 12866

        Under Executive Order 12866 (58 FR 51735), the Department must
determine whether a regulatory action is "significant" and therefore
subject to review by the Office of Management and Budget (OMB). Section
3(f) of the Executive Order defines a "significant regulatory action"
as an action that is likely to result in a rule (1) having an annual
effect on the economy of $100 million or more, or adversely and
materially affecting a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local or tribal governments or communities (also referred to as
"economically significant"); (2) creating serious inconsistency or
otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impacts of entitlement
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or (4) raising novel legal or policy issues arising
out of legal mandates, the President's priorities, or the principles
set forth in the Executive Order. The Department has determined that
these interim final rules relating to the assessment of civil monetary
penalties under section 502(c)(7) of ERISA are significant in that they
provide guidance on the administration and enforcement of the notice
provisions of section 101(i) of ERISA. Separate guidance on the notice
requirements of section 101(i) (Interim Final Rule Relating to Notice
of Blackout Periods to Participants and Beneficiaries), also published
in today's issue of the Federal Register, is also considered
significant within the meaning of section 3(f)(4) of the Executive
Order. Accordingly, OMB has reviewed the interim final rules pertaining
to both the blackout notice and the related civil penalty pursuant to
the terms of the Executive Order.

        The principal benefit of the statutory penalty provisions and these
interim final rules will be greater adherence to the requirement of
ERISA section 101(i) that plan administrators provide advance written
notice to participants and beneficiaries in individual account
retirement plans whose existing rights to direct investments in their
accounts or to obtain loans or distributions will be suspended or
limited. The implementation of orderly and consistent processes for the
assessment of penalties and the review of such assessments will also be
beneficial for plan administrators. The procedures established in these
interim final rules will also allow facts and circumstances related to
a failure or refusal to provide appropriate notice to be presented by a
plan administrator and to be taken into consideration by the Department
in assessing penalties under ERISA section 502(c)(7).

        The rate of failure or refusal to provide blackout notices where
required, and the dollar value of penalties to be assessed in those
cases cannot be predicted. The civil penalty provisions of the statute
and these interim final rules impose no mandatory requirements or
costs, except where a plan administrator has failed to provide the
notice required in ERISA section 101(i).

        The technical amendments conforming the existing regulatory
provisions relating to the assessment of civil penalties under sections
502(c)(2), (c)(5), and (c)(6) of ERISA are procedural in nature, and
similarly impose no additional requirements or costs.

Paperwork Reduction Act

        This interim final rule on assessment of civil penalties under
ERISA section 502(c)(7) is not subject to the requirements of the
Paperwork Reduction Act of 1995 (PRA 95) (44 U.S.C. 3501 et seq.)
because it does not contain a collection of information as defined in
44 U.S.C. 3502(3). Information otherwise provided to the Secretary in
connection with the administrative and procedural requirements of these
interim final rules is excepted from coverage by PRA 95 pursuant to 44
U.S.C. 3518(c)(1)(B), and related regulations at 5 CFR 1320.4(a)(2) and
(c). These provisions generally except information provided as a result
of an agency's civil or administrative action, investigation, or audit.
This exception also applies to the conforming amendments to
administrative and procedural rules pertaining to the civil penalty
provisions of ERISA sections 502(c)(2), 502(c)(5), and 502(c)(6).

Regulatory Flexibility Act

        The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA),
imposes certain requirements with respect to federal rules that are
subject to the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. For purposes of its analyses under the RFA, PWBA continues to
consider a small entity to be an employee benefit plan with fewer than
100 participants. The basis of this definition is found in section
104(a)(2) of ERISA, which permits the Secretary to prescribe simplified
annual reporting for pension plans that cover fewer than 100
participants. Because this guidance is issued as an interim final rule
pursuant to the authority and deadlines prescribed in sections
306(b)(2) of SOA, RFA does not apply, and regulatory flexibility
analysis is not required. However, the Department wishes to address in
its final rulemaking any special issues facing small plans with respect
to the assessment of civil penalties under ERISA section 502(c)(7) and
the conforming amendments to existing administrative and procedural
regulations relating to the assessment of civil penalties under ERISA
sections 502(c)(2), (c)(5), and (c)(6).

        The terms of the statute pertaining to the assessment of civil
penalties for failure to provide notices to plan participants and
beneficiaries in the event of a blackout do not vary relative to plan
or plan administrator size. The operation of the statute will normally
result in the assessment of lower penalties where small plans are
involved because a violation with respect to a single participant or
beneficiary is treated as a separate violation for purposes of
calculating the penalty. The opportunity for a plan administrator to
present facts and

[[Page 64779]]

circumstances related to a failure or refusal to provide appropriate
notice that may be taken into consideration by the Department in
assessing penalties under ERISA section 502(c)(7) may offer some degree
of flexibility to small entities subject to penalty assessments.
Penalty assessments will have no direct impact on small plans because
the plan administrator assessed a civil penalty is personally liable
for the payment of that penalty pursuant to section 2560.502c-7(j).

        The Department invites interested persons to submit comments on the
impact of this interim final rule on small entities, and on any
alternative approaches that may serve to minimize the impact on small
plans or other entities while accomplishing the objectives of the
statutory provisions.

Congressional Review Act

        The rules being issued here are subject to the Congressional Review
Act provisions of the Small Business Regulatory Enforcement Fairness
Act of 1996 (5 U.S.C. 801 et seq.) and have been transmitted to
Congress and the Comptroller General for review. The rule is not a
"major rule" as that term is defined in 5 U.S.C. 804, because it is
not likely to result in (1) an annual effect on the economy of $100
million or more; (2) a major increase in costs or prices for consumers,
individual industries, or federal, State, or local government agencies,
or geographic regions; or (3) significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets.

Unfunded Mandates Reform Act

        For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this rule does not include
any Federal mandate that may result in expenditures by State, local, or
tribal governments, and does not impose an annual burden exceeding $100
million on the private sector.

Federalism Statement

        Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires the adherence to specific
criteria by federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. This final rule does not have federalism
implications because it has no substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Section 514 of ERISA provides, with certain
exceptions specifically enumerated, that the provisions of Titles I and
IV of ERISA supersede any and all laws of the States as they relate to
any employee benefit plan covered under ERISA. The requirements
implemented in this final rule do not alter the fundamental reporting
and disclosure, or administration and enforcement provisions of the
statute with respect to employee benefit plans, and as such have no
implications for the States or the relationship or distribution of
power between the national government and the States.

List of Subjects

29 CFR Part 2560

        Employee benefit plans, Employee Retirement Income Security Act,
Law enforcement, Pensions.

29 CFR Part 2570

        Administrative practice and procedure, Employee benefit plans,
Employee Retirement Income Security Act, Law enforcement, Pensions.

        In view of the foregoing, Parts 2560 and 2570 of Chapter XXV of
title 29 of the Code of Federal Regulations are amended as follows:

PART 2560--RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT

        1. The authority citation for Part 2560 is revised to read as
follows:

        Authority: 29 U.S.C. 1132, 1135, and Secretary's Order 1-87, 52
FR 13139 (April 21, 1987).


    Section 2560.503-1 also issued under 29 U.S.C. 1133.

    Section 2560.502(c)(7) also issued under sec. 306 (b)(2) of Pub. L.
107-204, 116 Stat. 745.

    2-3. Revise Sec.  2560.502c-2, paragraphs (d), (e), (f), (g), (h),
and (i) to read as follows:

    Sec.  2560.502c-2  Civil penalties under section 502(c)(2).

* * * * *

    (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(b)(1) 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, 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)(2) of the Act. Such notice shall then become a final order of
the Secretary, within the meaning of Sec.  2570.61(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. This
notice is a "pleading" for purposes of Sec.  2570.61(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.  2570.61(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

[[Page 64780]]

section will not become a final order, within the meaning of Sec.
2570.61(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 Sec. Sec.  2570.60 through
2570.71 of this chapter, and files an answer to the notice. The request
for hearing and answer must be filed in accordance with Sec.  2570.62
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.
* * * * *


    4. Revise Sec.  2560.502c-5, paragraphs (d), (e), (f), (g), (h),
and (i) to read as follows:

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

* * * * *

        (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, 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 Sec. Sec.
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

[[Page 64781]]

Department at the address provided in the notice of intent to assess a
penalty.
* * * * *

        5. Revise Sec.  2560.502c-6, paragraphs (d), (e), (f), (g), (h),
and (i) to read as follows:

    Sec.  2560.502c-6  Civil penalties under section 502(c)(6).

* * * * *

        (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
104(a)(6) 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 to
file a statement of reasonable cause within the 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, 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)(6) of the Act. Such
notice shall then become a final order of the Secretary, within the
meaning of Sec.  2570.111(g) of this chapter, forty-five (45) days from
the date of service of the notice.

        (g) Notice of determination on statement of reasonable cause. (1)
The Department, following a review of all of 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 not to assess or 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. This notice is a "pleading" for purposes of Sec.
2570.111(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.  2570.111(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 Sec. Sec.
2570.110 through 2570.121 of this chapter, and files an answer to the
notice. The request for hearing and answer must be filed in accordance
with Sec.  2570.112 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.
* * * * *

        6. Add a new Sec.  2560.502c-7 to read as follows:

    Sec.  2560.502c-7  Civil penalties under section 502(c)(7).


    (a) In general. (1) Pursuant to the authority granted the Secretary
under section 502(c)(7) of the Employee Retirement Income Security Act
of 1974, as amended (the Act), the administrator (within the meaning of
section 3(16)(A) of the Act) of an individual account plan (within the
meaning of section 101(i)(8) of the Act and Sec.  2520.101-3(d)(2) of
this chapter), shall be liable for civil penalties assessed by the
Secretary under section 502(c)(7) of the Act for failure or refusal to
provide notice of a blackout period to affected participants and
beneficiaries in accordance with section 101(i) of the Act and Sec.
2520.101-3 of this chapter.

        (2) For purposes of this section, a failure or refusal to provide a
notice of blackout period shall mean a failure or refusal, in whole or
in part, to provide notice of a blackout period to an affected plan
participant or beneficiary at the time and in the manner prescribed by
section 101(i) of the Act and Sec.  2520.101-3 of this chapter.

        (b) Amount assessed. (1) The amount assessed under section
502(c)(7) of the Act for each separate violation shall be determined by
the Department of Labor, taking into consideration the degree and/or
willfulness of the failure or refusal to provide a notice of blackout
period. However, the amount assessed for each violation under section
502(c)(7) of the Act shall not exceed $100 a day, computed from the
date of the administrator's failure or refusal to provide a notice of
blackout period up to and including the date that is the final day of
the blackout period for which the notice was required.

        (2) For purposes of calculating the amount to be assessed under
this section, a failure or refusal to provide a notice of blackout
period with respect to any single participant or beneficiary shall be
treated as a separate violation under section 101(i) of the Act and
Sec.  2520.101-3 of this chapter.

        (c) Notice of intent to assess a penalty. Prior to the assessment
of any penalty under section 502(c)(7) of the Act, the Department shall
provide to the

[[Page 64782]]

administrator of the plan a written notice indicating the Department's
intent to assess a penalty under section 502(c)(7) of the Act, the
amount of such penalty, the number of participants and beneficiaries on
which the penalty is based, the period to which the penalty applies,
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(i)
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 to
file a statement of reasonable cause within the 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, 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)(7) of the Act. Such
notice shall then become a final order of the Secretary, within the
meaning of Sec.  2570.131(g) of this chapter, forty-five (45) days from
the date of service of the notice.

        (g) Notice of determination on statement of reasonable cause. (1)
The Department, following a review of all of the facts in a statement
of reasonable cause alleged in support of no assessment or a complete
or partial waiver of the penalty, shall notify the administrator, in
writing, of its determination on the statement of reasonable cause and
its determination whether 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 assessment, not to exceed the amount described in paragraph (c)
of this section. This notice is a "pleading" for purposes of Sec.
2570.131(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 determination to assess a penalty, shall become a final
order, within the meaning of Sec.  2570.131(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.  2570.131(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 Sec. Sec.
2570.130 through 2570.141 of this chapter, and files an answer to the
notice. The request for hearing and answer must be filed in accordance
with Sec.  2570.132 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 provide a notice of blackout period
under section 101(i) of the Act and its implementing regulations (Sec.
2520.101-3 of this chapter), all such persons shall be jointly and
severally liable for such failure.

        (2) Any person, or persons under paragraph (j)(1) of this section,
against whom a civil penalty has been assessed under section 502(c)(7)
of the Act, pursuant to a final order, within the meaning of Sec.
2570.131(g) of this chapter, shall be personally liable for the payment
of such penalty.

        (k) Cross-reference. See Sec. Sec.  2570.130 through 2570.141 of
this chapter for procedural rules relating to administrative hearings
under section 502(c)(7) of the Act.

PART 2570--PROCEDURAL REGULATIONS UNDER THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT

        7. Revise the authority citation for Part 2570 to read as set forth
below:

        Authority: 29 U.S.C. 1021, 1108, 1132, 1135, 5 U.S.C. 8477;
Reorganization Plan No. 4 of 1978; Secretary of Labor's Order 1-87.

        Subpart G is also issued under sec. 306(b)(2) of Pub. L. 107-204,
116 Stat. 745.

        8. Revise Sec.  2570.61(c) to read as follows:

    Sec.  2570.61  Definitions.

* * * * *

        (c) Answer means a written statement that is supported by reference
to specific circumstances or facts surrounding the notice of
determination issued pursuant to Sec.  2560.502c-2(g) of this chapter.
* * * * *


    9. Revise Sec.  2570.64 to read as follows:

    Sec.  2570.64  Consequences of default.


    For 502(c)(2) civil penalty proceedings, this section shall apply
in lieu of Sec.  18.5(a) and (b) of this title. Failure of the
respondent to file an answer to the notice of determination described
in Sec.  2560.502c-2(g) of this chapter within the 30-day period
provided by Sec.  2560.502c-2(h) of this chapter shall be deemed to
constitute a waiver of his or her right to appear and

[[Page 64783]]

contest the allegations of the notice of determination, and such
failure shall be deemed to be an admission of the facts as alleged in
the notice for purposes of any proceeding involving the assessment of a
civil penalty under section 502(c)(2) of the Act. Such notice shall
then become the final order of the Secretary, within the meaning of
Sec.  2570.61(g) of this subpart, forty-five (45) days from the date of
service of the notice.

        10. Revise Sec.  2570.94 to read as follows:

    Sec.  2570.94  Consequences of default.

        For 502(c)(5) civil penalty proceedings, this section shall apply
in lieu of Sec.  18.5(a) and (b) of this title. Failure of the
respondent to file an answer to the notice of determination described
in Sec.  2560.502c-5(g) of this chapter within the 30 day period
provided by Sec.  2560.502c-5(h) of this chapter shall be deemed to
constitute a waiver of his or her right to appear and contest the
allegations of the notice of determination, and such failure shall be
deemed to be an admission of the facts as 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 subpart, forty-five (45) days from the date of the service of the
notice.

        11. Revise Sec.  2570.114 to read as follows:

    Sec.  2570.114  Consequences of default.

        For 502(c)(6) civil penalty proceedings, this section shall apply
in lieu of Sec.  18.5(a) and (b) of this title. Failure of the
respondent to file an answer to the notice of determination described
in Sec.  2560.502c-6(g) of this chapter within the 30 day period
provided by Sec.  2560.502c-6(h) of this chapter shall be deemed to
constitute a waiver of his or her right to appear and contest the
allegations of the notice of determination, and such failure shall be
deemed to be an admission of the facts as alleged in the notice for
purposes of any proceeding involving the assessment of a civil penalty
under section 502(c)(6) of the Act. Such notice shall then become the
final order of the Secretary, within the meaning of Sec.  2570.111(g)
of this subpart, forty-five (45) days from the date of service of the
notice.

        12. Add a new Subpart G to Part 2570 to read as follows:

Subpart G--Procedures for the Assessment of Civil Penalties under ERISA
Section 502(c)(7)

Sec.
2570.130 Scope of rules.
2570.131 Definitions.
2570.132 Service: Copies of documents and pleadings.
2570.133 Parties, how designated.
2570.134 Consequences of default.
2570.135 Consent order or settlement.
2570.136 Scope of discovery.
2570.137 Summary decision.
2570.138 Decision of the administrative law judge.
2570.139 Review by the Secretary.
2570.140 Scope of review.
2570.141 Procedures for review by the Secretary.

Subpart G--Procedures for the Assessment of Civil Penalties Under
ERISA Section 502(c)(7)

    Sec.  2570.130  Scope of rules.

        The rules of practice set forth in this subpart are applicable to
"502(c)(7) civil penalty proceedings" (as defined in Sec.
2570.131(n) of this subpart) under section 502(c)(7) of the Employee
Retirement Income Security Act of 1974, as amended (the Act). The rules
of procedure for administrative hearings published by the Department's
Office of Administrative Law Judges at Part 18 of this title will apply
to matters arising under ERISA section 502(c)(7) except as modified by
this subpart. These proceedings shall be conducted as expeditiously as
possible, and the parties shall make every effort to avoid delay at
each stage of the proceedings.

    Sec.  2570.131  Definitions.

        For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of the definitions in Sec.  18.2 of this title:

        (a) Adjudicatory proceeding means a judicial-type proceeding before
an administrative law judge leading to the formulation of a final
order;

        (b) Administrative law judge means an administrative law judge
appointed pursuant to the provisions of 5 U.S.C. 3105;

        (c) Answer means a written statement that is supported by reference
to specific circumstances or facts surrounding the notice of
determination issued pursuant to Sec.  2560.502c-7(g) of this chapter;

        (d) Commencement of proceeding is the filing of an answer by the
respondent;

        (e) Consent agreement means any written document containing a
specified proposed remedy or other relief acceptable to the Department
and consenting parties;

        (f) ERISA means the Employee Retirement Income Security Act of
1974, as amended;

        (g) Final order means the final decision or action of the
Department of Labor concerning the assessment of a civil penalty under
ERISA section 502(c)(7) against a particular party. Such final order
may result from a decision of an administrative law judge or the
Secretary, the failure of a party to file a statement of reasonable
cause described in Sec.  2560.502c-7(e) of this chapter within the
prescribed time limits, or the failure of a party to invoke the
procedures for hearings or appeals under this title within the
prescribed time limits. Such a final order shall constitute final
agency action within the meaning of 5 U.S.C. 704;

        (h) Hearing means that part of a proceeding which involves the
submission of evidence, by either oral presentation or written
submission, to the administrative law judge;

        (i) Order means the whole or any part of a final procedural or
substantive disposition of a matter under ERISA section 502(c)(7);

        (j) Party includes a person or agency named or admitted as a party
to a proceeding;

        (k) Person includes an individual, partnership, corporation,
employee benefit plan, association, exchange or other entity or
organization;

        (l) Petition means a written request, made by a person or party,
for some affirmative action;

        (m) Pleading means the notice as defined in Sec.  2560.502c-7(g) of
this chapter, the answer to the notice, any supplement or amendment
thereto, and any reply that may be permitted to any answer, supplement
or amendment;

        (n) 502(c)(7) civil penalty proceeding means an adjudicatory
proceeding relating to the assessment of a civil penalty provided for
in section 502(c)(7) of ERISA;

        (o) Respondent means the party against whom the Department is
seeking to assess a civil sanction under ERISA section 502(c)(7);

        (p) Secretary means the Secretary of Labor and includes, pursuant
to any delegation of authority by the Secretary, any assistant
secretary (including the Assistant Secretary for Pension and Welfare
Benefits), administrator, commissioner, appellate body, board, or other
official; and

        (q) Solicitor means the Solicitor of Labor or his or her delegate.

    Sec.  2570.132  Service: Copies of documents and pleadings.


    For 502(c)(7) penalty proceedings, this section shall apply in lieu
of Sec.  18.3 of this title.

[[Page 64784]]

        (a) General. Copies of all documents shall be served on all parties
of record. All documents should clearly designate the docket number, if
any, and short title of all matters. All documents to be filed shall be
delivered or mailed to the Chief Docket Clerk, Office of Administrative
Law Judges, 800 K Street, NW, Suite 400, Washington, DC 20001-8002, or
to the OALJ Regional Office to which the proceeding may have been
transferred for hearing. Each document filed shall be clear and
legible.

    (b) By parties. All motions, petitions, pleadings, briefs, or other
documents shall be filed with the Office of Administrative Law Judges
with a copy, including any attachments, to all other parties of record.
When a party is represented by an attorney, service shall be made upon
the attorney. Service of any document upon any party may be made by
personal delivery or by mailing a copy to the last known address. The
Department shall be served by delivery to the Associate Solicitor, Plan
Benefits Security Division, ERISA section 502(c)(7) Proceeding, P.O.
Box 1914, Washington, DC 20013. The person serving the document shall
certify to the manner and date of service.

    (c) By the Office of Administrative Law Judges. Service of orders,
decisions and all other documents shall be made by regular mail to the
last known address.

    (d) Form of pleadings. (1) Every pleading shall contain information
indicating the name of the Pension and Welfare Benefits Administration
(PWBA) as the agency under which the proceeding is instituted, the
title of the proceeding, the docket number (if any) assigned by the
Office of Administrative Law Judges and a designation of the type of
pleading or paper (e.g., notice, motion to dismiss, etc.). The pleading
or paper shall be signed and shall contain the address and telephone
number of the party or person representing the party. Although there
are no formal specifications for documents, they should be typewritten
when possible on standard size 8\1/2\ x 11 inch paper.

    (2) Illegible documents, whether handwritten, typewritten,
photocopied, or otherwise, will not be accepted. Papers may be
reproduced by any duplicating process provided all copies are clear and
legible.

    Sec.  2570.133  Parties, how designated.

        For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec.  18.10 of this title.

    (a) The term "party" wherever used in this subpart shall include
any natural person, corporation, employee benefit plan, association,
firm, partnership, trustee, receiver, agency, public or private
organization, or government agency. A party against whom a civil
penalty is sought shall be designated as "respondent." The Department
shall be designated as the "complainant."

    (b) Other persons or organizations shall be permitted to
participate as parties only if the administrative law judge finds that
the final decision could directly and adversely affect them or the
class they represent, that they may contribute materially to the
disposition of the proceedings and their interest is not adequately
represented by existing parties, and that in the discretion of the
administrative law judge the participation of such persons or
organizations would be appropriate.

    (c) A person or organization not named as a respondent wishing to
participate as a party under this section shall submit a petition to
the administrative law judge within fifteen (15) days after the person
or organization has knowledge of or should have known about the
proceeding. The petition shall be filed with the administrative law
judge and served on each person who or organization that has been made
a party at the time of filing. Such petition shall concisely state:

    (1) Petitioner's interest in the proceeding;

    (2) How his or her participation as a party will contribute
materially to the disposition of the proceeding;

    (3) Who will appear for petitioner;

    (4) The issues on which petitioner wishes to participate; and

    (5) Whether petitioner intends to present witnesses.

    (d) Objections to the petition may be filed by a party within
fifteen (15) days of the filing of the petition. If objections to the
petition are filed, the administrative law judge shall then determine
whether petitioner has the requisite interest to be a party in the
proceedings, as defined in paragraph (b) of this section, and shall
permit or deny participation accordingly. Where petitions to
participate as parties are made by individuals or groups with common
interests, the administrative law judge may request all such
petitioners to designate a single representative, or he or she may
recognize one or more of such petitioners. The administrative law judge
shall give each such petitioner, as well as the parties, written notice
of the decision on his or her petition. For each petition granted, the
administrative law judge shall provide a brief statement of the basis
of the decision. If the petition is denied, he or she shall briefly
state the grounds for denial and shall then treat the petition as a
request for participation as amicus curiae.

    Sec.  2570.134  Consequences of default.

        For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec.  18.5 (a) and (b) of this title. Failure of the
respondent to file an answer to the notice of determination described
in Sec.  2560.502c-7(g) of this chapter within the 30 day period
provided by Sec.  2560.502c-7(h) of this chapter shall be deemed to
constitute a waiver of his or her right to appear and contest the
allegations of the notice of determination, and such failure shall be
deemed to be an admission of the facts as alleged in the notice for
purposes of any proceeding involving the assessment of a civil penalty
under section 502(c)(7) of the Act. Such notice shall then become the
final order of the Secretary, within the meaning of Sec.  2570.131(g)
of this subpart, forty-five (45) days from the date of service of the
notice.

    Sec.  2570.135  Consent order or settlement.

        For 502(c)(7) civil penalty proceedings, the following shall apply
in lieu of Sec.  18.9 of this title.

    (a) General. At any time after the commencement of a proceeding,
but at least five (5) days prior to the date set for hearing, the
parties jointly may move to defer the hearing for a reasonable time to
permit negotiation of a settlement or an agreement containing findings
and an order disposing of the whole or any part of the proceeding. The
allowance of such a deferral and the duration thereof shall be in the
discretion of the administrative law judge, after consideration of such
factors as the nature of the proceeding, the requirements of the public
interest, the representations of the parties, and the probability of
reaching an agreement which will result in a just disposition of the
issues involved.

    (b) Content. Any agreement containing consent findings and an order
disposing of a proceeding or any part thereof shall also provide:

    (1) That the order shall have the same force and effect as an order
made after full hearing;

    (2) That the entire record on which any order may be based shall
consist solely of the notice and the agreement;

    (3) A waiver of any further procedural steps before the
administrative law judge;

    (4) A waiver of any right to challenge or contest the validity of
the order and decision entered into in accordance with the agreement;
and

[[Page 64785]]

        (5) That the order and decision of the administrative law judge
shall be final agency action.

    (c) Submission. On or before the expiration of the time granted for
negotiations, but, in any case, at least five (5) days prior to the
date set for hearing, the parties or their authorized representative or
their counsel may:

    (1) Submit the proposed agreement containing consent findings and
an order to the administrative law judge; or

    (2) Notify the administrative law judge that the parties have
reached a full settlement and have agreed to dismissal of the action
subject to compliance with the terms of the settlement; or

    (3) Inform the administrative law judge that agreement cannot be
reached.

    (d) Disposition. In the event a settlement agreement containing
consent findings and an order is submitted within the time allowed
therefor, the administrative law judge shall issue a decision
incorporating such findings and agreement within 30 days of his receipt
of such document. The decision of the administrative law judge shall
incorporate all of the findings, terms, and conditions of the
settlement agreement and consent order of the parties. Such decision
shall become final agency action within the meaning of 5 U.S.C. 704.

    (e) Settlement without consent of all parties. In cases in which
some, but not all, of the parties to a proceeding submit a consent
agreement to the administrative law judge, the following procedure
shall apply:

    (1) If all of the parties have not consented to the proposed
settlement submitted to the administrative law judge, then such non-
consenting parties must receive notice, and a copy, of the proposed
settlement at the time it is submitted to the administrative law judge;

    (2) Any non-consenting party shall have fifteen (15) days to file
any objections to the proposed settlement with the administrative law
judge and all other parties;

    (3) If any party submits an objection to the proposed settlement,
the administrative law judge shall decide within 30 days after receipt
of such objections whether he shall sign or reject the proposed
settlement. Where the record lacks substantial evidence upon which to
base a decision or there is a genuine issue of material fact, then the
administrative law judge may establish procedures for the purpose of
receiving additional evidence upon which a decision on the contested
issues may reasonably be based;

    (4) If there are no objections to the proposed settlement, or if
the administrative law judge decides to sign the proposed settlement
after reviewing any such objections, the administrative law judge shall
incorporate the consent agreement into a decision meeting the
requirements of paragraph (d) of this section.

    Sec.  2570.136  Scope of discovery.

        For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec.  18.14 of this title.

    (a) A party may file a motion to conduct discovery with the
administrative law judge. The motion for discovery shall be granted by
the administrative law judge only upon a showing of good cause. In
order to establish "good cause" for the purposes of this section, a
party must show that the discovery requested relates to a genuine issue
as to a material fact that is relevant to the proceeding. The order of
the administrative law judge shall expressly limit the scope and terms
of discovery to that for which "good cause" has been shown, as
provided in this paragraph.

    (b) A party may obtain discovery of documents and tangible things
otherwise discoverable under paragraph (a) of this section and prepared
in anticipation of or for the hearing by or for another party's
representative (including his or her attorney, consultant, surety,
indemnitor, insurer, or agent) only upon showing that the party seeking
discovery has substantial need of the materials or information in the
preparation of his or her case and that he or she is unable without
undue hardship to obtain the substantial equivalent of the materials or
information by other means. In ordering discovery of such materials
when the required showing has been made, the administrative law judge
shall protect against disclosure of the mental impressions,
conclusions, opinions, or legal theories of an attorney or other
representatives of a party concerning the proceeding.

    Sec.  2570.137  Summary decision.

        For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec.  18.41 of this title.

    (a) No genuine issue of material fact. (1) Where no issue of a
material fact is found to have been raised, the administrative law
judge may issue a decision which, in the absence of an appeal pursuant
to Sec. Sec.  2570.139 through 2570.141 of this subpart, shall become a
final order.

    (2) A decision made under paragraph (a) of this section shall
include a statement of:

    (i) Findings of fact and conclusions of law, and the reasons
therefor, on all issues presented; and

    (ii) Any terms and conditions of the rule or order.

    (3) A copy of any decision under this paragraph shall be served on
each party.

    (b) Hearings on issues of fact. Where a genuine question of a
material fact is raised, the administrative law judge shall, and in any
other case may, set the case for an evidentiary hearing.

    Sec.  2570.138  Decision of the administrative law judge.

        For 502(c)(7) civil penalty proceedings, this section shall apply
in lieu of Sec.  18.57 of this title.

    (a) Proposed findings of fact, conclusions, and order. Within
twenty (20) days of the filing of the transcript of the testimony, or
such additional time as the administrative law judge may allow, each
party may file with the administrative law judge, subject to the
judge's discretion, proposed findings of fact, conclusions of law, and
order together with a supporting brief expressing the reasons for such
proposals. Such proposals and briefs shall be served on all parties,
and shall refer to all portions of the record and to all authorities
relied upon in support of each proposal.

    (b) Decision of the administrative law judge. Within a reasonable
time after the time allowed for the filing of the proposed findings of
fact, conclusions of law, and order, or within thirty (30) days after
receipt of an agreement containing consent findings and order disposing
of the disputed matter in whole, the administrative law judge shall
make his or her decision. The decision of the administrative law judge
shall include findings of fact and conclusions of law with reasons
therefor upon each material issue of fact or law presented on the
record. The decision of the administrative law judge shall be based
upon the whole record. In a contested case in which the Department and
the Respondent have presented their positions to the administrative law
judge pursuant to the procedures for 502(c)(7) civil penalty
proceedings as set forth in this subpart, the penalty (if any) which
may be included in the decision of the administrative law judge shall
be limited to the penalty expressly provided for in section 502(c)(7)
of ERISA. It shall be supported by reliable and probative evidence. The
decision of the administrative law judge shall become final agency
action within the meaning of 5 U.S.C. 704 unless an appeal is made
pursuant to the procedures set forth in Sec. Sec.  2570.139 through
2570.141 of this subpart.

[[Page 64786]]

Sec.  2570.139  Review by the Secretary.

        (a) The Secretary may review a decision of an administrative law
judge. Such a review may occur only when a party files a notice of
appeal from a decision of an administrative law judge within twenty
(20) days of the issuance of such decision. In all other cases, the
decision of the administrative law judge shall become final agency
action within the meaning of 5 U.S.C. 704.

    (b) A notice of appeal to the Secretary shall state with
specificity the issue(s) in the decision of the administrative law
judge on which the party is seeking review. Such notice of appeal must
be served on all parties of record.

    (c) Upon receipt of a notice of appeal, the Secretary shall request
the Chief Administrative Law Judge to submit to him or her a copy of
the entire record before the administrative law judge.

    Sec.  2570.140  Scope of review.

        The review of the Secretary shall not be a de novo proceeding but
rather a review of the record established before the administrative law
judge. There shall be no opportunity for oral argument.

    Sec.  2570.141  Procedures for review by the Secretary.

        (a) Upon receipt of the notice of appeal, the Secretary shall
establish a briefing schedule which shall be served on all parties of
record. Upon motion of one or more of the parties, the Secretary may,
in his or her discretion, permit the submission of reply briefs.

    (b) The Secretary shall issue a decision as promptly as possible
after receipt of the briefs of the parties. The Secretary may affirm,
modify, or set aside, in whole or in part, the decision on appeal and
shall issue a statement of reasons and bases for the action(s) taken.
Such decision by the Secretary shall be final agency action within the
meaning of 5 U.S.C. 704.

Signed at Washington, D.C., this 11th day of October, 2002.


Ann L. Combs,
Assistant Secretary,
Pension and Welfare Benefits Administration,
U.S. Department of Labor.
[FR Doc. 02-26523 Filed 10-18-02; 8:45 am]
BILLING CODE 4510-29-P

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