Human Capital & Careers

Pension Penalty: Tell Employees to Diversify, or Else

The Department of Labor will fine companies $100 a day if they don't notify workers of their right to diversify company-sponsored retirement plans.
Sarah JohnsonAugust 10, 2007

It’s official: beginning October 9, the Department of Labor can hand out civil penalties — albeit small ones — to corporations that fail to tell employees they can diversify holdings in company-sponsored retirement plans. That includes notifying workers they can divest the company’s own stock.

The DoL’s final rule, which was released on Thursday, makes good on a change written into the Pension Protect Act (PPA), which was passed a year ago. The act amends a section of the Employee Retirement Income Security Act (ERISA) and gives the DoL the authority to assess whether civil penalties against an employer are warranted. The agency can fine companies up to $100 for each day they are in violation of the new rule.

“The new right to diversify is an important step in improving retirement security,” says Bradford Campbell, assistant secretary of the DoL’s Employee Benefits Security Administration. “This rule enforces that right by penalizing plan officials who fail to give workers the required notice.”

Signed by President Bush last August, the PPA amends the Internal Revenue Code and ERISA to “provide diversification rights to plan participants and beneficiaries with respect to investments in company stock in their accounts,” the DoL wrote in the rule change filed in the Federal Register. In addition to giving participants of defined contribution plans the ability to divest the company’s securities, employers must tell them that it’s important to diversify their investments. This rule does not apply to all employee stock-option plans.

To comply with the rule, plan administrators have 30 days to notify employees of their rights before they become eligible for the plan.

The change goes into effect unless the DoL receives “significant adverse comment” regarding its rule by September 10. The proposal is available for public comment on Regulations.gov.