What is the penalty for failure to file a complete or timely annual report?

• A. 2% of the incurred liability.
• B. 5% of the incurred liability or $1500, whichever is less.
• C. 10% of the incurred liability.
• D. $5,000.

Answer: (B)

Penalties for failing to file a complete or timely annual report are designed to scale with how much liability the plan has incurred, but with a cap so the penalty doesn’t become excessive. The amount charged is the lesser of 5% of the incurred liability or $1,500. This means small plans pay a smaller penalty, while larger plans are limited to $1,500 regardless of how high the liability is.

For example, if the incurred liability is $10,000, 5% is $500, so the penalty is $500. If the incurred liability is $30,000, 5% is $1,500, so the penalty is $1,500 (the cap is reached). If the incurred liability is $60,000, 5% would be $3,000, but the penalty is still capped at $1,500.