Which statement about the penalty for failure to file annual report is accurate?

• A. It can be up to 5% of incurred liabilities or $1,500
• B. It is a fixed $700
• C. It is a weekly penalty
• D. It is never applied

Answer: (A)

The penalty for not filing the annual report is not a fixed amount or a weekly charge; it’s tied to the plan’s incurred liabilities, with a cap. Specifically, the penalty is 5% of incurred liabilities but cannot exceed $1,500. In practice, that means the actual penalty is the lesser of 5% of incurred liabilities or $1,500. This keeps the penalty proportional to the plan’s size while preventing an excessive charge.

That’s why this statement is correct: it reflects a percentage-based penalty with a defined maximum. The other options are not accurate because the penalty isn’t a fixed $700, isn’t assessed weekly, and penalties do apply when the annual report isn’t filed.