Proposed Rule2022-24702
Prohibited Transaction Exemption (PTE) 2002-51 To Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 21, 2022
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document gives notice of a proposed amendment to Prohibited Transaction Exemption 2002-51, an exemption for certain transactions identified in the Department's Voluntary Fiduciary Correction Program (VFC Program or VFCP). The VFC Program allows persons who may have engaged in a breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA) to correct the breach and avoid certain Department of Labor-initiated civil actions and assessment of civil penalties. PTE 2002-51 (the VFCP Class Exemption) is a related class exemption that provides an exemption from excise taxes imposed by the Internal Revenue Code of 1986, as amended, for certain eligible transactions corrected pursuant to the VFC Program. This amendment to the VFCP Class Exemption is being proposed in connection with the Department's amendment and restatement of the VFC Program, published elsewhere in today's issue of the Federal Register (2022 Program Notice). If granted, the amendment to the VFCP Class Exemption would affect plans, participants and beneficiaries of such plans, and certain other persons engaging in such transactions.
Full Text
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<title>Federal Register, Volume 87 Issue 223 (Monday, November 21, 2022)</title>
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[Federal Register Volume 87, Number 223 (Monday, November 21, 2022)]
[Proposed Rules]
[Pages 70753-70758]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24702]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
[Application No. D-11799]
RIN 1210-ZA23
Prohibited Transaction Exemption (PTE) 2002-51 To Permit Certain
Transactions Identified in the Voluntary Fiduciary Correction Program
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Proposed amendment to prohibited transaction exemption.
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SUMMARY: This document gives notice of a proposed amendment to
Prohibited Transaction Exemption 2002-51, an exemption for certain
transactions identified in the Department's Voluntary Fiduciary
Correction Program (VFC Program or VFCP). The VFC Program allows
persons who may have engaged in a breach of fiduciary duty under the
Employee Retirement Income Security Act (ERISA) to correct the breach
and avoid certain Department of Labor-initiated civil actions and
assessment of civil penalties. PTE 2002-51 (the VFCP Class Exemption)
is a related class exemption that provides an exemption from excise
taxes imposed by the Internal Revenue Code of 1986, as amended, for
certain eligible transactions corrected pursuant to the VFC Program.
This amendment to the VFCP Class Exemption is being proposed in
connection with the Department's amendment and restatement of the VFC
Program, published elsewhere in today's issue of the Federal Register
(2022 Program Notice). If granted, the amendment to the VFCP Class
Exemption would affect plans, participants and beneficiaries of such
plans, and certain other persons engaging in such transactions.
DATES: Written comments on the proposed amendment must be received by
the Department by January 20, 2023.
ADDRESSES: All written comments and requests for a hearing concerning
the proposed amendment to the class exemption should be sent to the
Office of Exemption Determinations through the Federal eRulemaking
Portal and identified by Application No. D-11799:
Federal eRulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a> at Docket ID
number: EBSA-2022-0024. Follow the instructions for submitting
comments.
See SUPPLEMENTARY INFORMATION below for additional information
regarding comments.
FOR FURTHER INFORMATION CONTACT: Susan Wilker, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone number (202) 693-8540 (this is not a
toll-free number).
Customer Service Information: Individuals interested in obtaining
information from the Department concerning ERISA and employee benefit
plans may call the Employee Benefits Security Administration's Toll-
Free Hotline, at 1-866-444-EBSA (3272) or visit the Department's
website (<a href="http://www.dol.gov/ebsa">www.dol.gov/ebsa</a>).
SUPPLEMENTARY INFORMATION:
Comment Instructions
All comments and requests for a hearing must be received by the end
of the comment period. Requests for a hearing must state the issues to
be addressed and include a general description of the evidence to be
presented at the hearing. Persons are encouraged to submit all comments
electronically and not to submit paper copies. The comments and hearing
requests may be available for public inspection in the Public
Disclosure Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue NW,
Washington, DC 20210. Comments and hearing requests will also be
available online at <a href="http://www.regulations.gov">http://www.regulations.gov</a>, at Docket ID number:
EBSA-2022-0024 and <a href="http://www.dol.gov/ebsa">http://www.dol.gov/ebsa</a>, at no charge.
Warning: All comments received will be included in the public
record without change and will be made available online at <a href="http://www.regulations.gov">http://www.regulations.gov</a>, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, EBSA recommends that you include your name and other
contact information, but DO NOT submit information that you consider to
be confidential, or otherwise protected (such as Social Security number
or unlisted phone number), or confidential business information that
you do not want publicly disclosed. However, if EBSA cannot read your
comment due to technical difficulties and cannot contact you for
clarification, EBSA might not be able to consider your comment.
Additionally, the <a href="http://www.regulations.gov">http://www.regulations.gov</a> website is an ``anonymous
access'' system, which means EBSA will not know your identity or
contact information unless you provide it.
Executive Orders 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
Section 3(f) of Executive Order 12866 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
[[Page 70754]]
the principles set forth in the Executive Order. Pursuant to the terms
of the Executive Order, OMB has determined that this action is
``significant'' within the meaning of Section 3(f)(4) of the Executive
Order. Accordingly, the Department has undertaken an assessment of the
costs and benefits of the proposed amendment, and OMB has reviewed this
regulatory action.\1\
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\1\ See 2022 Program Notice, Section D, ``Regulatory Impact
Analysis.''
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Paperwork Reduction Act
The amendments to the VFC Program include a revision to its
information collection provisions. Accordingly, the revisions have been
submitted to OMB for review and approval under the Paperwork Reduction
Act (PRA). Because this proposed amendment to the VFCP Class Exemption
would be used when finalized in connection with the VFC Program, and
for ease of public review, the burden of the Information Collection
Request (ICR) in the VFC Program is combined with the burden of the
information collection provisions of the exemption for purposes of
accounting for burden under the PRA. These burden calculations can be
viewed in the PRA analysis included in the 2022 Program Notice,
Amendment and Restatement of Voluntary Fiduciary Correction Program,
published elsewhere in today's Federal Register.
Persons are not required to respond to the information collection
unless it displays a currently valid OMB control number 1210-0118,
which is scheduled to expire on May 31, 2025. Currently, EBSA is
soliciting comments concerning the proposed changes to this ICR. A copy
of the ICR may be obtained by contacting the PRA addressee shown in the
2022 Program Notice.
Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA) \2\ 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, or any other law, and are likely to have a significant
economic impact on a substantial number of small entities.\3\ Unless
the head of an agency certifies that a proposed rule will not have a
significant economic impact on a substantial number of small entities,
section 603 of the RFA requires the agency to prepare and make
available for public comment an initial regulatory flexibility analysis
of the proposed rule.\4\
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\2\ 5 U.S.C. 601 et seq. (1980).
\3\ 5 U.S.C. 551 et seq. (1946).
\4\ 5 U.S.C. 604 (1980).
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The Department certifies that these proposed amendments to PTE
2002-51 will not have a significant economic impact on a substantial
number of small entities. See 2022 Program Notice for the factual basis
for the certification.
Background
History of the VFC Program and VFCP Class Exemption
The Department of Labor's Employee Benefits Security Administration
(EBSA) originally adopted the VFC Program in 2002, and later revised it
in 2005 and 2006.\5\ EBSA designed the VFC Program to encourage
employers and plan fiduciaries to voluntarily comply with the Employee
Retirement Income Security Act (ERISA) and allow those potentially
liable for certain specified fiduciary breaches under ERISA to
voluntarily apply for relief from enforcement actions and certain
penalties, provided they meet the VFC Program's criteria and follow the
procedures outlined in the VFC Program. Many workers have benefited
from the VFC Program due to the restoration of plan assets and the
payment of promised benefits.
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\5\ 67 FR 15062 (March 28, 2002); 70 FR. 17516 (April 6, 2005);
71 FR. 20262 (April 19, 2006).
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The VFC Program describes how to apply for relief and lists the
specific transactions covered and acceptable methods for correcting
fiduciary breaches under the Program. The most frequently corrected
transaction under the Program is the correction of delinquent
participant contributions. The Program provides a model application
form, a checklist, and an online calculator for determining amounts to
be restored to plans. Eligible applicants that satisfy the terms and
conditions of the existing VFC Program receive a no-action letter from
EBSA and avoid the assessment of civil monetary penalties. The VFC
Program has been, and will continue to be, administered in EBSA's
Regional Offices.
The Department granted the VFCP Class Exemption in connection with
the VFC Program. Some of the breaches that may be corrected under the
VFC Program are also prohibited transactions subject to excise tax
under Internal Revenue Code (Code) section 4975. Reorganization Plan
No. 4 of 1978 transferred the authority of the Secretary of Treasury to
issue exemptions from the prohibited transaction provisions of Code
section 4975 to the Secretary of Labor.\6\ Therefore, the exemption
provides excise tax relief to parties that correct certain specified
breaches under the VFC Program.
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\6\ 5 U.S.C. App. 252 (2020).
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The VFCP Class Exemption currently covers the following
transactions:
<bullet> The failure to transmit participant contributions to a
pension plan within the time frames described in the Department's
regulation, and/or failure to transmit participant loan repayments to a
pension plan within a reasonable time after withholding or receipt by
the employer.\7\
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\7\ See 29 CFR 2510.3-102.
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<bullet> The making of a loan at a fair market interest rate to a
disqualified person.
<bullet> The purchase or sale of an asset (including real property)
between a plan and a disqualified person at fair market value.
<bullet> The sale of real property to a plan by the employer and
the leaseback of the property to the employer, at fair market value and
fair market rental value, respectively.
<bullet> The purchase of an asset (including real property) by a
plan where the asset has later been determined to be illiquid, or in
which the asset was acquired from an unrelated third party, and/or the
subsequent sale of such asset in a prohibited transaction pursuant to
Code section 4975(c)(1).
<bullet> The use of plan assets to pay expenses, including
commissions or fees, to a service provider for services provided in
connection with the establishment, design or termination of the plan,
provided that the payment of these settlor expenses was not expressly
prohibited by the plan.
The VFCP Class Exemption is subject to several general conditions.
First, the breach must be appropriately corrected and the party
applying must satisfy all the conditions of the VFC Program and receive
a no-action letter from EBSA. Further, the applicant may not have taken
advantage of the relief provided by the VFC Program and the exemption
for a similar type of transaction(s) during three years before the
current VFCP application.\8\ The applicant must provide notice to
interested persons of the transaction for which relief is sought within
60 days of the VFC Program submission. However, notice is not required
if the excise tax that would otherwise be imposed under the Code is
less than or equal to $100 and that
[[Page 70755]]
amount is paid to the plan and allocated to participants and
beneficiaries.
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\8\ There is an exception to the three-year rule for certain
service providers that are broker-dealers, banks, insurance
companies and their affiliates and that did not use their discretion
to cause the prohibited transaction and did not have actual
knowledge or reason to know that the underlying transaction was a
non-exempt prohibited transaction.
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In addition to these general conditions, the exemption includes
certain transaction-specific conditions. For example, as relevant to
this proposal, participant contributions and loan repayments that are
not timely transmitted (referred to collectively as delinquent
participant contributions) must be transmitted to the pension plan no
more than 180 calendar days from the date they either were received by
the employer or otherwise would have been payable to the participant in
cash.
2022 Amendments to VFC Program
The 2022 Program Notice contains an amended and restated VFC
Program including the establishment of a self-correction feature for
certain delinquent participant contributions and loan repayments to
pension plans (the SC Component). The VFC Program is used most
frequently to correct delinquent participant contributions; therefore,
the Department has concluded that an appropriately designed self-
correction feature will: (1) positively respond to public feedback
concerning the time and expense currently required to file VFC Program
applications for transactions that involve small dollar amounts; (2)
offer plan officials and other responsible fiduciaries a streamlined
correction process thereby encouraging more voluntary corrections; and
(3) enable EBSA to better allocate resources currently dedicated to
processing VFC Program applications for these transactions.
If granted, this amendment to the VFCP Class Exemption would
provide excise tax relief for transactions that are corrected pursuant
to the SC Component. The proposed amendment also would clarify existing
transactions eligible for correction under the Program, expand the
scope of other transactions currently eligible for correction, and
simplify certain administrative or procedural requirements for
participation in, and correction of, transactions under the VFC
Program. Code section 4975, which governs the Department's authority to
issue exemptions from the prohibited transaction provisions in the
Code, requires the Department to provide notice to interested persons
and opportunity for public comment before issuing an exemption or
amendment thereto.\9\ Thus the amendments to the VFCP Class Exemption
proposed in this notice will not be effective until the Department
grants a final amendment to the exemption.
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\9\ As noted above, under Reorganization Plan No. 4 of 1978, 5
U.S.C. App. at 252 (2020), the authority of the Secretary of
Treasury to issue exemptions pursuant to Code section 4975 was
transferred to the Secretary of Labor.
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Description of the Proposed Amendments to the VFCP Class Exemption
Self-Correction Feature for Delinquent Participant Contributions and
Loan Repayments to Pension Plans
The 2022 Program Notice establishes the SC Component for certain
delinquent contributions to pension plans. The SC Component allows
``self-correctors'' to make a plan whole and receive relief under the
VFC Program without submitting an application to EBSA and receiving a
no-action letter. Instead, self-correctors provide a notice (the SCC
notice) to EBSA through an electronic tool on EBSA's website and
receive an email acknowledgement from EBSA of a properly completed and
submitted SCC notice. Relief under the SC Component for delinquent
participant contributions is limited to corrections where the amount of
lost earnings is $1,000.00 or less.\10\ In the 2022 Program Notice, the
Department solicits comments on specific aspects of the SC Component.
To the extent commenters suggest changes to the SC Component, the
Department requests comments on whether corresponding changes to the
exemption are necessary.
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\10\ The $1,000 limit is calculated without regard to any amount
that is contributed to the plan under the exception to the notice
provision.
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The Department is proposing to amend Section I.A. of the exemption
to clarify that excise tax relief is available for transactions that
are corrected under the SC Component. These transactions would be
required to comply with the applicable exemption conditions, including
the requirement that delinquent contributions may not have been
transmitted to the plan more than 180 calendar days from the date they
were either received by the employer or otherwise would have been
payable to the participant in cash.
The proposal also includes an amendment to Section III.B of the
exemption, which provides that the exemption will apply only if the
applicant receives an EBSA no-action letter pursuant to the VFC
Program. Since self-correctors will receive an email acknowledgement
instead of a no-action letter from EBSA, this condition would be
amended to add a specific reference to the email acknowledgement of a
properly completed and submitted SCC notice.
Frequency of Use
The exemption is generally unavailable to VFC Program applicants
that have, within the previous three years, taken advantage of the
relief provided by the VFC Program and the exemption for a similar type
of transaction. The exemption provides a narrow exception from the
three-year limitation for certain service providers (broker-dealers,
banks, insurance companies and their affiliates) who may have
reasonably relied on a plan fiduciary's mistaken belief that an
administrative or statutory exemption was available.
The Department is proposing to eliminate the three-year limitation.
The three-year provision was initially included in the exemption to
prevent parties from becoming lax in complying with fiduciary and other
ERISA duties because of the availability of the exemption. Based on the
Department's experience with the VFC Program and the exemption, the
Department concluded that the risk of such behavior is low.
Notwithstanding the three-year limit on use of the exemption.,
applicants may correct covered transactions under the VFC Program
itself multiple times within three years, but the Department has not
seen indications that they are doing so in significant numbers. More
importantly, the application filing process and reporting requirements
under the VFC Program and the SC Component provide the Department with
notice of repeat usage. This, together with the ``under investigation''
ineligibility condition, provides the Department with tools to protect
participants and beneficiaries from inappropriate use of the exemption.
Thus, in the Department's view, the VFC Program (including the SC
Component) and the other conditions of this exemption should provide
sufficient safeguards to ensure that the exemption is in the interests
of plans, their participants and beneficiaries and protective of the
rights of participants and beneficiaries as required by Code section
4975(c)(2).
The Department requests comments regarding whether removal of the
three-year limitation would encourage greater use of the VFC Program
without loss of meaningful protections for participants and
beneficiaries or whether the three-year provision or some other
frequency limitation should be retained for some or all covered
transactions because it provides protection for participants and
beneficiaries that cannot be achieved by the application, reporting,
and of other conditions in the exemption and VFC Program.
[[Page 70756]]
Sale and Leaseback of Real Property to an Employer
Section I.D. of the VFCP Class Exemption applies to the sale of
real property to a plan by the sponsoring employer and the leaseback of
such property to the same employer if it is corrected as required under
the VFC Program. The amendment would expand the covered transactions in
Section I.D. to include affiliates of plan sponsors, which reflects a
change made in the 2022 Program Notice. Accordingly, the amended
exemption would be available for a sale of real property by an
affiliate of the employer sponsoring the plan, to the plan, and a
leaseback of such property to the affiliate of the sponsoring employer.
In the proposed amendment, the term ``affiliate'' of a person would
be defined as follows--
(1) any person directly, or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person; (2) any officer, director, partner, employee, or
member of the family (as defined in Code section 4975(e)(6)) of the
person; or (3) any corporation or partnership of which such person
is an officer, director, partner or employee.
The proposal also would define the term ``control'' as the power to
exercise a controlling influence over the management of a person other
than an individual.\11\
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\11\ Both terms are defined in a proposed new Section V.
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Proposed Deletion of Section II.E.
The proposed amendment would delete Section II.E. of the exemption.
The condition relates to all the covered transactions under Section I
and requires that ``the transaction was not part of an agreement,
arrangement or understanding designed to benefit a disqualified
person.'' The Department believes that this condition is unnecessary in
light of the other, more specific conditions of the exemption, and the
fact that the transaction must have been corrected in accordance with
the applicable requirements of the VFC Program for the exemption to
apply.
Notice to Interested Persons
The proposed amendment to the VFCP Class Exemption would make
several changes to Section IV of the exemption, which governs notice to
interested persons. Under existing Section IV, VFC Program applicants
seeking relief under the exemption must provide written notice to
interested persons of the transactions for which relief is sought
pursuant to the VFC Program and the exemption. A copy of the notice
must be provided to the appropriate EBSA Regional Office.
There is an existing exception to the notice requirement for
delinquent participant contributions and/or loan repayments described
in Section I.A. of the exemption if the amount of the excise tax that
would otherwise be paid under Code section 4975 is less than or equal
to $100. Under the exception in Section IV.C., applicants may pay to
the plan an amount equal to the excise tax otherwise due, instead of
providing the written notice to interested persons. VFC Program
applicants using the exception must provide a copy of a completed IRS
Form 5330 or written documentation containing the information required
by IRS Form 5330 and proof of payment with the submission of their VFC
Program applications to the appropriate EBSA Regional Office.
The proposed amendment would provide a special rule for self-
correctors with respect to providing notice to interested persons. In
light of the streamlined procedure for self-correction and the small
amounts of excise taxes that would be imposed on transactions corrected
under the SC Component, the Department is proposing in Section IV.D. to
make the exception to the notice provision mandatory for self-
correctors. For purposes of this proposed condition, the amount of the
excise tax that would otherwise be imposed by Code section 4975 would
be paid to the plan and allocated to the individual accounts of
participants and beneficiaries in the same manner as provided under the
plan with respect to plan earnings. The Department also is proposing
that self-correctors using the exemption would not be subject to the
requirement to provide a copy of the completed IRS Form 5330 along with
proof of payment to the appropriate EBSA Regional Office. Instead, such
self-correctors would be required to retain a completed Form 5330 or
other written documentation of the determination of the otherwise
applicable excise taxes and proof of payment of the amounts paid to the
plan and provide a copy of such documentation to be kept by the plan
administrator.
The Department has not proposed any dollar limitation for amounts
contributed to the plan pursuant to Section IV.D., because the amounts
should be small due to the 2022 Program Notice's $1,000 limitation on
lost earnings. However, the Department requests comment on whether
there should be a dollar limit associated with this condition in case
the $1,000 dollar threshold to participate in the SC Component is later
raised or eliminated. In that event, should self-correctors be required
to follow the general rule set forth in Section IV.C., under which
notice must be provided to interested persons unless the amount of the
excise tax that would otherwise be paid is less than or equal to $100?
Section IV.B. of the exemption, relating to the manner of providing
the notice to interested persons, also would be amended to prohibit
that notice from being provided through posting alone. The Department
no longer believes that posting the notification is reasonably
calculated to ensure that interested persons actually receive the
notice.
The Department has reviewed several notices to interested persons
submitted to the applicable Regional Offices and found that some of
them do not meet the applicable requirements of Section IV. To
facilitate compliance with Section IV, the Department has prepared a
model notice to interested persons as an appendix to this proposal.
Because the purpose of the model notice is to provide compliance
assistance, VFC Program applicants are not required to use the model
notice.
Other Proposed Amendments
The Department is also proposing certain ministerial changes to PTE
2002-51 to improve readability. For example, the Department is
proposing to replace references ``to sections of the Code'' to instead
refer to ``Code section.''
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under Code section 4975(c)(2) does not relieve a fiduciary or other
disqualified person with respect to a plan from certain other
provisions of ERISA and the Code, including any prohibited transaction
provisions to which the exemption does not apply, the requirement that
all assets of an employee benefit plan be held in trust by one or more
trustees, and the general fiduciary responsibility provisions of ERISA
which require, among other things, that a fiduciary discharge their
duties respecting the plan solely in the interests of the participants
and beneficiaries of the plan and in a prudent fashion; nor does it
affect the requirement of Code section 401(a) that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries.
(2) The proposed amendment to PTE 2002-51, if granted, would not
extend to
[[Page 70757]]
transactions prohibited under Code section 4975(c)(1)(F).
(3) Before the proposed amendment is granted under Code section
4975(c)(2), the Department must find that the amendment is
administratively feasible, in the interests of plans and their
participants and beneficiaries, and protective of the rights of
participants and beneficiaries of such plans.
(4) The proposed amendment to the exemption, if granted, would be
supplemental to, and not in derogation of other provisions of ERISA and
the Code, including statutory or administrative exemptions and
transitional rules. Furthermore, the fact that a transaction is subject
to an administrative or statutory exemption is not dispositive of
whether the transaction is in fact a prohibited transaction.
(5) If granted, the amendment to the exemption would be applicable
to a transaction only if the conditions specified in the class
exemption are satisfied.
Proposed Amendment to PTE 2002-51
Under Code section 4975(c)(2) and in accordance with the procedures
set forth in 29 CFR 2570, subpart B (76 FR 66637, October 27, 2011),
the Department proposes to amend and restate PTE 2002-51 as set forth
below.
Section I. Eligible Transactions
The sanctions resulting from the application of Code section
4975(a) and (b), by reason of Code section 4975(c)(1)(A) through (E),
shall not apply to the following eligible transactions described in
Section 7 of the Voluntary Fiduciary Correction (VFC) Program, as
amended, provided that the applicable conditions set forth in Sections
II, III, and IV are met:
A. Failure to forward participant contributions and/or loan
repayments to a pension plan for investment within the time frames
determined with reference to the principles of the Department's
regulation at 29 CFR 2510.3-102 so that the employer retains such
contributions or loan repayments for a longer period of time. (See VFC
Program, Section 7.1(a) and Section 7.1(b) (relating to the Self-
Correction (SC) Component of the VFC Program).)
B. Loan at a fair market interest rate to a disqualified person
with respect to a plan. (See VFC Program, Section 7.2(a).)
C. Purchase or sale of an asset (including real property) between a
plan and a disqualified person at fair market value. (See VFC Program,
Sections 7.4(a) and 7.4(b).)
D. Sale of real property to a plan by the employer or an affiliate
of such an employer and the leaseback of the property to the employer
or the affiliate, at fair market value and fair market rental value,
respectively. (See VFC Program, Section 7.4(c).)
E. Purchase of an asset (including real property) by a plan, where
the asset has later been determined to be illiquid as described under
the VFC Program in a transaction which was a prohibited transaction
pursuant to Code section 4975(c)(1), or in which the asset was acquired
from an unrelated third party, and/or the subsequent sale of such asset
in a transaction prohibited pursuant to Code section 4975(c)(1). (See
VFC Program, Section 7.4(f).)
F. Use of plan assets to pay expenses, including commissions or
fees, to a service provider (e.g., attorney, accountant, recordkeeper,
actuary, financial advisor, or insurance agent) for services provided
in connection with the establishment, design or termination of the plan
(settlor expenses), which relate to the activities of the plan sponsor
in its capacity as settlor, provided that the payment of the settlor
expense was not expressly prohibited by a plan provision relating to
the payment of expenses by the plan. (See VFC Program, Section 7.6(b).)
Section II. Conditions
A. With respect to a transaction involving participant
contributions or loan repayments to pension plans described in Section
I.A., the contributions or repayments were transmitted to the pension
plan not more than 180 calendar days from the date the amounts were
received by the employer (in the case of amounts that a participant or
beneficiary pays to an employer) or the date the amounts otherwise
would have been payable to the participant in cash (in the case of
amounts withheld by an employer from a participant's wages).
B. With respect to the transactions described in Sections I.B.,
I.C., I.D., or I.E., the plan assets involved in the transaction, or
series of related transactions, did not, in the aggregate, exceed 10
percent of the fair market value of all the assets of the plan at the
time of the transaction.
C. The fair market value of any plan asset involved in a
transaction described in Sections I.C., I.D., or I.E., was determined
in accordance with Section 5 of the VFC Program.
D. The terms of a transaction described in Sections I.B., I.C.,
I.D., I.E., or I.F., were at least as favorable to the plan as the
terms generally available in arm's-length transactions between
unrelated parties.
E. With respect to a transaction involving a sale of an illiquid
asset under the VFC Program described in Section I.E., the plan paid no
brokerage fees, or commissions in connection with the sale of the
asset.
F. With respect to any transaction described in Section I.F., the
amount of plan assets involved in the transaction or series of related
transactions did not, in the aggregate, exceed the lesser of $10,000 or
five (5) percent of the fair market value of all the assets of the plan
at the time of the transaction.
Section III. Compliance With the VFC Program
A. The applicant or self-corrector, as applicable, has met all
applicable requirements of the VFC Program.
B. EBSA has issued a no-action letter to the applicant pursuant to
the VFC Program with respect to a transaction described in Section I,
other than for transactions corrected pursuant to the SC Component of
the VFC Program. For transactions corrected pursuant to the SC
Component of the VFC Program, the terms of this section will be
satisfied if EBSA has acknowledged receipt of the SCC notice in
accordance with Section 6.2 of the VFC Program.
Section IV. Notice to Interested Persons and Special Rules for Self-
Correctors
A. Written notice of the transaction(s) for which the applicant is
seeking relief pursuant to the VFC Program, and this exemption, and the
method of correcting the transaction, was provided to interested
persons within 60 calendar days following the date of the submission of
an application under the VFC Program. A copy of the notice was provided
to the appropriate Regional Office of the United States Department of
Labor, Employee Benefits Security Administration, within the same 60-
day period, and the applicant indicated the date upon which notice was
distributed to interested persons. Plan assets were not used to pay for
the notice. The notice included an objective description of the
transaction and the steps taken to correct it, written in a manner
reasonably calculated to be understood by the average Plan participant
or beneficiary. The notice provided for a period of 30 calendar days,
beginning on the date the notice was distributed, for interested
persons to provide comments to the appropriate Regional Office, and it
included the address and telephone number of such Regional Office. The
Model Notice to Interested Persons contained in the Appendix may be
used to satisfy the written notice
[[Page 70758]]
requirement contained in this Section IV.
B. The notice to interested persons described in Section IV.A. was
given in a manner that was reasonably calculated, taking into
consideration the circumstances of the plan, to result in the receipt
of such notice by interested persons, including but not limited to
regular mail, or electronic mail, or any combination thereof. The
notice informed interested persons of the applicant's participation in
the VFC Program and intention of availing itself of relief under the
exemption.
C. Notwithstanding the foregoing and solely with respect to
applicants seeking relief with respect to the VFC Program other than
through the SC Component, Section IV.A. and IV.B. shall not apply to a
transaction described in Section I.A., provided that: (1) the applicant
under the VFC Program has met all of the other applicable Program
requirements; (2) the amount of the excise tax that otherwise would be
imposed by Code section 4975 with respect to any transaction(s)
described in Section I.A would be less than or equal to $100; (3) the
amount of the excise tax that otherwise would be imposed by Code
section 4975 was paid to the plan and allocated to the individual
accounts of participants and beneficiaries in the same manner as
provided under the plan with respect to plan earnings; and (4) the
applicant under the VFC Program provides a copy of a completed IRS Form
5330 or written documentation containing the information required by
IRS Form 5330 and proof of payment with the submission of the
application to the appropriate EBSA Regional Office. For the sole
purpose of determining whether the excise tax due under Code section
4975 on the ``amount involved'' with respect to the prohibited
transaction involving the failure to timely transmit participant
contributions and loan repayments is less than or equal to $100, an
applicant may calculate the excise tax due based upon the Lost Earnings
amount computed using the online calculator provided under the Program.
D. Notwithstanding the foregoing and solely with respect to self-
correctors seeking relief with respect to transactions corrected
pursuant to the SC Component of the VFC Program, Section IV.A. and B.
shall not apply, and additionally the self-corrector must: (1) pay to
the plan the amount of the excise tax that otherwise would be imposed
by Code section 4975 and allocate such amount to the individual
accounts of participants and beneficiaries in the same manner as
provided under the plan with respect to plan earnings, and (2) retain a
copy of a completed IRS Form 5330 or written documentation regarding
the determination of the otherwise applicable excise tax and proof of
payment of the amounts paid to the plan pursuant to the VFC Program and
this exemption and (3) provide to the plan administrator a copy of such
documentation. Self-correctors must calculate the excise tax otherwise
due based upon the Lost Earnings amount computed using the online
calculator provided under the Program.
Section V. Definitions
A. For purposes of this exemption the term ``affiliate'' of a
person means--
(1) any person directly, or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) any officer, director, partner, employee, member of the family
(as defined in Code section 4975(e)(6)) of the person; or
(3) any corporation or partnership of which such person is an
officer, director, partner or employee.
B. For purposes of this Section V, the term ``control'' means the
power to exercise a controlling influence over the management or
policies of a person other than an individual.
Signed at Washington, DC, this 7th day of November, 2022.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
Appendix--Model Notice to Interested Persons
Dear [Participant or Beneficiary],
The purpose of this letter is to notify you that the [Insert
Name of Applicant] is participating in the U.S. Department of
Labor's Voluntary Fiduciary Correction (VFC) Program with respect to
the [Insert Name of Plan]. The VFC Program is a voluntary
enforcement program that encourages the correction of possible
breaches of Title I of the Employee Retirement Income Security Act
(ERISA).
ERISA is the federal law that covers most employee benefit plans
in the private sector. The U.S. Department of Labor's Employee
Benefits Security Administration (EBSA) enforces many parts of
ERISA. If the terms and conditions of the VFC Program are met by
[Insert Name of Applicant], EBSA will not initiate a civil
investigation under Title I of ERISA with respect to the transaction
and voluntary correction described below.
The VFC Program is accompanied by a ``class exemption'' from
certain excise taxes imposed under the Internal Revenue Code on
parties participating in ``prohibited transactions'' as defined in
ERISA and the Code. The purpose of the prohibited transaction rules
is to prevent dealings with persons or entities that may be in a
position to exercise improper influence over employee benefit plan
assets including [Name of the Plan]. If the terms of the class
exemption are met, [Insert Name of Applicant] will qualify for
relief from the excise taxes that would otherwise apply.
One of the requirements for excise tax relief is for [Insert
Name of Applicant] to provide you with this notice so you have an
opportunity to provide comments to EBSA about the prohibited
transaction and the steps taken to correct the prohibited
transaction, both of which are described below. To the extent that
you are interested in providing your written comments to EBSA, you
may mail them to [Insert the Name of the Appropriate EBSA Regional
Office from the VFC Program Notice, Appendix C]. The written
comments should be made to the attention of the ``VFC Program
Coordinator.'' The address and telephone number for this office are
[Insert from VFC Program Notice, Appendix C]. You have 30 calendar
days, beginning on the date this notice was distributed, to provide
written comments. Individuals submitting written comments on this
matter are advised not to disclose sensitive personal data such as
social security numbers.
[Insert An Objective Description of the Transaction and the
Steps Taken to Correct the Transaction]
Please feel free to contact me if you have any questions at
[Insert Telephone Number of a Person Employed by the Applicant Who
Is Knowledgeable About this Matter].
Sincerely,
[Insert Name and Title of Person Employed by the Applicant]
[FR Doc. 2022-24702 Filed 11-18-22; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on November 21, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.