Rule2025-00327
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
January 15, 2025
Effective
March 17, 2025
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains an amended and restated Voluntary Fiduciary Correction Program (VFC Program or Program) under title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The VFC Program is designed to encourage correction of fiduciary breaches and compliance with the law by permitting persons to avoid potential Department of Labor civil enforcement actions and civil penalties if they voluntarily correct eligible transactions in a manner that meets the requirements of the Program. The amendments to the Program simplify and expand the VFC Program to make the Program easier to use and more useful for employers and others who wish to avail themselves of the relief provided. Specifically, the Program amendments add a self-correction feature for delinquent transmittal of participant contributions and loan repayments to a pension plan under certain circumstances; clarify some 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. In addition, the amendments implement section 305(b)(2) and (3) of the SECURE 2.0 Act of 2022 (SECURE 2.0 Act) by adding a self-correction feature for certain participant loan failures self-corrected under the Internal Revenue Service's Employee Plans Compliance Resolution System (as described in Rev. Proc. 2021-30, or any successor guidance) (IRS's EPCRS).
Full Text
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<title>Federal Register, Volume 90 Issue 9 (Wednesday, January 15, 2025)</title>
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[Federal Register Volume 90, Number 9 (Wednesday, January 15, 2025)]
[Rules and Regulations]
[Pages 4192-4231]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00327]
[[Page 4191]]
Vol. 90
Wednesday,
No. 9
January 15, 2025
Part IV
Department of Labor
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Employee Benefits Security Administration
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29 CFR Parts 2560 and 2570
Voluntary Fiduciary Correction Program; Final Rule
Federal Register / Vol. 90 , No. 9 / Wednesday, January 15, 2025 /
Rules and Regulations
[[Page 4192]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2560 and 2570
RIN 1210-AB64
Voluntary Fiduciary Correction Program
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Notification of adoption of Updated Voluntary Fiduciary
Correction Program.
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SUMMARY: This document contains an amended and restated Voluntary
Fiduciary Correction Program (VFC Program or Program) under title I of
the Employee Retirement Income Security Act of 1974, as amended
(ERISA). The VFC Program is designed to encourage correction of
fiduciary breaches and compliance with the law by permitting persons to
avoid potential Department of Labor civil enforcement actions and civil
penalties if they voluntarily correct eligible transactions in a manner
that meets the requirements of the Program. The amendments to the
Program simplify and expand the VFC Program to make the Program easier
to use and more useful for employers and others who wish to avail
themselves of the relief provided. Specifically, the Program amendments
add a self-correction feature for delinquent transmittal of participant
contributions and loan repayments to a pension plan under certain
circumstances; clarify some 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. In addition, the amendments
implement section 305(b)(2) and (3) of the SECURE 2.0 Act of 2022
(SECURE 2.0 Act) by adding a self-correction feature for certain
participant loan failures self-corrected under the Internal Revenue
Service's Employee Plans Compliance Resolution System (as described in
Rev. Proc. 2021-30, or any successor guidance) (IRS's EPCRS).
DATES: The amendments to the VFC Program contained in this document are
effective on March 17, 2025.
FOR FURTHER INFORMATION CONTACT: Brian J. Buyniski or Yolanda
Wartenberg, Office of Regulations and Interpretations, Employee
Benefits Security Administration (EBSA), (202) 693-8500, for questions
regarding the VFC Program amendments in this document. Emily Harris,
Office of Exemption Determinations, EBSA, (202) 693-8540, for questions
regarding the amended associated class exemption PTE 2002-51. James
Butikofer, Office of Research and Analysis, EBSA, (202) 693-8410, for
questions regarding the regulatory impact analysis. (These are not
toll-free numbers.)
For general questions regarding the VFC Program: contact Dawn
Miatech-Plaska, Office of Enforcement, EBSA, (202) 693-8691. For
questions regarding specific applications and self-corrections under
the VFC Program: contact the appropriate EBSA Regional Office listed in
appendix C. (These are not toll-free numbers.)
Customer Service Information: Individuals interested in obtaining
information from the Department concerning ERISA and employee benefit
plans may call the EBSA 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:
A. Summary Overview
The Voluntary Fiduciary Correction Program (VFC Program or Program)
gives plans and fiduciaries a ready means to correct violations of
ERISA, without the transaction costs and burden associated with
enforcement actions for violations of the fiduciary standards in title
I of ERISA), 29 U.S.C. 1132(a)(2) and 1132(a)(5). As an enforcement
policy, the Program simultaneously promotes compliance with the law,
correction of violations, and the efficient use of scarce enforcement
resources. The Department also has the authority under section 408(a)
of ERISA (29 U.S.C. 1108) to issue exemptions from the prohibited
transaction rules in sections 406 and 407 of ERISA (29 U.S.C. 1106 and
1107) and in section 4975 of the Internal Revenue Code (Code).\1\
Accordingly, in tandem with this amendment to the Program and in this
same issue of the Federal Register, the Department has also published
associated amendments to Prohibited Transaction Exemption (PTE) 2002-
51, which implements important components of the VFC Program.
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\1\ Under Reorganization Plan No. 4 of 1978, 5 U.S.C. App., the
authority of the Secretary of Treasury to issue exemptions pursuant
to Code section 4975 was transferred, with certain exceptions not
relevant here, to the Secretary of Labor.
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The EBSA adopted the VFC Program in 2002, and later revised it in
2005 and 2006.\2\ EBSA designed the VFC Program to encourage employers
and plan fiduciaries to voluntarily comply with ERISA and allow those
potentially liable for certain specified fiduciary breaches under ERISA
to voluntarily apply for relief from civil enforcement actions and
certain civil penalties, provided they meet the Program's criteria and
follow the procedures outlined in the Program.
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\2\ 67 FR 15062 (March 28, 2002), 70 FR 17516 (April 6, 2005),
71 FR 20262 (April 19, 2006).
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Although the Department is not required to seek public comments on
changes to an enforcement policy, in November 2022, EBSA published
proposed revisions to the VFC Program with a request for public
comments. The Department also proposed amendments to PTE 2002-51 for
coordination. Additionally, because the VFC Program includes
information collections that are subject to the Paperwork Reduction
Act, the Department sought public comment in the November 2022 proposal
on the revisions to the information collections included in the
amendments to the VFC Program. The proposal discussed the revisions and
incorporated them into a restatement of the VFC Program in its entirety
for ease of reference. Comments received on the 2022 VFC Program
proposed revisions and the proposed amendments to the related class
exemption are posted on EBSA's website.
After careful consideration of the issues raised in the comment
letters, EBSA decided to adopt final changes to the Program as
discussed herein. In tandem with this publication of the 2025 VFC
Program, EBSA is publishing final amendments to PTE 2002-51 to conform
with certain revisions in the 2025 VFC Program. For a discussion of the
amendments to the class exemption and the public comments to those
changes, see amended PTE 2002-51, which is also published elsewhere in
this issue of the Federal Register.
With these amendments, EBSA intends to facilitate more efficient
and less costly corrections of fiduciary breaches under the Program,
encourage greater participation in the Program, and respond to requests
from stakeholders for adjustments based on their experiences using the
Program. In this regard, the amendments are designed to simplify the
Program and make it easier to use by employers and others who wish to
avail themselves of the relief provided. Notably, the new self-
correction procedures will apply to the transaction most frequently
corrected under the Program--the delinquent transmittal of participant
contributions
[[Page 4193]]
and loan repayments to pension plans--as well as to certain participant
loan failures self-corrected under IRS's EPCRS. The amendments also
clarify language and simplify certain administrative and procedural
requirements for participation in and correction of transactions under
the Program. This includes revisions to eligibility criteria that allow
the submission of applications covering multiple plans by a single
service provider under certain circumstances (i.e., bulk applicants),
as well as additional flexibility in the corrections methods for
several violations. The Department anticipates that many users of the
Program, as amended, will find it improved and less resource intensive,
without sacrificing protections of the affected plans.
The following section of this document is an overview of the 2025
VFC Program and the Department's response to issues raised in the
public comments. This document includes a restatement of the Program in
its entirety to facilitate reference to and future use of the Program
as amended.
B. Overview of Changes in the 2025 VFC Program
The 2025 VFC Program retains the fundamentals of the 2006 VFC
Program. The Program describes how to apply for relief, lists the
specific transactions covered,\3\ and sets forth acceptable methods for
correcting fiduciary breaches under the Program. It also provides
examples of potential breaches and related permissible corrective
actions. The Program defines the term ``Breach'' to mean any
transaction that is or may be a violation of the fiduciary
responsibilities contained in part 4 of title I of ERISA. The Program
also provides a model application form, a checklist, and an online
calculator for determining correction amounts. The VFC Program will
continue to be administered in EBSA Regional Offices. Eligible
applicants that satisfy the terms and conditions of the VFC Program
application process receive a ``no action'' letter from EBSA and are
not subject to civil monetary penalties for the corrected transactions.
Excise tax relief for six specific VFC Program transactions is
conditionally available under the amended associated class exemption,
PTE 2002-51.\4\
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\3\ EBSA acknowledges that it has experience with certain
transactions fitting within one or more of the listed categories of
transactions, even if not specifically named in the category, for
example certain transactions involving contributions in kind under
section 7.4(a) of the Program. EBSA encourages potential applicants
to discuss eligibility and similar issues with the appropriate
regional VFC Program coordinator.
\4\ Stakeholders interested in a discussion of the components of
the VFC Program that are not being revised in this document should
review the Federal Register notices announcing the original 2002
Program and the 2005 and 2006 updates, as well as the 2022 proposed
revisions to the Program. See 67 FR 15062 (March 28, 2002), 70 FR
17516 (April 6, 2005), 71 FR 20262 (April 19, 2006), and 87 FR 71164
(Nov. 21, 2022). For PTE 2002-51, see 67 FR 70623 (2002); 71 FR
20135 (2006), and 87 FR 70753 (Nov. 21, 2022). Prior to adoption in
March 2002, the VFC Program was made available on an interim basis
during which the Department invited and considered public comments
on the Program. See 65 FR 14164 (March 15, 2000).
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The most significant changes to the VFC Program involve the
addition of two new self-correction features. The first is in section
7.1(b) for certain failures to timely transmit participant
contributions (and participant loan repayments) to pension plans,\5\
and the second is in section 7.3(c) for certain participant loan
failures self-corrected under IRS's EPCRS. The other Program amendments
in this document: (1) clarify existing transactions eligible for
correction under the Program; (2) expand the scope of certain
transactions currently eligible for correction; and (3) simplify
certain administrative or procedural requirements for participation in
the VFC Program and correction of transactions under the Program. A
more detailed summary of the Program revisions is set forth below in
this preamble.
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\5\ The term pension plans include both defined contribution
plans and defined benefit plans. See ERISA section 3(34) and 3(35).
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1. Self-Correction Component for Delinquent Participant Contributions
to Pension Plans--Section 7.1(b)
The 2025 VFC Program includes a new self-correction component (SCC)
for failures to timely transmit participant contributions (and
participant loan repayments) to pension plans in specified
circumstances. The new SCC adds a more streamlined correction mechanism
than is currently available under section 7.1(a) for instances in which
employers have retained participant contributions or loan repayments
beyond the time contemplated by the Department's regulations at 29 CFR
2510.3-102.
This transaction, referred to as ``delinquent participant
contributions,'' is the type of transaction most frequently corrected
under the Program. The Department received input from stakeholders who
said the time and expense required to file a VFC Program application
with the Department is a disincentive to use the Program to correct
delinquent participant contribution transactions, especially when they
involve small dollar amounts. Many of the comment letters submitted on
the 2022 VFC Program proposed revisions expressed support for the self-
correction feature, pointing out that it will promote voluntary,
timely, and efficient correction of errors; increase compliance;
eliminate unnecessary administrative requirements and costs; free up
EBSA resources; and help ensure participants' retirement savings are
secure. One commenter expressed concern, however, that the elimination
of notices or official approvals in the final Program could open the
Program to abuse and create an impression that no one is monitoring the
system.
After carefully considering the public comments, the Department
agrees that a streamlined self-correction feature for delinquent
participant contributions to pension plans with appropriately designed
safeguards will encourage more voluntary corrections by employers and
other persons who are in a position to correct a Breach (Plan
Officials). It will also enable EBSA to better allocate resources
currently dedicated to processing VFC Program applications for these
transactions. Accordingly, the 2025 VFC Program adds the SCC as the
correction method for the list of eligible transactions in section
7.1(b) entitled ``Delinquent Participant Contributions and Loan
Repayments to Pension Plans under the Self-Correction Component.'' \6\
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\6\ To reflect the inclusion of the SCC into the Program,
section 6 has been renamed ``VFC Program Application and Self-
Correction Component Procedures'' and the prior section 6 has been
renamed and re-designated as section 6.1 ``VFC Program Application
Procedures.''
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Under the final amendments, relief under the SCC for delinquent
participant contributions and delinquent plan loan repayments is
available in connection with any pension plan regardless of the size of
the plan's participant population or amount of plan assets, so long as
the applicant is eligible to use the Program and meets the conditions
discussed below. While self-correctors that satisfy the terms and
conditions of the VFC Program do not receive a no-action letter from
EBSA, the SCC provides that compliance with the Program's terms and
conditions will avoid the imposition of civil monetary penalties or an
EBSA civil enforcement action against the SCC participant. As with any
application under the Program, however, and in accordance with section
2(b) ``Verification,'' EBSA reserves the right to conduct an
investigation with respect to the transaction corrected through the
SCC,
[[Page 4194]]
to determine the truthfulness and completeness of the factual
statements set forth in the SCC notice and to confirm the corrective
action was in fact taken.
(a) Self-Correction Component $1,000 Lost Earnings Amount Limit--
Section 7(b)(1)(ii)(A)
Eligibility to use the SCC in section 7.1(b) is conditioned on the
amount of Lost Earnings \7\ on the delinquent participant contributions
or loan repayments being $1,000 or less (excluding any excise tax
amounts paid to the plan under the related class exemption PTE 2002-
51).
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\7\ Section 5(b)(6) defines ``Lost Earnings'' as an approximate
amount that would have been earned by the plan on the Principal
Amount, but for the Breach, and sets forth methodology for
calculating Lost Earnings for purposes of the SCC.
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Several commenters recommended eliminating, increasing, or changing
the Lost Earnings $1,000 cap. Some of these commenters expressed the
view that it would be desirable from a standpoint of cost and
efficiency to allow broader availability, while other commenters
asserted the cap would restrict large and mid-size plan sponsors from
participating and could result in others bifurcating the correction to
skirt the limit. Several commenters observed that using the cap on Lost
Earnings as determined by the online calculator, which utilizes the
Code section 6621(a)(2) underpayment rates, will result in fluctuations
leading to inconsistency and confusion with respect to SCC eligibility.
A variety of options were recommended by commenters, including
increasing the Lost Earnings to $2,500 or $10,000; addition of a cost-
of-living adjustment; adopting a cap that varies based on the amount of
plan assets or number of participants; and eliminating the cap
altogether. Commenters further recommended the Program allow the use of
plan's forfeiture accounts to pay for Lost Earnings, arguing that such
use would be consistent with the IRS's EPCRS, which allows a plan
sponsor to use plan forfeitures to fund corrective allocations in
certain circumstances. Another commenter suggested that the Program
include a de minimis provision under which Lost Earnings would not have
to be calculated and included in corrective payments. Alternatively,
the commenter suggested that the Department should allow de minimis
Lost Earnings amounts to be paid from the plan's forfeiture account.
After consideration of the comments, the Department has determined
to finalize the $1,000 Lost Earnings cap as proposed. The Department
believes that a substantial majority of delinquencies will be eligible
for correction under the SCC even with the $1,000 Lost Earnings cap.\8\
However, as noted in the 2022 VFC Program proposed revisions, the
$1,000 Lost Earnings cap along with the 180-day remittance deadline
(discussed below) are intended to exclude delinquencies from the SCC
when the amount or length of delinquency suggest a need for EBSA to
actively evaluate the circumstances surrounding the breach and the
timing of the correction under the VFC Program application process. The
Department believes it is appropriate to retain these protective
parameters as it proceeds with a new element of the VFC Program.
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\8\ The 2022 VFC Program proposed revisions estimated that the
SCC would streamline the process for 74% of small and large VFC
Program applicants involving Lost Earnings less than or equal to
$1,000.
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With respect to the suggestion that the Lost Earnings calculation
be based on the amount of plan assets or number of participants, EBSA
believes that the Lost Earnings cap should continue to be a fixed
figure. The VFC Program, and especially the SCC, is designed to provide
simplicity and uniformity with an approach that eliminates complicated
requirements for computation. A variable cap based on the total amount
of plan assets or the total number of participants, by contrast, would
complicate eligibility determinations and the Department's oversight of
those determinations, undermining the goal of simplicity.
Regarding the use of forfeitures to pay for Lost Earnings, from its
inception in 2000, the Program has required that the cost of correction
not be paid from plan assets. Lost Earnings is part of the correction
amount which is described in section 5(b) as a combination of the
Principal Amount involved in the transaction, Lost Earnings, and any
interest on the Lost Earnings. It was further clarified in section 5(c)
of the 2022 VFC Program proposed revisions that the cost of correction
cannot be paid from plan assets, including charges against participant
accounts or plan forfeitures accounts.\9\ This is still the right
approach. It would defeat ERISA's remedial purposes, and undermine
enforcement of the law's protections, to permit employers and
fiduciaries to shift the cost of the correction to the plan itself,
thereby causing new injury to the plan. Thus, this requirement and the
clarification regarding forfeitures will continue to be part of the VFC
Program.
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\9\ 87 FR 71164, 71181 (November 21, 2022).
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Several commenters seeking clarification of the timeframe to
calculate the Lost Earnings cap asked whether each pay period is viewed
as a separate transaction. Generally, the Department has considered
each pay period as a separate transaction; however, the Department has
permitted more than one pay period to be treated as one transaction
under the VFC Program if the pay periods are close together in time and
the delinquencies are related to the same cause.\10\
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\10\ For a discussion on whether each pay period can be viewed
as a separate transaction, refer to the associated class exemption,
PTE 2002-51 and the Voluntary Fiduciary Correction Program Class
Exemption FAQs which can be found in EBSA's website at <a href="https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/vfcp-class-exemption-faqs.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/vfcp-class-exemption-faqs.pdf</a>.
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(b) Self-Correction Component 180-Day Contribution Remittance
Deadline--Section 7(b)(1)(ii)(B)
To be eligible for the SCC in section 7.1(b), the delinquent
participant contributions or loan repayments must have been remitted to
the plan within 180 calendar days from the date of withholding from
participants' paychecks or receipt by the employer.
Several commenters argued that a 180-calendar day contribution
remittance deadline was too restrictive and suggested extending it to
either 120 days following the end of the plan year or until the due
date of the Annual Return/Report of Employee Benefit Plans (Form 5500
or Form 5500-SF, as applicable). As noted above, the preamble to the
2022 VFC Program proposed revisions states that the 180-day remittance
deadline is designed to exclude delinquencies that suggest the need for
EBSA to actively evaluate the circumstances surrounding the breach and
the timing of the correction. The Department continues to believe that
a failure to identify a delinquency and remit contributions or loan
payments due to the plan within 180 days indicates a potentially
serious problem with the plan's processes and procedures for handling
participant contributions and loan payments. It would not be consistent
with prudent fiduciary administration of a plan to wait until the end
of the plan year, the completion of the annual audit of the plan for
annual reporting purposes, or the due date of the Form 5500 or Form
5500-SF to check for timely transmission of participant contributions
and loan repayments. The Department also does not believe it would be
appropriate to structure the VFC Program in a way that suggests that it
is consistent with ERISA's fiduciary
[[Page 4195]]
duties to wait until the end of the year, the annual audit, or the
filing of the plan's annual report to check for delinquent transmittal
of contributions and loan repayments. Accordingly, EBSA has decided to
retain this requirement, which has also been part of the class
exemption since its inception in 2002, and which is intended to provide
protection to participants and beneficiaries especially in situations
outside of the full VFC Program application process.
(c) Requirements for the Self-Correction Component--Sections
5(b)(3)(ii), 7.1(b)(2)(i)
As with the current VFC Program application-based procedure for
delinquent participant contribution transactions in section 7.1(a),
correction amounts under the SCC consist of the (1) Principal Amount
and (2) Lost Earnings, with the Principal Amount being the amount of
participant contributions or loan repayments that would have been
contributed to the plan if the employer had not retained such amounts
and the Lost Earnings being the amount of earnings that would have been
earned on the Principal Amount but for the failure to timely remit such
amounts to the plan.
The SCC requires that Lost Earnings be paid from the ``Date of
Withholding or Receipt,'' and mandates the use of the online calculator
to determine the amount of the loss payable to the plan. The term
``Date of Withholding or Receipt'' means the date the amount would
otherwise have been payable to the participant in cash in the case of
amounts withheld by an employer from a participant's wages, or the date
on which the participant contribution or loan payment is received by
the employer in the case of amounts that a participant or beneficiary
pays to an employer. The calculation of Lost Earnings from the Date of
Withholding or Receipt is a special rule for purposes of the SCC and
differs from the calculation of Lost Earnings under the full VFC
Program application process, which begins on the earliest date on which
the participant contributions or loan repayments could reasonably have
been segregated from the employer's general assets (i.e., the date on
which the contributions become plan assets under the Department's
regulation at 29 CFR 2510.3-102). Use of the earlier date and the use
of the online calculator are important elements of the SCC that are
intended to help ensure full correction without the need for the
protections afforded by the Program's otherwise applicable application
and Department approval process. These elements also will provide self-
correctors with certainty that the calculation of Lost Earnings will
meet the requirements of the SCC.
(d) Self-Correction Component Notice Requirement--Section
7.1(b)(2)(iii)
Section 7.1(b)(2)(iii) of the SCC sets forth a requirement for an
electronically filed notice (SCC notice) in place of the generally
applicable paper application requirements in section 7.1(a)(3) of the
Program. The required data elements in the SCC notice include: the name
and an email address for the self-corrector; the plan name; the plan
sponsor's nine-digit employer identification number (EIN) and the
plan's three-digit number (PN); the Principal Amount; the amount of
Lost Earnings and the date paid to the plan; the Loss Date (for
purposes of the SCC, the Date(s) of Withholding or Receipt); and the
number of participants affected by the correction. The SCC notice must
be submitted electronically to EBSA using a new online VFC Program web
tool located on EBSA's website. Self-correctors using the web tool will
receive an automatic EBSA email acknowledging the SCC notice
submission.
Several commenters asserted that the SCC notice requirement would
discourage plan sponsors from using the SCC, although one commenter
acknowledged it would not appear to impose a significant burden.
Commenters also stated that the SCC notice was unnecessary because
delinquent contributions and delinquent loan repayments are already
reported on the Form 5500. Another commenter observed that self-
correction under the IRS's EPCRS does not require notice to the
Internal Revenue Service (IRS), while another commenter proposed a
minimum dollar threshold before there would be a requirement for the
completion of the SCC notice. However, as discussed above, another
commenter expressed concern that any elimination of notices or official
approvals can leave open doors for abuse and create the impression that
no one is monitoring the system.
As noted in the preamble to the 2022 VFC Program proposed
revisions, EBSA has been reluctant to adopt overbroad self-correction
features because of the danger that it would have insufficient
information regarding the breach and correction for which it is
providing no-action relief. The decision to adopt the SCC is premised,
however, on a conclusion that a well-designed self-correction feature
can result in the Department receiving sufficient timely information to
meet oversight objectives and ensuring appropriate corrections while
also encouraging more Plan Officials to utilize the Program. In the
Department's view, a well-designed program requires parties to file the
basic data that is necessary for the Department to ensure adequate
corrections, and appropriate oversight and accountability for fiduciary
violations. Further, although EBSA supports appropriate harmonization
of VFC Program provisions with the IRS's EPCRS when dealing with
corrections of the same transaction, the Department does not believe
that the SCC needs to match the requirements under the Self-Correction
Program (SCP) of the IRS's EPCRS in every respect.\11\ In addition,
EBSA does not believe reporting delinquencies and corrections on the
Form 5500 or Form 5500-SF is an adequate alternative to the SCC notice.
The SCC notice is intended to provide a relatively contemporaneous
report of the delinquency being corrected. Reporting delinquencies and
corrections on the Form 5500 or Form 5500-SF may not happen until many
months after the delinquency has been corrected. For example, a
delinquency that occurs in January of a calendar year plan would not be
reported until the end of July or, with a generally available
extension, until the middle of October of the following year. EBSA,
accordingly, has decided to retain the SCC notice and electronic filing
requirements as proposed.
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\11\ Unlike the IRS program, the SCC includes PTE 2002-51, which
provides an exemption from the prohibited transaction excise tax for
certain transactions identified in the VFC Program.
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(e) Self-Correction Component ``Retention Record Checklist''--Penalty
of Perjury Statement--Sections 6.2(d), 6.2(e) and 7.1(b)
Self-correctors under the SCC in section 7.1(b) must prepare or
collect the documents listed in the SCC Retention Record Checklist,
printed below in appendix F, and provide the completed checklist and
required documentation to the plan administrator as required under
sections 6.2(d) and 7.1(b)(3). Also, to participate in the SCC, a plan
fiduciary with knowledge of the transaction that is being self-
corrected and each Plan Official seeking relief under the program must
sign a penalty of perjury statement as follows: ``Under penalties of
perjury I certify that I am not Under Investigation (as defined in
section 3(b)(3) of the VFC Program) and that I have reviewed the SCC
notice acknowledgment and summary, the checklist, and all the required
documentation, and to the best of my knowledge and belief the contents
are
[[Page 4196]]
true, correct, and complete.'' The penalty of perjury statement also
appears in Appendix F.\12\
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\12\ As discussed below, the Department made a change in this
2025 VFC Program to permit an employer in a multiemployer plan or
multiple employer plan who wishes to correct on its own behalf to
sign the application or SCC penalty of perjury statement and,
regardless of the employer's status as a plan fiduciary, the penalty
of perjury statement need not be signed by another plan fiduciary.
See sections 6.1 and 6.2.
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One commenter opposed the penalty of perjury requirement on the
basis that it may have a chilling effect on utilization of the SCC and
may increase litigation risk against Plan Officials. However, since its
inception in 2002, the VFC Program has required a penalty of perjury
statement as a necessary safeguard.\13\ As noted in the 2006 Program,
EBSA believes that an important result under the Program is a level of
certainty that those using the Program have complied with the terms of
the Program and have revealed the details of the transaction and the
correction.\14\ The penalty of perjury statement is part of what
provides that level of certainty. Accordingly, the final SCC in section
7.1(b) retains the penalty of perjury statement as a fundamental part
of the Program.
---------------------------------------------------------------------------
\13\ 67 FR 15062, 15068, (March 28, 2002).
\14\ 71 FR 20262, 20265 (April 19, 2006).
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(f) Self-Correction Component Protections and Frequency of Use
In the preamble to the 2022 VFC Program proposed revisions, the
Department stated that it had considered but did not include a limit on
the frequency with which a self-corrector may use the SCC.\15\ The
Department explained that it intended instead to monitor participation
for frequent use of the SCC and that it may communicate with repeat
users or open investigations to identify and correct systemic issues
leading to repeated failures to transmit participant contributions in a
timely fashion. The Department requested comments on whether the SCC
should incorporate other protections for pension plans that are
classified as small based on their participant population. For example,
EBSA asked whether the SCC should limit small plan participation to
only those small plans whose plan sponsors comply with the safe harbor
standard in 29 CFR 2510.3-102(a)(2) for the timely handling of
participant contributions. The Department noted that compliance could
require, for example, either an existing practice or an agreement to
put in place a customary practice of depositing participant
contributions and loan payments with the plan not later than the 7th
business day following the day on which such amount would otherwise
have been payable to the participant in cash in the case of amounts
withheld by an employer from a participant's wages, or the 7th business
day following the day on which the participant contribution or loan
payment is received by the employer in the case of amounts that a
participant or beneficiary pays to an employer.
---------------------------------------------------------------------------
\15\ The proposal noted that the class exemption PTE 2002-51 is
generally unavailable to VFC Program applicants that have, within
the previous there years, taken advantage of the relief provided by
the VFC Program and the exemption for a similar type of transaction.
Comments were solicited on whether to eliminate the three-year use
limitation in the exemption PTE 2002-51. A discussion of that issue
and the Department's conclusion can be found in the final amendment
to PTE 2002-51 which appears in this issue of the Federal Register.
---------------------------------------------------------------------------
Commenters generally supported the decision not to impose a limit
on the frequency of use of the SCC. One commenter believed that, given
the Lost Earnings cap, repeat use of the SCC is unlikely to present a
risk to participants. Another commenter argued that plan sponsors will
be disincentivized from using the SCC if their frequency of use is
monitored by EBSA and asked for guidance as to the level of usage that
is likely to generate follow-up inquiries from EBSA. Commenters also
asked that no additional requirements be imposed on self-corrections by
small plans. They argued additional requirements were unnecessary
because the Department retains the right to investigate a plan
fiduciary if it fails to meet the SCC requirements and additional
requirements could discourage participation in the SCC. One commenter
argued that in its experience most small employers followed the 7-
business day safe harbor, but a more restrictive standard in the SCC
would fail to acknowledge that there are occasions when a particular
deposit cannot be reasonably segregated from the employer's general
assets within the 7-business day period. The Department has decided not
to adopt additional requirements for small plans at this time. As
discussed in the preamble to the 2022 VFC Program proposed revisions,
EBSA will monitor the use of the SCC and evaluate the potential merit
of added requirements based on that data.
With respect to the request for guidance on the level of repeat
usage of the SCC that might trigger communications from the Department
or initiation of an investigation, the Department does not believe a
general standard would be appropriate for determining whether repeated
use of the SCC will generate an inquiry or investigation. Rather, the
Department's actions with respect to any particular repeat user will
depend on the facts and circumstances of the individual corrections.
(g) Self-Correction Component: Miscellaneous
The VFC Program does not relieve plans from reporting delinquent
participant contributions on the plan's Form 5500 or Form 5500-SF, as
applicable. That remains the case under these amendments to the Program
for violations, regardless of whether corrected under the SCC or the
application-based component of the VFC Program.
A commenter urged the Department to provide guidance on whether and
how plan administrators should report use of the SCC on the Form 5500
(Line 4a of the Schedule H or Schedule I for small plans; line 9(a) of
the Schedule DCG) or Form 5500-SF (Line 10a). The instructions for the
Form 5500 and the Form 5500-SF already specifically address reporting
of delinquent contributions. EBSA directs filers to the instructions
for the Form 5500 to determine their reporting obligation regarding
delinquent participant contributions. The information submitted on the
SCC notice enables the Department to cross-reference SCC correctors to
the Form 5500/5500-SF data. The Department has a project on its
regulatory agenda that involves an evaluation of general improvements
to the annual reporting forms and instructions. The Department is open
to input on that project from stakeholders related to whether the
Department should propose adding questions to the Form 5500 and Form
5500-SF that specifically relate to use of the SCC.
In the 2006 VFC Program, the Department rejected a recommendation
that EBSA implement a de minimis rule under the VFC Program under which
applicants would not be required to correct a previously filed Form
5500 in circumstances where the breach involved a defined de minimis
threshold amount of the plan's assets.\16\ EBSA continues to believe
that such an exception from the requirement to file a complete and
accurate annual report is not appropriate. Rather, when a prohibited
transaction is not reported or is reported incorrectly on the plan's
Form 5500 or Form 5500-SF annual report, the Form 5500 or Form 5500-SF
filing must be amended so the plan's annual report correctly reflects
the fiduciary breach and prohibited transaction.
---------------------------------------------------------------------------
\16\ 71 FR 20262, 20266 (2006).
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[[Page 4197]]
Another commenter recommended that the Department create an online
excise tax calculator in coordination with the Department of the
Treasury. A requirement for the use of the SCC under section
7.1(b)(2)(i) is that the Lost Earnings on the delinquent remittance of
participant contributions and participant loan repayments be calculated
using the online calculator. This requirement was supported by
commenters as a straightforward method to determine the Lost Earnings
amount. The Department will consider the recommended addition and
consult with the Department of the Treasury, but believes that step is
beyond the scope of the current amendments and is not prepared to adopt
such an expansion of the online calculator concurrent with this
release.
2. Self-Correction Component for Participant Loan Transactions
Corrected Pursuant to IRS's EPCRS--Section 7.3
The current VFC Program covers certain participant loans that fail
to qualify for ERISA's statutory exemption for plan loan programs in
ERISA section 408(b)(1). Specifically, these covered loan transactions
are loans in which the terms of the loan did not comply with plan
provisions that incorporated requirements of section 72(p) of the Code
concerning amount, duration, or level amortization, or which defaulted
due to a failure to withhold loan repayments from the participant's
wages. The correction under the 2006 VFC Program for these transactions
requires that the Plan Official voluntarily correct the loan with IRS
approval under the Voluntary Correction Program (VCP) of the IRS's
EPCRS and provide to the Department information regarding the
correction.
In July 2021, IRS updated EPCRS to permit use of SCP for correction
of certain participant loan failures. In December 2022, the SECURE 2.0
Act was enacted. Section 305(b)(1) of the SECURE 2.0 Act provides that
an ``eligible inadvertent failure'' related to a loan from a plan to a
participant may be self-corrected according to the rules of section
6.07 of Revenue Procedure 2021-30 or any successor guidance.
Section 305(b)(2) of the SECURE 2.0 Act requires the Department to
treat eligible inadvertent failures related to participant loans that
are self-corrected under the IRS's EPCRS as described above as meeting
the requirements of the VFC Program ``if, with respect to the violation
of the fiduciary standards of the Employee Retirement Income Security
Act of 1974, there is a similar loan error eligible for correction
under the IRS's EPCRS and the loan error is corrected in such manner.''
Section 305(b)(3) of the SECURE 2.0 Act permits the Department to
impose reporting or other procedural requirements with respect to
parties that intend to rely on the VFC Program for correction of these
eligible inadvertent failures.
The 2022 VFC Program proposed revisions were published for public
comment in November 2022 before the SECURE 2.0 Act was enacted, with a
comment period closing date of January 20, 2023. Some commenters
addressed SECURE 2.0 Act section 305 during that comment period.
However, because the amendments were published for public comment
before the SECURE 2.0 Act was enacted, the Department reopened the
comment period from February 14 to April 17, 2023, to specifically
solicit comments on the SECURE 2.0 Act section 305 directive. In the
notice reopening the comment period, the Department asked specific
questions about section 305 of the SECURE 2.0 Act, including (i)
whether VFC Program section 7.3 should be amended to include a
paragraph treating participant loan transactions self-corrected under
the IRS's EPCRS as meeting the requirements of the VFC Program, (ii)
whether the VFC Program should impose additional reporting or other
procedural requirements for these specific corrections, and (iii)
whether changes were needed to PTE 2002-51.
Several commenters expressed general support for the implementation
of the changes required by the SECURE 2.0 Act section 305, including
support for adding a self-correction component to the VFC Program for
participant loans self-corrected in accordance with the SCP of the
IRS's EPCRS. The commenters urged the Department to remove requirements
in section 7.3 of the VFC Program that correctors must use VCP (under
the IRS's EPCRS) and that they must provide the Department with proof
of payment and an IRS compliance statement. A commenter further
recommended amending section 2 of the VFC Program to provide that EBSA
will not initiate a civil investigation or assess civil penalties for
participant loan transactions corrected under the SCP of the IRS's
EPCRS.
Several commenters stated that the Department should not impose any
requirements on parties who self-correct plan loans under the VFC
Program beyond what is required by the SCP of the IRS's EPCRS. The
commenters noted that the SCP of the IRS's EPCRS does not impose notice
or reporting requirements for employers that self-correct. One
commenter stated that consistency between the IRS's EPCRS and the
Department's VFC Program would simplify corrections and reduce burden.
A different commenter stated that reporting to EBSA or other procedural
requirements are unnecessary because a plan loan that is self-corrected
under the SCP of the IRS's EPCRS puts the affected participants in the
position they would have been if no failure occurred. One commenter
recommended that the Department also include other ``eligible
inadvertent failures'' (i.e., eligible inadvertent failures other than
those relating to loans to participants) in a VFC Program self-
correction component as soon as practicable after the IRS provides
guidance on the meaning of ``eligible inadvertent failures'' and how
such failures can be self-corrected under EPCRS.
After evaluating the comments, and pursuant to section 305 of the
SECURE 2.0 Act, the Department is modifying section 7.3 of the VFC
Program to accept EPCRS self-corrections of eligible inadvertent
failures of participant loan transactions. Specifically, the 2025 VFC
Program adds a new self-correction component in section 7.3(c) entitled
``Eligible Inadvertent Participant Loan Failures Corrected under the
Self-Correction Component.''
The description of the transaction set forth in section 7.3(c)(1)
states, ``A plan extended a loan to a plan participant who is a party
in interest with respect to the plan based solely on their status as an
employee of any employer whose employees are covered by the plan, as
defined in section 3(14)(H) of ERISA. There is an Eligible Inadvertent
Participant Loan Failure that involves a Breach as defined in section
3(b)(1) [of the VFC Program].'' Section 7.3(c) further provides that an
Eligible Inadvertent Participant Loan Failure is a participant loan
failure that occurs despite the existence of practices and procedures
that satisfy the standards set forth in, and is eligible for correction
under, the IRS's EPCRS, and does not include any participant loan
failure that is egregious, relates to the diversion or misuse of plan
assets, or is directly or indirectly related to an abusive tax
avoidance transaction. In addition, in connection with the new
provision in section 7.3(c), a new exception is added to section 4
titled ``Exception for Eligible Inadvertent Participant Loan Failures''
to clarify that a self-corrector is eligible to correct an Eligible
Inadvertent Participant Loan Failure under section 7.3(c) even if the
plan or the self-corrector is ``Under Investigation,'' within the
meaning of the VFC Program so long as the self-corrector is eligible to
correct the
[[Page 4198]]
participant loan failure under the IRS's EPCRS.\17\
---------------------------------------------------------------------------
\17\ Under Q&A-4 of Notice 2023-43, once a plan or plan sponsor
comes under examination (as defined in section 5.08 of Rev. Proc.
2021-30), an Eligible Inadvertent Participant Loan Failure is no
longer eligible for self-correction under the IRS's EPCRS unless the
plan sponsor has, before the plan or plan sponsor comes under
examination, demonstrated a specific commitment to implement a self-
correction. However, under Q&A-5 of Notice 2023-43, a plan sponsor
may self-correct an Eligible Inadvertent Participant Loan Failure
that is insignificant, determined in accordance with the factors set
forth in section 8.02 of Rev. Proc. 2021-30, even if the plan or
plan sponsor is under examination, and even if the failure is
discovered on examination.
---------------------------------------------------------------------------
The new SCC for participant loan failures in section 7.3(c)
accordingly allows self-correction of transactions currently described
in section 7.3(a) and (b) of the VFC Program--i.e., loans the terms of
which did not comply with plan provisions that incorporated
requirements of section 72(p) of the Code concerning amount, duration,
or level amortization, or loans that defaulted due to a failure to
withhold loan repayments from the participant's wages--if such
transactions are eligible for, and have been self-corrected under, the
IRS's EPCRS. The new SCC in section 7.3(c) also extends to the failure
to obtain spousal consent for a plan loan and to allowing a loan when
the loan exceeds the number permitted under the terms of the plan, also
provided that the transactions are eligible for, and have been self-
corrected under, the IRS's EPCRS.
IRS Notice 2023-43 (IRS Notice) provides interim guidance under
section 305 of the SECURE 2.0 Act with respect to the expansion of
EPCRS, including with respect to the expansion of self-correction for
eligible inadvertent failures relating to loans from plans to
participants under section 305(b)(1).\18\ Among other things, the IRS
Notice provides that plan sponsors may self-correct any eligible
inadvertent failure relating to a loan from a plan to a participant
that is corrected in accordance with section 6.07 of EPCRS, before
EPCRS is formally updated pursuant to section 305(g) of the SECURE 2.0
Act, if certain conditions are satisfied.\19\ The IRS Notice also
provides that plan sponsors may rely on the notice beginning on the
date it was issued, May 25, 2023, and ending on the date EPCRS is
updated pursuant to section 305(g) of the SECURE 2.0 Act. Likewise,
with respect to the new SCC in section 7.3(c), the Department will
accept self-correction in accordance with section 6.07 of the IRS's
EPCRS before EPCRS is formally updated. Once the IRS's EPCRS is
formally updated, the Department will accept self-correction in
accordance with the updated EPCRS. In this regard, with respect to a
failure to obtain spousal consent for a plan loan, the Department's SCC
will initially accept only a correction that involves obtaining spousal
consent, unless and until additional correction methods are identified
in an updated IRS's EPCRS.\20\ The Department intends to monitor use of
the SCC as well as any additional changes to the IRS's EPCRS to
determine whether additional guidance appears necessary on the scope of
the SCC in section 7.3(c) or on any correction methods.
---------------------------------------------------------------------------
\18\ Notice 2023-43, Guidance on Section 305 of the SECURE 2.0
Act of 2022 with Respect to Expansion of the Employee Plans
Compliance Resolution System, available at <a href="https://www.irs.gov/pub/irs-drop/n-23-43.pdf">https://www.irs.gov/pub/irs-drop/n-23-43.pdf</a>.
\19\ Id. at Q&A 1.
\20\ See section 6.07(4) of Revenue Procedure 2021-30 (relating
to correction of failure to obtain spousal consent for plan loan).
---------------------------------------------------------------------------
The Department does not agree with the commenters who suggested
that the Department should not impose any requirements in the VFC
Program on parties who self-corrected participant loans beyond what is
required by the IRS's EPCRS. Rather, similar to the Department's
position described above with respect to self-correction of delinquent
participant contributions and loan repayments, the Department believes
self-correction of participant loan transactions is a new approach that
merits a level of oversight to ensure that transactions are adequately
corrected and that breaching fiduciaries have an appropriate level of
accountability. Accordingly, under section 7.3(c), self-correctors are
required to complete a SCC notice and submit the notice electronically
to EBSA using the online VFC Program web tool located on EBSA's
website. Self-correctors are also required to complete and retain the
documents required under section 6.2 (including the Penalty of Perjury
Statement). The SCC for participant loan transactions has been designed
so that the burden of providing information to the Department is
minimal and mirrors the IRS recordkeeping requirements \21\ by
requiring only contact information, a short description of type of
participant loan failure, the loan amount or amounts in the case of
multiple loans, the date the failure was identified, the date or dates
of correction, the correction, and the number of participants affected
by the correction. Unlike self-correctors under section 7.1(b), who
must complete a SCC Record Retention Checklist, self-correctors under
section 7.3(c) do not need to complete that checklist.
---------------------------------------------------------------------------
\21\ Notice 2023-43, at Q&A-11.
---------------------------------------------------------------------------
The existing correction method under sections 7.3(a) and (b) are
retained to permit those that would prefer to correct under the EPCRS
VCP to utilize the application-based process under the VFC Program.
The Department also does not agree with the suggestion that section
2 be amended to provide that EBSA will not initiate a civil
investigation or assess civil penalties for a self-correction of a
participant loan failure corrected under the IRS's EPCRS. Consistent
with EBSA's historical practice under the VFC Program, the Department
generally does not anticipate taking enforcement action in response to
a compliant application or eligible self-correction except in the
unusual situation where EBSA becomes aware of possible criminal
behavior, material misrepresentations or omissions in the VFC Program
application or SCC notice, or other abuse of the Program.\22\
---------------------------------------------------------------------------
\22\ 67 FR 15062, 15063 (2002).
---------------------------------------------------------------------------
3. Other Revisions to the VFC Program
(a) Revisions to Application Process Provisions for Delinquent
Participant Contributions--Sections 7.1(a), (c) and (d)
Section 7.1(a) has been renamed ``Delinquent Participant
Contributions and Loan Repayments to Pension Plans under VFC Program
Applications'' to clarify that it applies only to corrections pursuant
to Program applications in contrast to self-corrections under section
7.1(b). Additionally, section 7.1(a) has been revised to reflect the
Department's amendment of its regulation defining plan assets in 2010
to include participant loan repayments within these regulatory
principles.\23\ Language has also been added to sections
7.1(a)(3)(ii)(A) and (iii)(A) to explain that the required narrative in
the application must include a description of any steps taken to
prevent future delinquencies.
---------------------------------------------------------------------------
\23\ See 29 CFR 2510.3-102(a)(1).
---------------------------------------------------------------------------
Sections 7.1(b) ``Delinquent Participant Contributions to Insured
Welfare Plans'' and (c) ``Delinquent Participant Contributions to
Welfare Plan Trusts'' are re-designated as sections 7.1(c) and (d)
respectively. A change also has been made to each of these sections to
clarify that the participant contributions were remitted to the
insurance provider in section 7.1(c)(3)(iii) and to the trust in
section 7.1(d)(3)(ii) rather than the plan as previously stated to
clarify the provision.
[[Page 4199]]
The Department also had proposed deleting language regarding
Restoration of Profits as a correction method under sections
7.1(a)(2)(i) and (ii) and 7.1(d)(2)(i) and (ii). The proposal was based
on the view that this correction method may be unnecessary in this
context, as applicants had not reported generating a profit through use
of the delinquent amounts, and therefore, deletion would simplify the
Program. Although the Department did not receive comments opposing
these changes, the Department determined to retain Restoration of
Profits as a potential correction method in the 2025 VFC Program in
order to leave the option available should it become relevant to an
applicant in the future. Many commenters on the 2022 VFC Program
proposed revisions generally supported expansive availability of the
Program to promote timely correction of errors.
The 2022 VFC Program proposed revisions also clarified that the VFC
Program does not include a correction for delinquent matching employer
contributions. However, as explained in the notice, to the extent that
a Program application provides that the employer will apply the same
correction formula to the employer matching contributions that it is
required to apply to delinquent participant contributions, EBSA does
not expect to reject or refuse to process such applications merely
because delinquent employer matching contributions are included even
though the ``correction'' of the employer contribution is not a covered
transaction under the VFC Program, is not entitled to any relief under
the Program, and will not be covered by any no action letter.
(b) Revisions to Application Process Provisions for Loans--Sections
7.2(b), (c) and (d)
The 2022 VFC Program proposed revisions included several changes to
section 7.2 related to the application process for correction of
certain plan loans made at below-market interest rates. The Department
received no comments on the proposed revisions, and as described below,
is adopting the changes as proposed.
The original VFC Program included as an eligible transaction ``Loan
at Below-Market Interest Rate to a Party in Interest with Respect to
the Plan.'' The corrective action in section 7.2(b) for such
transactions requires the payment of the loan in full, plus penalties,
and the greater of the Lost Earnings or Restoration of Profits. In
addition to the required section 6.1 documentation, the 2006 VFC
Program required applicants to provide both a written copy of an
independent commercial lender's fair market interest rate determination
under section 7.2(b)(3)(ii) and a copy of an independent fiduciary's
dated, written approval of the fair market interest rate determination
under section 7.2(b)(3)(iii). To reduce applicants' costs, the 2025 VFC
Program revises section 7.2(b)(3)(iii) to eliminate the requirement
that an independent fiduciary validate in writing the process used to
determine the fair market interest rate determination for loans in the
amount of $10,000 or less. The 2025 VFC Program also clarifies the
wording in section 7.2(b)(3)(i) to require a narrative describing the
process used to determine the interest rate at the time the loan was
made.
Section 7.2(c) ``Loan at Below-Market Interest Rate to a Person Who
is Not a Party in Interest With Respect to the Plan'' is also a
transaction that dates from the original VFC Program. Sections
7.2(c)(2)(i) and (ii) are being re-organized to clarify the required
correction for this transaction. Section 7.2(c)(2)(ii) also adds an
alternative to payment of the present value of the Principal Amounts
from the Recovery Date to the loan's maturity date. The present value
payment method must be coupled with the borrower's continued payment of
the outstanding loan balance under the original repayment schedule for
the duration of the loan. The new alternative permits the borrower's
payment of the amortized outstanding loan balance over the remaining
payment schedule of the loan at the interest rate that would have been
applicable if the loan had originally been made at the fair market
interest rate. When this new alternative is used, the applicant must
submit a copy of the loan repayment schedule for the re-amortized loan
repayments under section 7.2(c)(3)(iii). Any fair market interest rate
must be determined by an independent commercial lender. The wording in
section 7.2(c)(3)(i) is revised in a similar fashion to the wording in
section 7.2(b)(3)(i) to require a narrative describing the process used
to determine the interest rate at the time the loan was made.
Section 7.2(d) ``Loan at Below-Market Interest Rate Solely Due to a
Delay in Perfecting the Plan's Security Interest'' is another
transaction dating back to the original VFC Program. It provides a
correction for when a plan made a purportedly secured loan to a non-
party in interest, but a delay occurred in recording or otherwise
perfecting the plan's interest in the loan collateral, resulting in the
loan being treated as an unsecured loan until the plan's security
interest was perfected. Section 7.2(d)(2) is re-organized to clarify
the correction. Section 7.2(d)(2)(ii) specifically requires that the
plan's interest in the loan collateral be recorded or perfected. For
situations where the delay in perfecting the loan's security caused a
permanent change in the risk characteristics of the loan, section
7.2(d)(2)(iii) requires the payment of the present value of the
remaining Principal Amounts from the date the loan is fully secured to
the maturity date of the loan. The 2025 VFC Program clarifies that the
present value payment method must be coupled with the borrower's
continued payment of the outstanding loan balance under the original
repayment schedule for the duration of the loan. Section 7.2(d)(2)(iii)
is also being amended in the 2025 VFC Program to add an alternative
that permits the borrower's payment of the amortized outstanding loan
balance over the remaining payment schedule of the loan at the interest
rate that would have been applicable for a loan with the changed risk
characteristics. When this new alternative in the 2025 VFC Program is
used, the applicant must submit a copy of the loan repayment schedule
for the re-amortized loan repayments under section 7.2(d)(3)(iii). Any
fair market interest rate must be determined by an independent
commercial lender.
In a related modification applicable to these three types of loans,
section 5(a) is revised to include a specific explanation in section
5(a)(5) for when a commercial lender will be ``independent'' using the
same criteria as is used to determine the ``independence'' of an
appraiser. As an ongoing protection for plans and their participants,
EBSA staff, as part of the application review process, will continue to
monitor a commercial lender's interest rate determination process and
will object if it appears that a lender is not truly ``independent'' of
the plan's fiduciaries and parties in interest, or the interest rate
determination process is otherwise flawed.
(c) Revisions to Application Process Provisions for Purchases, Sales
and Exchanges, Sales and Leasebacks--Section 7.4
The 2022 VFC Program proposed revisions included several changes to
Section 7.4(a) ``Purchase of an Asset (Including Real Property) by a
Plan from a Party in Interest,'' Section 7.4(b) ``Sale of an Asset
(Including Real Property) by a Plan to a Party in Interest,'' and
Section 7.4(c) ``Sale and Leaseback of Real Property to Employer.'' The
Department did not receive any
[[Page 4200]]
comments on the proposed revisions, and as described below, is adopting
the changes as proposed.
Section 7.4(a) provides a method of correction for situations when
the plan purchased an asset (including real property) from a party in
interest in a transaction to which no prohibited transaction exemption
applies. A plan's purchase from a party in interest can be corrected
under the VFC Program by reversing the transaction provided the plan
receives the higher of the fair market value at resale or the Principal
Amount plus the greater of either Lost Earnings or Restoration of
Profits.\24\ As an alternative correction, a plan may retain the asset
plus receive an amount resulting from application of a formulaic
calculation, but only if an independent fiduciary determines that the
plan will realize a greater benefit from this alternative correction
than from the resale of the asset. Section 7.4(a)(2) of the 2025 VFC
Program includes a new paragraph (iii) that provides a third method of
correction in situations when the purchase cannot be reversed or the
asset retained because the plan no longer owns the asset (e.g., sales,
maturity, destruction). Under this new correction, the plan can receive
a ``cash settlement'' if the asset has been sold and a Plan Official
provides a statement, as required by section 7.4(a)(3)(v), that the
sale was upon the advice of an independent fiduciary and not in
anticipation of applying for relief under the Program. The
determination of the cash settlement amount is prescribed in section
7.4(a)(2)(iii) and considers, among other factors, whether the plan
realized a profit on the resale of the asset, or a loss on the resale,
maturity or destruction of the asset.
---------------------------------------------------------------------------
\24\ The terms Principal Amount, Lost Earnings, and Restoration
of Profits are defined in VFC Program section 5.
---------------------------------------------------------------------------
As a further clarifying change, the wording in section
7.4(a)(2)(ii) is modified to permit the subtraction of any earnings
received on the asset up to the Recovery Date from Lost Earnings.
The 2025 VFC Program also includes an amendment to section 7.4(b)
``Sale of an Asset (Including Real Property) by a Plan to a Party in
Interest.'' Section 7.4(b) provides a method of correction in
situations when the plan sold an asset for cash to a party in interest
in a transaction to which no prohibited transaction exemption applies.
The amendment adds a condition to the section 7.4(b)(2)(ii) correction
to permit the plan to receive the correction amount rather than to
repurchase the asset by permitting a Plan Official to determine that
the asset cannot be repurchased (e.g., destruction, maturity). This new
condition in section 7.4(b)(2)(ii) is an alternative to the section's
existing condition requiring an independent fiduciary to determine that
the plan will recognize a greater benefit from this correction than the
correction in section 7.4(b)(2)(i). As part of the required
documentation under section 7.4(b)(3)(iv), the Plan Official making
this determination must provide a written explanation of why the asset
cannot be repurchased.
Section 7.4(c) ``Sale and Leaseback of Real Property to Employer''
provides a method of correction for a plan sponsor that sells a parcel
of real property to the plan, which is then leased back to the plan
sponsor and is not otherwise exempt. To more accurately reflect the
statutory exemption provided by ERISA section 408(e), which does not
limit the transaction to the plan sponsor, section 7.4(c) is being
revised to explicitly allow correction of leases to affiliates of the
plan sponsor. The final associated class exemption, PTE 2002-51, has
been revised for consistency with this amendment.
(d) Revisions to Application Process Provisions for Illiquid Assets--
Section 7.4(f)
The VFC Program includes correction for a transaction that permits
a plan to divest, rather than continue to hold in its investment
portfolio, a previously purchased asset that is determined to be
illiquid and that had been acquired under circumstances described in
the Program. The 2022 VFC Program proposed revisions retained those
circumstances, as well as the correction method, which permits the sale
of the asset to a party in interest provided the plan receives the
higher of (A) the fair market value of the asset at the time of resale,
without a reduction for the costs of sale; or (B) the Principal Amount,
plus Lost Earnings as described in section 5(b). This correction
encompasses a sale of the illiquid asset to a party in interest by the
plan even if the original purchase of the asset by the plan was not a
prohibited transaction or otherwise imprudent. However, the amendments
modified the definition of Principal Amount to take into account the
possibility that the transaction being corrected was neither a
prohibited transaction nor a fiduciary breach. Section 7.4(f)(2)(ii)
now defines Principal Amount as either the amount that would have been
available had the Breach not occurred, or the plan's original purchase
price if the original purchase was not a prohibited transaction or
imprudent. The amendments also clarify that in the case of an illiquid
asset that is a parcel of real estate, no party in interest may own
real estate that is contiguous to the plan's parcel of real estate on
the Recovery Date. There were no comments addressing these proposed
revisions, and the 2025 VFC Program includes these changes as proposed.
(e) Revisions to the VFC Program General Eligibility Criteria--Sections
3, 4, and 5
(i) Under Investigation Definition--Section 3(b)(3)
To be eligible to correct under the VFC Program, a plan, applicant,
or self-corrector may not be ``Under Investigation'' as defined in
section 3(b)(3). The 2022 VFC Program proposed revisions included a
modification to section 3(b)(3)(i) to state that a review by an EBSA
Benefits Advisor is considered an investigation by EBSA that
automatically makes an applicant or self-corrector ineligible to
participate in the Program. However, the proposed change to section
3(b)(3) makes clear that a plan will not be considered to be Under
Investigation merely because EBSA staff has contacted the plan, the
applicant, the self-corrector, or the plan sponsor in connection with a
participant complaint unless the participant complaint concerns the
transaction described in the application or identified in the SCC
notice and the plan has not received the correction amount due under
the Program as of the date EBSA staff contacted the plan, the
applicant, the self-corrector, or the plan sponsor.
One commenter opposed including in the definition of Under
Investigation contact from an EBSA staff member regarding a participant
complaint arguing that the fiduciary may have not known the breach
occurred until the fiduciary received the call from the EBSA staff
member. The commenter further suggested that EBSA instead could put
time parameters around when the fiduciary must act based on receiving
information from the EBSA staff member.
The VFC Program has limited eligibility for participation in the
Program to plans and applicants that are not Under Investigation since
its inception. The requirement does not turn on the fiduciary's
knowledge of the breach (or allegations of a breach), but rather on the
absence of an investigation by the Department. An important premise of
the VFC Program is that fiduciaries should not wait to see if the
agency has spotted the potential breach or if a participant has
complained to the agency before they take action to correct
[[Page 4201]]
violations. Instead, they should timely correct violations, and the VFC
Program should be structured to avoid incentives for fiduciaries to
adopt a ``wait and see'' approach focused on the likelihood of getting
caught, instead of the need to correct violations promptly.
Accordingly, the Department is not persuaded that the changes suggested
by the commenter are consistent with the purpose of the provision and,
accordingly, declines to adopt the suggestions. Rather, the 2025 VFC
Program retains the definition of Under Investigation as proposed.
(ii) Eligibility Exceptions--Section 4
Section 4 of the Program provides that in order to be eligible for
the VFC Program, the plan, applicant, or self-corrector may not be
Under Investigation (discussed above) and the VFC Program application
must contain no evidence of potential criminal violations. The 2025 VFC
Program added two new limited exceptions to the existing eligibility
requirements to promote increase usage of the Program.
The first exception involves the ``potential criminal violations''
provision in paragraph (b)(2) and allows participation in the VFC
Program by an innocent plan administrator, plan sponsor, or applicant
for cases involving delinquent participant contributions and loan
repayments when (1) all funds have been repaid to the plan; (2) the
appropriate law enforcement agency has been notified of the alleged
criminal activity; and (3) the applicant submits a statement (covered
by the Penalty of Perjury Statement) with the application providing
contact information for the law enforcement agency, certifying that the
applicant was not involved in the alleged criminal activity, and
reporting whether a claim relating to the potential criminal violation
has been made under an ERISA section 412 fidelity bond. To accommodate
this change, section 4(b) is re-named and re-designated as section
4(b)(1), ``In general.'' EBSA always retains the right to reject any
VFC Program application based on its review of the criminal activity
involved.
The second exception being added in the 2025 VFC Program is in
section 4(d), which provides that an applicant is eligible to submit a
``bulk application'' when certain conditions are met. As noted in the
2022 VFC Program proposed revisions, over the past several years, EBSA
has received Program applications from service providers to correct
Breaches involving multiple plans. Some of these applications have
involved hundreds, or even thousands, of plans, some of which are Under
Investigation by EBSA. As noted elsewhere in this document, a plan is
automatically ineligible to participate in the Program if it is
considered ``Under Investigation'' as defined in section 3(b)(3) of the
Program. Consequently, such plans could not be included in any
resulting no action letter. EBSA noted that it would like to be able to
issue a no action letter to the service provider that covers all plans
named in the application in certain circumstances. EBSA received one
comment letter in support of the changes described in the 2022 VFC
Program proposed revisions, and the Program's eligibility provision
have been expanded as proposed. Specifically, to qualify: (1) the
application must cover at least ten named plans and each plan must have
participated in the transaction being corrected; (2) the applicant must
be a service provider that is applying for relief only on its own
behalf; (3) the applicant is currently or was providing services to
each of the named plans at the time of the transaction being corrected;
and (4) the service provider cannot be Under Investigation by EBSA and
the corrective action cannot have been taken as a result of an EBSA
investigation or review of any named plan. EBSA retains the right to
determine whether the corrective action was taken as a result of any
investigation, and to exclude any plan involved in the investigation
from the no action letter. Also, section 6.1(d)(3) is being amended to
permit a bulk applicant to provide for each named plan either the
Annual Report Form 5500 filing information or the plan sponsor's nine-
digit number (EIN). This procedural change will avoid undue delay while
a service provider attempts to secure Annual Report Form 5500 filing
information, which may not be directly related to the Breach. Section
6.1(g) is also being amended to permit a bulk applicant with knowledge
of the transaction that is the subject of the application to sign and
date the Penalty of Perjury Statement in which the applicant certifies
that it is not Under Investigation by EBSA instead of requiring a
signature from a plan fiduciary for each plan covered by the
application.
(iii) Lost Earnings De Minimis Exception--Section 5(e)
The 2006 VFC Program provides a de minimis exception that applies
to corrective distributions of less than $20 each to former employees,
their beneficiaries, and alternate payees who neither have account
balances with nor have a right to future benefits from the plan if the
applicant demonstrates that the cost of making a distribution to the
individual exceeds the amount of the corrective payment. In that case,
the distribution does not have to be paid to the individuals but rather
the total amount can be paid to the plan. The 2022 VFC Program proposed
revisions included an increase in the de minimis amount to $35. Several
commenters asked for a de minimis rule for Lost Earnings on delinquent
remittance of participant contributions and participant loan repayments
under which the correction would be limited to payment of the principal
amount and there would not be an obligation to pay Lost Earnings to the
participants or to the plan. The suggestion was not to be limited to
former employees, their beneficiaries, and alternate payees who neither
have account balances with nor have a right to future benefits from the
plan. Some commenters argued that the costs of processing the
corrective Lost Earnings payments should be avoided when the per
participant amount is very small while other commenters proposed a
total amount threshold of $50 or $75 on a per event basis before
correction would have to include Lost Earnings. The Department is not
persuaded that the de minimis amount should be increased above the $35
amount in the proposal or that it should be expanded to include
individuals with account balances or a right to future benefits from
the plan. Rather, in the Department's view, a de minimis level for the
VFC Program should reinforce, not undercut, the overarching obligation
that plan sponsors and other Plan Officials who fail to follow the
legal requirements (such as for depositing participant contributions
and loan repayments) should make full correction to the plan and its
participants and beneficiaries. Accordingly, the 2025 VFC Program
retains the requirements in section 5(e) with the increase from $20 to
$35.
(f) Payment of Correction and Correction Costs by Plan Officials
Although section 7 of the VFC Program provides that any Plan
Official may correct a breach in accordance with section 5 and the
applicable correction method, section 7.1(a) through (d) provides that
any penalties, late fees or other charges must be paid by the employer.
Several commenters suggested that the VFC Program expressly allow
service providers, as well as employers, to pay Lost Earnings on
delinquent remittance of participant contributions and loan repayments.
The commenters argued that in certain circumstances when the amount of
the delinquent participant contributions and loan repayments are small,
the cost
[[Page 4202]]
incurred by service providers to collect Lost Earnings from a plan
sponsor or employer can exceed the amount of Lost Earnings. EBSA has
decided to adopt this suggestion by modifying section 7.1(a) through
(d) to better conform with section 5(b) by stating that the cost of the
correction must be paid by a Plan Official and not from the employee
contributions and loan repayments. This change is consistent with
existing section 5(c) of the VFC Program which provides that the
responsible fiduciary, plan sponsor or other Plan Official must pay
correction amounts and any costs of correction and also prohibits
payment of any part of the correction amount or costs of correction
from plan assets. Plan Official is defined in section 3(b)(2) as a plan
fiduciary, plan sponsor, party in interest with respect to a plan, or
other person who is in a position to correct a breach by filing an
application or submitting a SCC notice. Although the service providers
may pay Lost Earnings amounts resulting from another Plan Official's
breach, a proper VFC Program application or SCC notice, which includes
the penalty of perjury statement by a plan fiduciary, must be completed
or EBSA will not issue a no action letter or self-correction
acknowledgment.
In the 2022 VFC Program proposed revisions, the Department also
stated that, with respect to a multiemployer plan or multiple employer
plan, both the plan administrator and any contributing or adopting
employer would be permitted to use the amended VFC Program and the
SCC.\25\ The Department explained that the plan administrator of such a
plan could apply on behalf of the entire plan and any participating
employer may apply on its own behalf. Although no comments were
received on that aspect of the 2022 proposal, to provide additional
clarity, the Department made a change in this 2025 VFC Program to
permit an employer in a multiemployer plan or multiple employer plan
who wishes to correct on its own behalf to sign the application or SCC
penalty of perjury statement and, regardless of the employer's status
as a plan fiduciary, the penalty of perjury statement need not be
signed by another plan fiduciary. See sections 6.1 and 6.2.
---------------------------------------------------------------------------
\25\ See 87 FR 71165 (citing the preamble to the 2006 VFC
Program, 71 FR 20262, 20264 (April 19, 2006)). An employer would be
considered a Plan Official for purposes of the Program.
---------------------------------------------------------------------------
(g) Miscellaneous Modifications--Sections 5 and 7
The 2025 VFC Program includes assorted other clarifying changes
that were in the November 2022 notice designed to update the Program,
assist Program users, and maintain consistency among provisions. For
example, section 5(d) ``Distributions'' is revised to reflect the
cessation of both the IRS and Social Security Administration letter
forwarding services for missing participants, and to provide a
reference to the Missing Participants--Best Practices for Pension Plans
guidance issued by the Department.\26\ Another example is sections
7.3(a)(3) and (b)(3). Those sections provide that only certain
supporting documentation must be provided with the application. The
words ``unless otherwise requested by EBSA'' have been added to confirm
that EBSA may, in individual cases, request copies of other supporting
documentation. Similarly, references to self-corrector, self-
correction, and the SCC notice have been added to various provisions
where appropriate. Additionally, in sections 7.4(d) and (e) dealing
with transactions at greater and less than fair market value
respectively, the documentation requirement for the qualified,
independent appraiser's report has been revised to correctly specify
value rather than fair market value at the time of the transaction. In
section 7.5 (``Benefits'') concerning the distribution of overvalued
plan assets in a defined contribution plan, the correction specifically
requires the restoration to the plan of the amount that exceeded the
paid distribution amount to which all affected participants were
entitled under the terms of the plan, plus Lost Earnings as described
in section 5(b) on the overpaid distributions.\27\
---------------------------------------------------------------------------
\26\ Available at <a href="http://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance">www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance</a>.
\27\ The preamble to the 2022 VFC Program proposed updates noted
that, although a copy of the fidelity bond was originally required
to be included with an application, the 2002 Program was modified to
instead permit applicants to include information concerning the
plan's ERISA fidelity bond, and this informational requirement was
eliminated in the 2006 Program. Although the informational
requirement was not proposed to be added back to the Program, the
preamble to the 2022 proposed revisions emphasized that the prior
modifications focused merely on streamlining the application process
and should not be misconstrued as eliminating or modifying the ERISA
section 412 bonding requirements that protect plans against loss by
reason of acts of fraud or dishonesty. For information on the ERISA
section 412 bonding requirements, see FAB 2008-04, (Nov. 25, 2008);
29 CFR 2550.412-1 (1975) and Part 2580 (1985).
---------------------------------------------------------------------------
4. Decisions on Requests for Comment on Further Expansion of VFC
Program
The preamble to the 2022 VFC Program proposed updates included a
solicitation of public comments on potential further expansion or
revision of the Program in four specific areas: (i) missing and
nonresponsive participants and beneficiaries, (ii) integration of the
VFC Program with corrections under the IRS's EPCRS, (iii) adoption of a
pre-audit compliance program, and (iv) electronic VFC Program
submissions. Commenters were generally supportive of further changes to
the VFC Program in these areas.
With respect to revising the program to either permit or require
that VFC Program applications be submitted electronically, the
Department intends to continue to evaluate alternative approaches to e-
submission, e.g., email versus an internet or web-based portal, but has
decided to continue the current process under which the EBSA Regional
Offices that administer the VFC Program application process can make
available email boxes that can be used for e-submission of VFC Program
applications and supporting documents. Text was added to the VFC
Program to encourage applicants to contact the relevant Regional Office
about email submission options and format requirements, e.g., penalty
of perjury statements.
[[Page 4203]]
However, with respect to missing and nonresponsive participants and
beneficiaries and the other two areas identified for potential
expansion, the Department believes they all involve important fiduciary
compliance issues and central aspects of the Program that require
careful development of issues and options. For example, with respect to
revising the Program to extend to Breaches in connection with missing
and nonresponsive participants and beneficiaries, the Department may
consider ways to incorporate, as corrective action, the provision of
information to the Department for its Retirement Savings Lost and Found
searchable database described in ERISA section 523. While the
Department has not included these areas of expansion in the 2025 VFC
Program, it will consider these issues further and may propose
expansion of the Program in these areas in a separate project.
C. Regulatory Impact Analysis
The following is a discussion of the examination of the effects of
this regulatory action as required by Executive Order 12866,\28\
Executive Order 13563,\29\ the Paperwork Reduction Act of 1995,\30\ the
Regulatory Flexibility Act,\31\ section 202 of the Unfunded Mandates
Reform Act of 1995,\32\ Executive Order 13132,\33\ and the
Congressional Review Act.\34\
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\28\ Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).
\29\ Improving Regulation and Regulatory Review, 76 FR 3821
(Jan. 18, 2011).
\30\ 44 U.S.C. 3506(c)(2)(A) (1995).
\31\ 5 U.S.C. 601 et seq. (1980).
\32\ 2 U.S.C. 1501 et seq. (1995).
\33\ Federalism, 64 FR 153 (Aug. 4, 1999).
\34\ 5 U.S.C. 804(2) (1996).
---------------------------------------------------------------------------
1. Executive Orders 12866 and 13563
Executive Orders 12866 (as amended by 14094) 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
and streamlining rules, and of promoting flexibility.
Under Executive Order 12866, ``significant'' regulatory actions are
subject to the requirements of the executive order and review by the
Office of Management and Budget (OMB). As amended by Executive Order
14094, section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as any regulatory action that is likely to result
in a rule that may: (1) have an annual effect on the economy of $200
million or more (adjusted every three years by the Administrator of the
Office of Information and Regulatory Affairs (OIRA) for changes in
gross domestic product); or adversely affect in a material way the
economy, a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, Territorial, or
Tribal governments or communities; (2) create a serious inconsistency
or otherwise interfere with an action taken or planned by another
agency; (3) materially alter the budgetary impacts of entitlement
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or (4) raise legal or policy issues for which
centralized review would meaningfully further the President's
priorities or the principles set forth in the Executive order, as
specifically authorized in a timely manner by the Administrator of OIRA
in each case.
For this purpose, a ``rule'' includes ``an agency statement of
general applicability and future effect . . . that is designed to
implement, interpret, or prescribe . . . policy or to describe the
procedure or practice requirements of an agency.''
OMB has determined that this action is significant under section
3(f) Accordingly, OMB has reviewed this action, and the Department has
assessed the costs and benefits of its amended enforcement policy and
related PTE proposal.
The VFC Program is designed to provide an efficient, cost-effective
method for Plan Officials to correct a variety of ERISA fiduciary
breaches and prohibited transactions and receive Departmental
recognition of the correction. Specifically, the amendments to the
Program add a SCC for delinquent transmittal of participant
contributions and loan repayments to a pension plan under certain
circumstances; clarify some 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. In addition, the amendments to the
Program add a SCC for certain participant loan failures self-corrected
under the IRS's EPCRS.
The Department expects that the amendments to the VFC Program will
increase efficiency and accessibility for potential applicants and
self-correctors. These changes, described further below, include in
part, a new SCC for delinquent participant contributions and loan
repayments involving Lost Earnings less than or equal to $1,000,
acceptance of bulk applications with modified requirements, and
increased flexibility in the procedures for a variety of other
transactions. These changes also include elimination from the exemption
of a three-year limitation for VFC Program applicants that take
advantage of the relief provided by the VFC Program and the exemption
for a similar type of transaction.
(a) Affected Entities
All pension and welfare plans can utilize the VFC Program if they
have a fiduciary breach for which there is an eligible transaction.
Parties that are covered by section 4975 of the Code can rely on the
related class exemption for excise tax relief for transactions
identified in the exemption that are corrected under the VFC Program.
In 2021 there were 718,736 defined contribution plans and 46,388
defined benefit plans that would be impacted by these changes.\35\ In
2022 there were an estimated 2,790,000 health plans \36\ and 630,000
other welfare benefit plans that would also be impacted by these
changes.\37\
---------------------------------------------------------------------------
\35\ Employee Benefits Security Administration, Private Pension
Plan Bulletin: Abstract of 2021 Form 5500 Annual Reports, (September
2023).
\36\ U.S. Department of Labor, EBSA calculations using the 2022
Medical Expenditure Panel Survey, Insurance Component (MEPS-IC), and
2020 Census County Business Patterns.
\37\ U.S. Department of Labor, EBSA calculations using non-
health welfare plan Form 5500 filings and projecting non-filers
using estimates based on the non-filing health universe.
---------------------------------------------------------------------------
[[Page 4204]]
An average of 1,226 applicants per year used the VFC Program from
2021 to 2023. The Department estimates that the 73 percent of VFC
Program applicants will move to the SCC.\38\ The Department also
estimates a one percent increase in the number of self-corrections, or
909 self-corrections,\39\ resulting from the removal of the three-year
limitation provision for self-correctors.
---------------------------------------------------------------------------
\38\ The Department estimates that the SCC will streamline the
process for the 73 percent of small and large VFC Program applicants
involving Lost Earnings less than or equal to $1,000.
\39\ 1,226 applicants x 73.4% x 1.01 = 909 self-corrections.
---------------------------------------------------------------------------
The Department also projects that changes to the VFC Program will
result in two new Program users filing bulk applications and 326
Program users filing non-bulk applications.\40\ Please see Table 1 for
the number of plans that will utilize the VFC Program and exemption.
---------------------------------------------------------------------------
\40\ 1,226 applicants x (100% minus 74.3%) = 326 non-bulk
applicants.
Table 1--Number of Plans That Will Utilize the VFC Program and Exemption
------------------------------------------------------------------------
Number of
plans
------------------------------------------------------------------------
Filing Bulk Applications..................................... 2
Filing Non-Bulk Applications................................. 326
SCC.......................................................... 909
----------
Total.................................................... 1,237
------------------------------------------------------------------------
(b) Benefits and Costs
The Department believes that the benefits of the amended VFC
Program and related PTE justify its costs. Because participation is
voluntary, the VFC Program imposes no costs unless Plan Officials
choose to avail themselves of the opportunity to correct a potential
fiduciary breach under the terms of the VFC Program. Plans are expected
to only utilize the program if the benefits of using the program exceed
the costs. The Department expects that the revised VFC Program will be
easier and more useful for potential applicants. The greater efficiency
and accessibility that will result from the availability of a SCC for
delinquent participant contributions, and other expansions and
clarifying modifications of the Program, are expected to make the
Program easier to use, to lessen the cost of participation in many
instances, and to increase efficiency for both applicants and
reviewers.
The VFC Program provides incentives for fiduciaries to correct a
potential fiduciary breach. Benefits for Plan Officials who are granted
relief under the VFC Program include elimination of risks arising from
an otherwise uncorrected fiduciary breach, as well as savings of
resources that otherwise might have been needed to defend against a
civil action by the Department based on the breach. The VFC Program has
been very successful to date in encouraging and facilitating the
correction of violations.
The changes to the VFC Program will allow Plan Officials to obtain
the benefits of the program at a reduced cost. The Department hopes
that this cost reduction may encourage other Plan Officials to correct
previously undetected and unreported fiduciary breaches and reimburse
plan losses, which would enhance the retirement income security of
participants and beneficiaries; however, it has no data to reliably
predict the extent of the increased usage. The Department will continue
to actively monitor the use of the VFC Program and evaluate its
benefits and costs. The Department is unable to predict with certainty
either the reduction in application costs that will arise from the
revisions to the Program, or the potential increase in participation
that will be associated with these revisions. One commenter requested
the Department collect additional data from the VFCP applications to
assess the VFC Program and SCC. The commenter suggested collecting data
on the characteristics of the corrections and plans utilizing the
program, including the amount of correction, the types of transactions
corrected, the size of retirement plans, the date of the prohibited
transaction, and the date by which participant contributions or loan
repayments were supposed to be remitted to the plan. The commenter also
suggested to conduct follow-up surveys or interviews with plans that
use the VFC program. While this data could be beneficial, the
Department seeks to minimize administrative costs.
An additional and significant benefit of the VFC Program accrues to
participants and beneficiaries through the correction of fiduciary
breaches and the restoration to the plan of amounts representing losses
or improperly generated profits arising from impermissible
transactions, resulting in greater security of plan assets and future
benefits. Encouraging greater participation in the VFC Program by
lowering the costs of using it could help reduce the need for plan
participants to pursue legal action.
These changes to the VFC Program will reduce associated costs by
reducing the number of hours required to make corrections and file
applications. Compared with the existing VFC Program, the Department
expects the amended Program's per-user costs to be lower because the
amendments could move 73 percent of the expected VFC Program
applications to the SCC.\41\ Moreover, implementing the SCC will reduce
the recordkeeping and reporting cost for Plan Officials with small
amounts of delinquent participant contributions and loan repayments,
because they no longer will have to submit an application to the
Department with extensive supporting documentation, but instead will
merely submit a self-correction notice with minimal data to the
Department and provide corroborating documentation to the plan
administrator.
---------------------------------------------------------------------------
\41\ The Department estimates that the SCC will streamline the
process for 73 percent of small and large VFC cases involving Lost
Earnings less than or equal to $1,000.
---------------------------------------------------------------------------
This SCC also provides additional flexibility and potentially
increase use to Plan Officials by eliminating the three-year limitation
in the PTE. Please see Table 2 for estimates and cost savings for VFC
Program applicants. The estimates presented in Column A are obtained
using similar assumptions and methods as in Column B. The estimates
presented in Column B are based on the estimates presented in Table 7.
[[Page 4205]]
Table 2--Cost Savings for VFC Program Applicants From Program and Exemption Changes
----------------------------------------------------------------------------------------------------------------
Cost before program Cost after program
and exemption and exemption Cost savings
changes changes
(A) (B) (A-B)
----------------------------------------------------------------------------------------------------------------
Traditional VFC Program (annual)...................... $765,570 $215,876 $549,693
SCC (annual).......................................... ................... 355,910 -355,910
VFCP Exemption (annual)............................... 120,236 120,236 0
---------------------------------------------------------
Total (annual).................................... 885,806 692,023 193,784
----------------------------------------------------------------------------------------------------------------
Plans or their service providers will need to familiarize
themselves with the changes to the VFC Program and amendments to the
PTE. Service providers may help multiple plans in a year or across
years, so while it could take a service provider multiple hours to
review the amended requirements, the actual burden impact on an
individual plan would be less. The Department assumes that it will take
two hours per plan to review the changes and fill out the VFCP
application. Please see Table 3 for calculations and burden totals.
Table 3--Hour Burden for Rule Familiarization
----------------------------------------------------------------------------------------------------------------
Dollar
Number of Number of Total hour Hourly equivalent
entities hours per burden wage of hour
entity burden
(A) (B) (A x B) (C) (A x B x C)
----------------------------------------------------------------------------------------------------------------
Compensation and benefits managers familiarize 1,237 2 2,474 $124.75 $308,632
with the changes to the VFC Program and
Exemption (first year).........................
---------------------------------------------------------------
Total....................................... 1,237 ........... 2,474 ........ 308,632
----------------------------------------------------------------------------------------------------------------
Overall, the Department estimates that the costs of the VFC Program
and the associated class exemption, in their amended forms, would total
approximately $690,798 ($669,600 in annual equivalent costs reflecting
the monetized cost of the work performed by in-house personnel and
outside service providers and $21,198 in annual cost burden reflecting
the cost of materials and postage). Over 10 years, the costs associated
with the VFC Program and associated class exemption would total
approximately $7.5 million, annualized to $1 million per year (using a
7 percent discount rate).\42\
---------------------------------------------------------------------------
\42\ Over 10 years, the costs associated with the VFCP Program
and associated class exemption would total approximately $8.8
million, annualized to $1 million per year (using a 3 percent
discount rate).
---------------------------------------------------------------------------
2. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (PRA 95) (44
U.S.C. 350(c))(2)(A)), the Department solicited comments concerning the
information collection request (ICR) included in the 2022 VFC Program
proposed revisions. At the same time, the Department also submitted the
ICR to OMB, in accordance with 44 U.S.C. 3507(d).
The Department received a comment that specifically addressed the
paperwork burden analysis of the information collection requirements
contained in the 2022 VFC Program proposed revisions. The commenter
attempted to adjust the labor wage rates; however, the Department has
already accounted for inflation in the labor rates.
The changes made by these final rules affect the existing OMB
control number, 1210-0118. A copy of the ICR for OMB Control Number
1210-0118 may be obtained by contacting the PRA addressee listed in the
following sentence or at <a href="http://www.RegInfo.gov">www.RegInfo.gov</a>. For additional information
contact, U.S. Department of Labor, Employee Benefits Security
Administration, Office of Research and Analysis, Attention: PRA
Officer, 200 Constitution Avenue NW, Room N-5718, Washington, DC 20210;
or send to <a href="/cdn-cgi/l/email-protection#c3a6a1b0a2edacb3b183a7acafeda4acb5"><span class="__cf_email__" data-cfemail="3c595e4f5d12534c4e7c585350125b534a">[email protected]</span></a>.
The amended VFC Program, described above, includes a SCC for
delinquent participant contributions and loan repayments to pension
plans involving Lost Earnings less than or equal to $1,000, streamlined
requirements for bulk applications, and it expands and modifies
transactions that are currently eligible for the VFC Program. The SCC
permits applicants to self-correct, and then provide EBSA with a notice
of the self-correction through the online VFC Program web tool. Service
providers are able to submit bulk applications to the VFC Program,
under the existing terms and requirements of the Program, with some
easing of the eligibility and information requirements. Under the new
bulk applicant provisions, the bulk applicant will receive a no action
letter providing relief only to the service provider correcting
transactions involving each of the plans named in the application.
An average of 1,226 applicants per year used the VFC Program from
2021 to 2023. The Department estimates that the 73 percent of VFC
Program applicants will move to the SCC.\43\ Please see Table 1 for the
number of plans that will utilize the VFC Program and associated class
exemption PTE 2002-51.
---------------------------------------------------------------------------
\43\ The Department estimates that the Self-Correction Component
will streamline the process for the 73 percent of small and large
VFC Program applicants involving Lost Earnings less than or equal to
$1,000.
---------------------------------------------------------------------------
In addition to the VFC Program, the Department is publishing a
final amendment to the associated class exemption PTE 2002-51, which
applies only to qualifying applicants and self-correctors participating
in the VFC Program. The exemption is currently unavailable to VFC
Program applicants that have, within the previous three years, taken
advantage of the relief
[[Page 4206]]
provided by the VFC Program and the exemption for a similar type of
transaction. 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 and therefore is eliminating the three-year limitation.
The overall paperwork burden for the amended VFC Program and the
amended PTE 2002-51 is provided below.
VFC Program
For the VFC Program, the Department estimates that Plan Officials
will devote 2.5 hours of clerical staff gathering paperwork, one hour
of a compensation and benefits manager calculating Lost Earnings, and
one hour of clerical staff engaging in recordkeeping activities for
each non-bulk application or self-correction. The Department estimates
that for each bulk application, Plan Officials will devote 25 hours of
clerical staff gathering paperwork, 10 hours of a compensation and
benefits manager calculating Lost Earnings, and 10 hours of clerical
staff engaging in recordkeeping activities. Please see Table 4 for
calculations and burden totals.
Table 4--Hour Burden of VFC Program
----------------------------------------------------------------------------------------------------------------
Number of
Number of hours per Total hour Wage Dollar equivalent
entities entity burden rate of hour burden
(A) (B) (A x B) (C) (A x B x C)
----------------------------------------------------------------------------------------------------------------
Traditional VFC Program
----------------------------------------------------------------------------------------------------------------
Compensation and benefits managers 326 1 326 $140.32 $45,744
calculate Lost Earnings (non-bulk)........
Clerical staff gather information (non- 326 2.5 815 65.99 53,782
bulk).....................................
Clerical staff maintain recordkeeping (non- 326 1 326 65.99 21,513
bulk).....................................
Compensation and benefits managers 2 10 20 140.32 2,806
calculate Lost Earnings (bulk)............
Clerical staff gather information (bulk)... 2 25 50 65.99 3,300
Clerical staff maintain recordkeeping 2 10 20 65.99 1,320
(bulk)....................................
----------------------------------------------------------------------------------------------------------------
SCC
----------------------------------------------------------------------------------------------------------------
Compensation and benefits managers 909 1 909 140.32 127,551
calculate Lost Earnings...................
Clerical staff gather information.......... 909 2.5 2,273 65.99 149,962
Clerical staff maintain recordkeeping...... 909 1 909 65.99 59,985
--------------------------------------------------------------------
Total.................................. 1,237 ........... 5,648 ........ 465,963
----------------------------------------------------------------------------------------------------------------
The Department estimates that external service providers will spend
about 10 minutes completing and submitting the online SCC notice, 20
hours completing and submitting bulk applications, and two hours
completing and submitting all other applications.\44\ The mailing cost
per application is approximately $10.\45\ Please see Table 5 for
calculations and burden totals.
---------------------------------------------------------------------------
\44\ It should be noted that the required checklist for
applications filed with the Department under the Program appears
twice within the Appendices to the Program. While it is required to
be submitted only once, it is included as the separate Appendix B
for applicants who do not choose to use the model application in
Appendix E, and separately as the final item in the model
application for ease of use for those who do choose to use the model
application.
\45\ United States Postal Service, Priority Mail, (2024),
<a href="https://www.usps.com/ship/priority-mail.htm">https://www.usps.com/ship/priority-mail.htm</a>.
Table 5--Hour and Cost Burden of Service Providers for VFC Program
--------------------------------------------------------------------------------------------------------------------------------------------------------
Dollar
Number of Number of Total hour Wage equivalent Mailing cost
entities hours per burden rate of hour per entity Cost burden
entity burden
(A) (B) (A x B) (C) (A x B x C) (D) (A x D)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Service providers prepare information (non-bulk)............. 326 2 652 $121.53 $79,238 $10.10 $3,293
Service providers prepare information (bulk)................. 2 20 40 121.53 4,861 10.10 20
Service providers maintain recordkeeping for SCC............. 909 0.17 152 121.53 18,412 ............ ...........
------------------------------------------------------------------------------------------
Total.................................................... 1,237 ........... 844 ........ 102,511 ............ 3,313
--------------------------------------------------------------------------------------------------------------------------------------------------------
VFCP Class Exemption (PTE 2002-51)
The Department estimates that all self-correctors and VFC Program
applicants will use the amended class exemption. The Department has
determined that service providers will prepare the documentation
required by the exemption which will require approximately one hour for
completion and delivery. VFC Program applicants are required to send
notices to their participants and beneficiaries. The mailing cost per
notice is $0.78.\46\ Please see Table 6 for calculations and burden
totals.
---------------------------------------------------------------------------
\46\ The mailing cost is calculated in the following manner: (1
page x $0.73 for postage + $0.05 for material costs) = $0.78.
[[Page 4207]]
Table 6--Hour and Cost Burden of VFCP Exemption
--------------------------------------------------------------------------------------------------------------------------------------------------------
Dollar
Number of Number of Total hour Wage equivalent Mailing cost
entities hours per burden rate of hour per entity Cost burden
entity burden
(A) (B) (A x B) (C) (A x B x C) (D) (A x D)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Service providers prepare information........................ 389 1 389 $121.53 $47,235 ............ ...........
Participants receiving notices for exemption through mail, 24,500 0.03 817 65.99 53,892 $0.78 $19,110
prepared by service providers...............................
------------------------------------------------------------------------------------------
Total........................................................ 24,889 ........... 1,205 ........ 101,126 ............ 19,110
--------------------------------------------------------------------------------------------------------------------------------------------------------
Summary
Please see Table 7 for the total annual hour and cost burden for
the information collection arising from the VFC Program and the
exemption.
Table 7--Total Annual Hour and Cost Burden
----------------------------------------------------------------------------------------------------------------
Total dollar
Total hour equivalent of Total cost Total cost
burden hour burden burden
(A) (B) (C) (B + C)
----------------------------------------------------------------------------------------------------------------
VFC Program..................................... 6,491 $568,473 $3,313 $571,786
VFCP Exemption.................................. 1,205 101,126 19,110 120,236
---------------------------------------------------------------
Total....................................... 7,696 669,600 22,423 692,023
----------------------------------------------------------------------------------------------------------------
In summary, the categories in the table below encompass the numbers
for both the VFC Program and the amended class exemption:
Type of Review: Revision of currently approved collection of
information.
Agency: Department of Labor, Employee Benefits Security
Administration.
Title: Voluntary Fiduciary Correction Program.
OMB Number: 1210-0118.
Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
Respondents: 1,237.
Frequency of Response: On occasion.
Responses: 59,991.
Estimated Total Burden Hours: 7,696.
Total Annual Cost (Operating and Maintenance): $22,423.
3. Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA) \47\ 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.\48\ Unless
the head of an agency certifies that a final rule will not have a
significant economic impact on a substantial number of small entities,
section 604 \49\ of the RFA requires the agency to present a final
regulatory flexibility analysis of these final rules.
---------------------------------------------------------------------------
\47\ 5 U.S.C. 601 et seq. (1980).
\48\ 5 U.S.C. 551 et seq. (1946).
\49\ 5 U.S.C. 604 (1980).
---------------------------------------------------------------------------
This document describes an enforcement policy of the Department
that is not being issued as a general notice of final rulemaking.
Therefore, the RFA does not apply. However, the Department is also
issuing a final amendment to a class exemption (PTE 2002-51) to which
the Regulatory Flexibility Act does apply. The Department certifies
that the amendments to PTE 2002-51 will not have a significant economic
impact on a substantial number of small entities. However, EBSA
considered the potential costs and benefits of this action for small
pension plans and the Plan Officials in developing the final amendment
to the class exemption and believes that its greater simplicity and
accessibility would make the Program more useful to small employers who
wish to avail themselves of the relief offered under the exemption.
Below is the factual basis for the certification.
As mentioned previously, all pension and welfare plans can utilize
the VFC Program with the related PTE if they have a fiduciary breach
for which there is an eligible transaction. In 2021 there were 630,423
small defined contribution plans and 39,673 small defined benefit plans
and plan officials that would be impacted by these changes.\50\ In 2022
there were 2,710,128 small health plans that would also be impacted by
these changes.\51\ Currently 1,226 plan fiduciaries make use of the VFC
Program in a given year and the Department projects a small increase to
1,237 fiduciaries making use of the VFC Program in a given year.\52\
Please see Table 1 for the number of plans that will utilize the VFC
Program and exemption.
---------------------------------------------------------------------------
\50\ Employee Benefits Security Administration, Private Pension
Plan Bulletin: Abstract of 2021 Form 5500 Annual Reports, (September
2023).
\51\ U.S. Department of Labor, EBSA calculations using the 2022
Medical Expenditure Panel Survey, Insurance Component (MEPS-IC), and
2020 Census County Business Patterns.
\52\ As discussed earlier in this regulatory impact analysis,
the Department estimates a one percent increase in the number of
self-corrections, or 909 self-corrections, resulting from the
removal of the three-year limitation provision for self-correctors.
Additionally, the Department also projects that changes to the VFC
Program will result in two new Program users filing bulk
applications and 326 Program users filing non-bulk applications.
Thus, the number of fiduciaries making use of the VFC Program in a
given year is calculated in the following manner: 909 self-
corrections + 326 non-bulk applications + 2 bulk applications =
1,237.
---------------------------------------------------------------------------
The Department is amending the related PTE so that excise tax
relief will be available for transactions that are corrected under the
SCC. The Department is also amending the PTE to eliminate the three-
year limitation. Thus, all plans eligible to use the VFC Program would
be eligible to use the PTE more than just once every three years.
However, the Department
[[Page 4208]]
estimates that, of the total number of pension and welfare plans
significantly less than one percent will use the PTE in a given
year.\53\
---------------------------------------------------------------------------
\53\ In 2021, there were 765,124 pension plans. (Source:
Employee Benefits Security Administration, Private Pension Plan
Bulletin: Abstract of 2021 Form 5500 Annual Reports, (September
2023).) In 2022, there were 630,000 welfare benefit plans. (Source:
U.S. Department of Labor, EBSA calculations using non-health welfare
plan Form 5500 filings and projecting non-filers using estimates
based on the non-filing health universe.) Thus, 0.08% of all pension
and welfare plans will use the PTE in a given year. (909 plans/
(765,124 plans + 630,000 welfare benefit plans) = 0.07 percent.)
---------------------------------------------------------------------------
The final amended PTE provides excise tax relief for self-
correctors if they pay the amount of the excise tax owed to the plan.
The SCC can only be used in situations where the size of Lost Earnings
is $1,000 or less. Code section 4975(a) imposes an excise tax on each
prohibited transaction equal to 15 percent of the amount involved with
respect to the prohibited transaction for each year (or part thereof)
in the taxable period. Therefore, the maximum excise tax owed for each
year would generally not exceed $150.\54\
---------------------------------------------------------------------------
\54\ Under Reorganization Plan No. 4 of 1978, supra n. 1, the
Secretary of the Treasury retains interpretive authority over Code
sections 4975(a) and (b).
---------------------------------------------------------------------------
Plans or their service providers will need to familiarize
themselves with the amendments to the PTE. Service providers can help
multiple plans in a year or across years, so, although it could take a
service provider multiple hours to review the amended requirements, the
actual burden impact on an individual plan would be less. The
Department estimates that all self-correctors will use the new
provisions of the amended class exemption. The per-plan cost for rule
familiarization would be $140.\55\
---------------------------------------------------------------------------
\55\ With an hourly rate for the in-house compensation and
benefits manager of $140.32 per hour and one hour of burden
allocated to a plan, the burden be plan would be $140 (rounded).
---------------------------------------------------------------------------
For plans with the maximum Lost Earnings of $1,000 and an excise
tax of 15 percent the maximum excise tax in each year would generally
not exceed $150. Including the cost of rule familiarization of $140,
the total expense could be $290 in a year. Based on the foregoing, the
Department hereby certifies that these final amendments will not have a
significant economic impact on a substantial number of small entities.
Therefore, the Department has not prepared a Final Regulatory
Flexibility Analysis.
4. 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 action does not include
any Federal mandate that may result in expenditures by State, local, or
Tribal governments in the aggregate of more than $100 million, adjusted
for inflation, or increase expenditures by the private sector of more
than $100 million, adjusted for inflation.
5. 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, the relationship between the national government and
States, or on the distribution of power and responsibilities among the
various levels of government. Federal agencies promulgating regulations
that have federalism implications must consult with State and local
officials and describe the extent of their consultation and the nature
of the concerns of State and local officials. This action 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
amendments of the VFC Program in this document do not alter the
fundamental provisions of the statute with respect to employee benefit
plans, and as such would have no implications for the States or the
relationship or distribution of power between the national government
and the States.
6. Congressional Review Act
The VFC Program is 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 will be transmitted to the Congress and
the Comptroller General for review. OIRA has determined that The
Program does not meet the criteria set forth in 5 U.S.C. 803(2) under
the Act. The Program is not a ``major rule'' as that term is defined in
5 U.S.C. 804.
Authority: Authority: Secretary of Labor's Order 1-2011, 77 FR
1088 (January 9, 2012). 29 U.S.C. 1132(a)(2) and (a)(5), 1136(b).
Voluntary Fiduciary Correction Program
Section 1. Purpose and Overview of the VFC Program
Section 2. Effect of the VFC Program
Section 3. Definitions
Section 4. VFC Program Eligibility
Section 5. General Rules for Acceptable Corrections
(a) Fair Market Determinations
(b) Correction Amount
(c) Costs of Correction
(d) Distributions
(e) De Minimis Exception
Section 6. VFC Program Application and Self-Correction Component
Procedures
6.1 VFC Program Application Procedures
6.2 VFC Program Self-Correction Component Procedures
Section 7. Description of Eligible Transactions and Corrections
Under the VFC Program
7.1 Delinquent Remittance of Participant Funds
(a) Delinquent Participant Contributions and Loan Repayments to
Pension Plans Under VFC Program Applications
(b) Delinquent Participant Contributions and Loan Repayments to
Pension Plans Under the Self-Correction Component
(c) Delinquent Participant Contributions to Insured Welfare
Plans
(d) Delinquent Participant Contributions to Welfare Plan Trusts
7.2 Loans
(a) Loan at Fair Market Interest Rate to a Party in Interest
With Respect to the Plan
(b) Loan at Below-Market Interest Rate to a Party in Interest
With Respect to the Plan
(c) Loan at Below-Market Interest Rate to a Person Who Is Not a
Party in Interest With Respect to the Plan
(d) Loan at Below-Market Interest Rate Solely Due to a Delay in
Perfecting the Plan's Security Interest
7.3 Participant Loans
(a) Loans Failing To Comply With Plan Provisions for Amount,
Duration, or Level Amortization Under VFC Program Applications
(b) Default Loans Under VFC Program Applications
(c) Eligible Inadvertent Participant Loan Failures Under the
Self-Correction Component
7.4 Purchases, Sales and Exchanges
(a) Purchase of an Asset (Including Real Property) by a Plan
From a Party in Interest
(b) Sale of an Asset (Including Real Property) by a Plan to a
Party in Interest
(c) Sale and Leaseback of Real Property to Employer
(d) Purchase of an Asset (Including Real Property) by a Plan
From a Person Who Is Not a Party in Interest With Respect to the
Plan at a Price More Than Fair Market Value
(e) Sale of an Asset (Including Real Property) by a Plan to a
Person Who Is Not a Party in Interest With Respect to the Plan at a
Price Less Than Fair Market Value
(f) Holding of an Illiquid Asset Previously Purchased by a Plan
[[Page 4209]]
7.5 Benefits
(a) Payment of Benefits Without Properly Valuing Plan Assets on
Which Payment Is Based
7.6 Plan Expenses
(a) Duplicative, Excessive, or Unnecessary Compensation Paid by
a Plan
(b) Expenses Improperly Paid by a Plan
(c) Payment of Dual Compensation to a Plan Fiduciary
Appendix A. Sample VFC Program No Action Letter
Appendix B. VFC Program Application Checklist (Required)
Appendix C. List of EBSA Regional Offices
Appendix D. Lost Earnings Example
Appendix E. Model Application Form (Optional)
Appendix F. SCC Retention Record Checklist (Required)
Section 1. Purpose and Overview of the VFC Program
The purpose of the Voluntary Fiduciary Correction Program (VFC
Program or Program), including its Self-Correction Component (SCC), is
to protect the financial security of workers by encouraging
identification and correction of transactions that violate or may
violate Part 4 of Title I of the Employee Retirement Income Security
Act of 1974, as amended (ERISA). Part 4 of Title I of ERISA sets out
the responsibilities of employee benefit plan fiduciaries. Section 409
of ERISA provides that a fiduciary who breaches any of these
responsibilities shall be personally liable to make good to the plan
any losses to the plan resulting from each breach and to restore to the
plan any profits the fiduciary made through the use of the plan's
assets. Section 405 of ERISA provides that a fiduciary may be liable,
under certain circumstances, for a breach of fiduciary responsibility
by a co-fiduciary. In addition, under certain circumstances, there may
be liability for knowing participation in a fiduciary breach. In order
to assist all affected persons in understanding the requirements of
ERISA and meeting their legal responsibilities, the Employee Benefits
Security Administration (EBSA) is providing guidance on what
constitutes adequate correction under Title I of ERISA for the Breaches
described in this Program.
Section 2. Effect of the VFC Program
(a)(1) Effect of a no action letter. EBSA generally will issue to
the applicant a no action letter \56\ with respect to a Breach
identified in the Program application if the eligibility requirements
of section 4 are satisfied and a Plan Official corrects a Breach, as
defined in section 3, in accordance with the requirements of sections
5, 6 and 7. Pursuant to the no action letter it issues, EBSA will not
initiate a civil investigation under Title I of ERISA regarding the
applicant's responsibility for any transaction described in the no
action letter, or assess civil penalties under either section 502(l) or
502(i) of ERISA on the correction amount paid to the plan or its
participants.
---------------------------------------------------------------------------
\56\ See appendix A.
---------------------------------------------------------------------------
(2) Effect of correction under the Self-Correction Component. EBSA
will not issue a no action letter to a self-corrector under the
Program's SCC. A self-corrector will receive an acknowledgment and
summary of the SCC notice submission by email. If the self-corrector
satisfies the eligibility requirements of section 4 and corrects a
Breach, as defined in section 3, in accordance with the requirements of
sections 5, 6 and 7, EBSA will not initiate a civil investigation under
Title I of ERISA regarding the self-corrector's responsibility for the
Breach identified in the SCC notice or assess civil penalties under
section 502(l) or 502(i) of ERISA on the correction amount paid to the
plan or its participants.
(b) Verification. EBSA reserves the right to conduct an
investigation at any time to determine (1) the truthfulness and
completeness of the factual statements set forth in the Program
application or the SCC notice and (2) that the corrective action was,
in fact, taken.
(c) Limits on the effect of a no action letter under the VFC
Program. (1) In general. Any no action letter issued under the VFC
Program is limited to the Breach and applicants identified therein.
Moreover, the method of calculating the correction amount described in
this Program is only intended to correct the specific Breach described
in the application. Methods of calculating losses other than, or in
addition to, those set forth in the Program may be more appropriate,
depending on the facts and circumstances, if the transaction violates
provisions of ERISA other than those that can be corrected under the
Program. If a transaction gave rise to Breaches not specifically
described in the Program, the relief afforded by the Program would not
extend to such additional Breaches.
(2) No implied approval of other matters. A no action letter does
not imply Departmental approval of matters not included therein,
including steps that the fiduciaries take to prevent recurrence of the
Breach described in the application and to ensure the plan's future
compliance with Title I of ERISA.
(3) Material misrepresentation. Any no action letter issued under
the VFC Program is conditioned on the truthfulness, completeness, and
accuracy of the statements made in the application and of any
subsequent oral and written statements or submissions. Any material
misrepresentations or omissions will void the no action letter,
retroactive to the date that the letter was issued by EBSA, with
respect to the transaction that was materially misrepresented.
(4) Applicant fails to satisfy terms of the VFC Program. If an
application fails to satisfy the terms of the VFC Program, as
determined by EBSA, EBSA reserves the right to investigate and take any
other action with respect to the transaction and/or plan that is the
subject of the application, including issuing a rejection letter.
(5) Criminal investigations not precluded. Participation in the VFC
Program will not preclude:
(i) EBSA or any other governmental agency from conducting a
criminal investigation of the transaction identified in the
application;
(ii) EBSA's assistance to such other agency; or
(iii) EBSA from making the appropriate referrals of criminal
violations as required by section 506(b) of ERISA.\57\
---------------------------------------------------------------------------
\57\ Section 506(b) provides that the Secretary of Labor shall
have the responsibility and authority to detect and investigate and
refer, where appropriate, civil and criminal violations related to
the provisions of Title I of ERISA and other related Federal laws,
including the detection, investigation, and appropriate referrals of
related violations of Title 18 of the United States Code.
---------------------------------------------------------------------------
(6) Other actions not precluded. Compliance with the terms of the
VFC Program will not preclude EBSA from taking any of the following
actions:
(i) Seeking removal from positions of responsibility with respect
to a plan or other non-monetary injunctive relief against any person
responsible for the transaction at issue;
(ii) Referring information regarding the transaction to the
Internal Revenue Service as required by section 3003(c) of ERISA; \58\
or
---------------------------------------------------------------------------
\58\ Section 3003(c) provides that, whenever the Secretary of
Labor obtains information indicating that a party in interest or
disqualified person is violating section 406 of ERISA, the Secretary
of Labor shall transmit such information to the Secretary of the
Treasury.
---------------------------------------------------------------------------
(iii) Imposing civil penalties under section 502(c)(2) of ERISA
based on the failure or refusal to file a timely, complete and accurate
Annual Report Form 5500.\59\ Applicants should be aware that amended
annual report filings may be required if possible Breaches of ERISA
have been identified, or if action is taken to correct possible
[[Page 4210]]
Breaches in accordance with the VFC Program.
---------------------------------------------------------------------------
\59\ References herein to the Form 5500 include the Form 5500-SF
as applicable.
---------------------------------------------------------------------------
(7) Not binding on others. The issuance of a no action letter does
not affect the ability of any other government agency, or any other
person, to enforce any rights or carry out any authority they may have,
with respect to matters described in the no action letter.
(8) Example. A plan fiduciary causes the plan to purchase real
estate from the plan sponsor under circumstances to which no prohibited
transaction exemption applies. In connection with this transaction, the
purchase causes the plan assets to be no longer diversified, in
violation of ERISA section 404(a)(1)(C). If the application reflects
full compliance with the requirements of the Program, the Department's
no action letter would apply to the violation of ERISA section
406(a)(1)(A) but would not apply to the violation of section
404(a)(1)(C).
(d) Limits on the effect of self-correction under the Self-
Correction Component. (1) In general. Any relief afforded by a self-
correction under the SCC is limited to the Breaches described in
sections 7.1(b) and 7.3(c) of the Program and to the Plan Officials who
complete the Penalty of Perjury Statement in accordance with section
6.2(e) and (f) respectively. If a transaction gives rise to Breaches
not specifically described in sections 7.1(b) and 7.3(c) of the
Program, the relief afforded by the SCC will not extend to such
additional Breaches.
(2) Self-corrector fails to satisfy the terms of the Self-
Correction Component. If a self-corrector fails to satisfy the terms of
the SCC, as determined by EBSA, EBSA reserves the right to investigate
and take any other action with respect to the transaction and/or plan
that is the subject of the self-correction.
(3) Criminal investigations not precluded. Participation in the SCC
will not preclude:
(i) EBSA or any other governmental agency from conducting a
criminal investigation of the transactions identified in sections
7.1(b) and 7.3(c) of the Program;
(ii) EBSA's assistance to such other agency; or
(iii) EBSA from making the appropriate referrals of criminal
violations as required by section 506(b) of ERISA.\60\
---------------------------------------------------------------------------
\60\ See supra note 54.
---------------------------------------------------------------------------
(4) Other actions not precluded. Compliance with the terms of the
SCC will not preclude EBSA from taking any of the following actions:
(i) Seeking removal from positions of responsibility with respect
to a plan or other non-monetary injunctive relief against any person
responsible for the transaction at issue; or
(ii) Imposing civil penalties under section 502(c)(2) of ERISA
based on the failure or refusal to file a timely, complete and accurate
Annual Report Form 5500. Self-correctors should be aware that amended
annual report filings may be required if action is taken to correct a
Breach in accordance with submitting an SCC notice.
(5) Not binding on others. Compliance with the SCC does not affect
the ability of any other government agency, or any other person, to
enforce any rights or carry out any authority they may have regarding
the Breach corrected under the SCC.
Example. The plan sponsor withheld monies from employees'
paychecks, which were to be contributed, in part, to both a 401(k) plan
and an insured health benefit plan. The plan sponsor did not remit the
funds to either plan until four months after the Date of Withholding or
Receipt. The plan sponsor corrects both Breaches and pays the
appropriate Lost Earnings amount to each of the plans. The plan sponsor
properly completes and submits an SCC notice to EBSA identifying the
transaction involving the 401(k) plan. Assuming all conditions of the
SCC have been met, relief under the Program is provided to the plan
sponsor as the self-corrector for the delinquent participant
contributions to the 401(k) plan, but not for the delinquent
participant contributions to the insured health benefit plan. However,
the plan sponsor may submit an application to correct the Breach
involving the insured health benefit plan contributions under section
7.1(c) of the Program.
(e) Correction. The correction criteria listed in the VFC Program
represent EBSA enforcement policy with respect to both applications
under the Program and use of the SCC, and are provided for
informational purposes to the public, but are not intended to confer
enforceable rights on any person who purports to correct a Breach.
Applicants and self-correctors are advised that the term ``correction''
as used in the VFC Program is not necessarily the same as
``correction'' pursuant to section 4975 of the Internal Revenue Code
(Code).\61\ Correction may not be achieved under the Program by
engaging in a prohibited transaction that is not subject to a
prohibited transaction administrative exemption.
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\61\ See section 4975(f)(5) of the Code; section 141.4975-13 of
the temporary Treasury Regulations and section 53.4941(e)-1(c) of
the Treasury Regulations. The Federal tax treatment of a violation
and correction under the VFC Program (including the Federal income
and employment tax consequences to participants, beneficiaries, and
plan sponsors) are determined under the Code. The IRS has indicated
that, unless and until the Department of the Treasury and the IRS
issue further guidance, except in those instances where the
fiduciary breach or its correction involve a tax abuse, correction
under the VFC Program for a breach that constitutes a prohibited
transaction under section 4975 of the Code generally will be treated
as correction for purposes of section 4975. Also, correction under
the VFC Program for a breach for which there is a similar failure
under the IRS's EPCRS would generally be taken into account as
correction under EPCRS.
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(f) EBSA's authority to investigate. EBSA reserves the right to
conduct an investigation and take any other enforcement action relating
to the transaction identified in a VFC Program application or SCC
notice in certain circumstances, such as prejudice to the Department
that may be caused by the expiration of the statute of limitations
period, material misrepresentations or omissions, other abuses of the
VFC Program, or significant harm to the plan or its participants that
is not cured by the correction provided under the VFC Program. EBSA may
also conduct a civil investigation and take any other enforcement
action relating to matters not covered by the VFC Program application
or SCC notice, or relating to other plans sponsored by the same plan
sponsor, while a VFC Program application involving the plan or the plan
sponsor is pending.
(g) Confidentiality. EBSA will maintain the confidentiality of any
documents submitted under the VFC Program, to the extent permitted by
law. However, as noted in paragraphs (c)(5) and (6) and (d)(3) and (4)
of this section, EBSA has an obligation to make referrals to the
Internal Revenue Service (IRS) and to refer to other agencies evidence
of criminality and other information for law enforcement purposes.
Section 3. Definitions
(a) The terms used in this document have the same meaning as
provided in section 3 of ERISA, 29 U.S.C. 1002, unless separately
defined herein.
(b) The following definitions apply for purposes of the VFC
Program:
(1) Breach. The term ``Breach'' means any transaction that is or
may be a violation of the fiduciary responsibility provisions contained
in Part 4 of Title I of ERISA.
(2) Plan Official. The term ``Plan Official'' means a plan
fiduciary, plan sponsor, party in interest with respect to a plan, or
other person who is in a position to correct a Breach by filing an
[[Page 4211]]
application or submitting a SCC notice in accordance with the VFC
Program's requirements.
(3) Under Investigation. For purposes of section 4(a), a plan,
potential applicant, or self-corrector shall be considered to be
``Under Investigation'' if any investigation, review or examination
described in (i), (ii), (iii), (iv), or (v) of this section 3 exists,
and the plan, a Plan Official, or any authorized plan representative
has received a written or oral notice of the investigation, review or
examination.
(i) EBSA is conducting an investigation or review of the plan;
(ii) EBSA is conducting an investigation of the potential
applicant, self-corrector, or plan sponsor in connection with an act or
transaction directly related to the plan;
(iii) any governmental agency is conducting a criminal
investigation of the plan, or of the potential applicant, self-
corrector, or plan sponsor in connection with an act or transaction
directly related to the plan;
(iv) the IRS is conducting an Employee Plans examination of the
plan; or
(v) Other than investigations identified in sections 3(b)(3)(i),
(ii), (iii), or (iv), the Pension Benefit Guaranty Corporation (PBGC),
any state attorney general, any federal governmental agency, or any
state insurance commissioner is conducting an investigation or
examination of the plan, or of the applicant, self-corrector, or plan
sponsor in connection with an act or transaction directly related to
the plan, unless in the case of a VFC Program application, the
applicant notifies EBSA, in writing, of such an investigation or
examination at the time of the application.
An applicant notifying EBSA of an investigation or examination
under section 3(b)(3)(v) must submit the name of the examining agency
and a contact person at such agency. Upon receipt of an application
including such information, EBSA will promptly notify the investigating
agency in writing of the VFC Program application. EBSA's notice will
afford the examining agency an opportunity to provide EBSA with
information relevant to the investigation or examination. In response
to the information received from the investigating agency, EBSA, in its
sole discretion, may decline to issue a no action letter to the
applicant.
For purposes of section 4(a), a plan shall not be considered to be
``Under Investigation'' merely because EBSA staff has contacted the
plan, the applicant, the self-corrector, or the plan sponsor in
connection with a participant complaint, unless the participant
complaint concerns the transaction described in the application or
identified in the SCC notice and the plan has not received the
correction amount due under the Program as of the date EBSA staff
contacted the plan, the applicant, the self-corrector, or the plan
sponsor. A plan also is not considered to be ``Under Investigation'' if
the accountant of the plan is undergoing a work paper review based on
such accountant's audit of the plan by EBSA's Office of the Chief
Accountant under the authority of ERISA section 504(a).
Example 1. On March 1, the plan sponsor of a multiple employer
welfare arrangement (MEWA) received written notification from an agent
of the state insurance commissioner's office that the MEWA has been
scheduled for examination. The applicant does not notify EBSA of the
examination. As of March 1, the plan is ineligible for participation in
the VFC Program because the plan sponsor has received a notice from the
state insurance commissioner's office concerning its intent to examine
the plan, and the applicant did not provide EBSA written notice of the
examination with the application.
Example 2. Assume the same facts as in Example 1, except that the
applicant chooses to notify EBSA in writing of the examination. The
plan's eligibility to apply under the VFC Program would not be affected
because the applicant provides written notice of the examination to
EBSA with the application. EBSA will promptly notify the state
insurance commissioner of the pending VFC Program application so that
the state insurance commissioner's office has an opportunity to provide
information about its examination to EBSA. EBSA will include the
information received from the state insurance commissioner's office in
its review of the VFC Program application.
Section 4. VFC Program Eligibility
Eligibility for the VFC Program is conditioned on the following:
(a) Except as provided in paragraphs (d) or (e) of this section 4,
the plan, the applicant, or the self-corrector is not Under
Investigation.
(b)(1) In general. The Program application contains no evidence of
potential criminal violations as determined by EBSA.
(2) Exception for VFC Program applications correcting transactions
described in Section 7.1(a). Participation in the VFC Program to
correct delinquent participant contributions and loan repayments is
permitted in cases where there is evidence of potential criminal
violation by parties other than the plan administrator, the plan
sponsor or the applicant provided:
(i) All funds have been repaid to the plan;
(ii) The appropriate law enforcement agency has been notified of
the potential criminal violation; and
(iii) The applicant submits to the appropriate EBSA office a
statement (A) providing contact information for the law enforcement
agency that has been notified of the alleged criminal activity; (B)
asserting that the applicant was not involved in the potential criminal
violation; and (C) stating whether a claim relating to the criminal
activity has been made under an ERISA section 412 fidelity bond.
Example. The bookkeeper of the plan sponsor of a 401(k) plan
allegedly embezzled funds from the plan sponsor, including amounts
which had been withheld from employees' paychecks but not yet forwarded
to the plan. As a result of the embezzlement, participant contributions
were remitted to the plan two months later than the plan sponsor's
usual practice. The owner of the company sponsoring the plan was not
involved in the embezzlement and notified local law enforcement of the
embezzlement. This owner is eligible to submit an application for
relief under the VFC Program despite the potential criminal violation
if the requirements under section 4(b)(2) are met. Note that the owner
is not eligible for relief under the SCC because the exception under
section 4(b)(2) is only available under the VFC Program application
process and not the SCC.
(c) EBSA has not conducted an investigation which resulted in
written notice to a plan fiduciary that the transaction, for which the
potential applicant or self-corrector could otherwise have sought
relief under the Program, has been referred to the IRS. This condition
applies only to those transactions specifically identified in EBSA's
written notice of referral to the IRS.
(d) Exception for Bulk VFC Program Applicants. An applicant is
eligible to submit a bulk application under the VFC Program, even if
one or more of the plans named in the application (``named plans'') is
Under Investigation, and to receive a no action letter covering each of
the named plans provided: (1) the applicant is a service provider that
is seeking the relief afforded by the Program only on its own behalf;
(2) the applicant was providing services to each of the named plans at
the time of the transaction being corrected; (3) the
[[Page 4212]]
application includes at least ten named plans; (4) all named plans
participated in the transaction being corrected; and (5) the corrective
action was not taken as a result of an investigation of any named plan.
A determination by EBSA that the corrective action was taken as a
result of an investigation of any named plan results in the no action
letter specifically excluding such plan.
Example. A bank provides investment management services to pension
plans. As part of these services, it bought bonds on behalf of its plan
clients directly from a broker dealer's inventory. The bank
independently discovered that the broker dealer is an affiliate of the
bank and consequently, a party in interest to the plans (PII). No
available class exemption permitted these purchases. The bank's review
showed it had bought bonds for thirty-three (33) of its plan clients
from the PII broker dealer. The bank, as a service provider to the
plans, may submit a bulk application correcting the transaction in
compliance with section 7.4(a) of the Program provided the application
names all 33 plans that participated in the transaction and the bank is
seeking relief only on its own behalf under the Program. Assuming the
applicant has complied with the terms of the VFC Program, EBSA will
issue a no action letter to the service provider, which includes the
name of each of the participating plans.
(e) Exception for Eligible Inadvertent Participant Loan Failures. A
self-corrector is eligible to correct an Eligible Inadvertent
Participant Loan Failure under the VFC Program section 7.3(c) even if
the plan or the self-corrector is Under Investigation provided the
failure is eligible for self-correction under the IRS's EPCRS.
Section 5. General Rules for Acceptable Corrections
(a) Fair Market Determinations. Many corrections require that the
current or fair market value (FMV) of an asset be determined as of a
particular date, usually either the date the plan originally acquired
the asset or the date of the correction, or both. In order to be
acceptable as part of a VFC Program correction, the valuation must meet
the conditions in (1) through (4) below. Other corrections require that
a fair market interest rate be determined as of a particular date,
usually the date the loan was made. In order to be acceptable as part
of a VFC Program correction, this determination must be made by an
independent commercial lender, which meets the conditions in (5) below:
(1) If there is a generally recognized market for the property
(e.g., the New York Stock Exchange), the FMV of the asset is the
average value of the asset on such market on the applicable date,
unless the plan document specifies another objectively determined value
(e.g., the closing price).
(2) If there is no generally recognized market for the asset, the
FMV of that asset must be determined in accordance with generally
accepted appraisal standards by a qualified, independent appraiser and
reflected in a written appraisal report signed by the appraiser.
(3) An appraiser is ``qualified'' if the appraiser has met the
education, experience, and licensing requirements that are generally
recognized for appraisal of the type of asset being appraised.
(4) An appraiser is ``independent'' if the appraiser is not one of
the following, does not own or control any of the following, and is not
owned or controlled by, or affiliated with, any of the following:
(i) The prior owner of the asset, if the asset was purchased by the
plan;
(ii) The purchaser of the asset, if the asset was, or is now being,
sold by the plan;
(iii) Any other owner of the asset, if the plan is not the sole
owner;
(iv) A fiduciary of the plan (except to the extent the appraiser
becomes a fiduciary when retained to perform this appraisal for the
plan);
(v) A party in interest with respect to the plan (except to the
extent the appraiser becomes a party in interest when retained to
perform this appraisal for the plan); or
(vi) The VFC Program applicant.
(5) A commercial lender is ``independent'' if it is not one of the
following, does not own or control any of the following, and is not
owned or controlled by, or affiliated with any of the following:
(i) A person or entity who was involved in securing or maintaining
the loan, or in determining or modifying the terms of the loan at any
time during the life of the loan;
(ii) A fiduciary of the plan (except to the extent the commercial
lender becomes a fiduciary when retained to provide this service for
the plan);
(iii) A party in interest with respect to the plan (except to the
extent the commercial lender becomes a party in interest when retained
to provide this service for the plan); or
(iv) The VFC Program applicant.
(b) Correction Amount. (1) In general. For purposes of the VFC
Program, the correction amount is the amount that must be paid to the
plan as a result of the Breach in order to make the plan whole. In most
instances, the correction amount will be a combination of the Principal
Amount involved in the transaction (see paragraph (b)(2) of this
section), the Lost Earnings amount, which is earnings that would have
been earned on the Principal Amount for the period of the transaction
(see paragraph (b)(6) of this section, and also see paragraph (b)(3) of
this section for a special rule for Loss Date under the SCC), and any
interest on Lost Earnings. However, in circumstances when the
Restoration of Profits amount (see paragraph (b)(7) of this section)
exceeds the Lost Earnings amount and any interest on Lost Earnings, the
correction amount will be a combination of the Principal Amount and the
Restoration of Profits amount. The responsible fiduciary, plan sponsor
or other Plan Official, must pay the correction amount and any costs of
correction. No part of the correction amount or costs of correction can
be paid from plan assets, including charges against participant
accounts or plan forfeiture accounts.
(2) Principal Amount. ``Principal Amount'' is the amount that would
have been available to the plan for investment or distribution on the
date of the Breach, had the Breach not occurred. The Principal Amount,
when applicable, must be determined for each transaction by reference
to section 7 of the VFC Program. Generally, the Principal Amount is the
base amount on which Lost Earnings and, if applicable, Restoration of
Profits is calculated. The Principal Amount shall include any
transaction costs associated with entering into the transaction that
constitutes the Breach, which were paid by the plan.
(3) Loss Date. (i) In general ``Loss Date'' is the date that the
plan lost the use of the Principal Amount.
(ii) Special rule for delinquent participant contributions and loan
repayments under the SCC section 7.1(b). ``Loss Date'' is the Date of
Withholding or Receipt.
(4) Date of Withholding or Receipt. ``Date of Withholding or
Receipt'' is the date the amount would otherwise have been payable to
the participant in cash in the case of amounts withheld by an employer
from a participant's wages, or the day on which the participant
contribution or loan payment is received by the employer in the case of
amounts that a participant or beneficiary pays to an employer. Date of
Withholding or Receipt is not the same date as the date on which
contributions or loan repayments could reasonably have been segregated
from the employer general assets.
Example 1. An employer pays its employees' wages on the 1st and the
[[Page 4213]]
15th of each month. Participant contributions to a pension plan are
withheld from employees' wages on these dates. The employer determined
that it could reasonably take two business days to segregate these
withholdings from its general assets for transmittal to the plan. The
``Date of Withholding or Receipt'' is the 1st and 15th of each month.
For purposes of a Program application to correct delinquent participant
contributions, without taking into account any non-business days, the
``Loss Date'' would be the 3rd and 17th of each month.
Example 2. Assuming the same facts as Example 1, except the
delinquent participant contributions are being corrected using the SCC.
The ``Date of Withholding or Receipt'' is the 1st and 15th of each
month. For purposes of using the SCC to correct delinquent participant
contributions, the ``Loss Date'' would be the 1st and 15th of each
month.
(5) Recovery Date. ``Recovery Date'' is the date that the Principal
Amount is restored to the plan.
(6) Lost Earnings. (i) General. ``Lost Earnings'' is intended to
approximate the amount that would have been earned by the plan on the
Principal Amount, but for the Breach. For purposes of this Program,
Lost Earnings shall be calculated in accordance with this paragraph.
(ii) Initial Calculation. Lost Earnings shall be calculated by: (A)
determining the applicable corporate underpayment rate(s) established
under section 6621(a)(2) of the Code \62\ for each quarter (or portion
thereof) for the period beginning with the Loss Date and ending with
the Recovery Date; (B) determining, by reference to IRS Revenue
Procedure 95-17,\63\ the applicable factor(s) for such quarterly
underpayment rate(s) for each quarter (or portion thereof) of the
period beginning with the Loss Date and ending with the Recovery Date;
and (C) multiplying the Principal Amount by the first applicable factor
to determine the amount of earnings for the first quarter (or portion
thereof). If the Loss Date and Recovery Date are within the same
quarter, the initial calculation is complete. If the Recovery Date is
not in the same quarter as the Loss Date, the applicable factor for
each subsequent quarter (or portion thereof) must be applied to the sum
of the Principal Amount and all earnings as of the end of the
immediately preceding quarter (or portion thereof), until Lost Earnings
have been calculated for the entire period, ending with the Recovery
Date.
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\62\ These underpayment rates are displayed on EBSA's website
and will be updated when necessary.
\63\ Rev. Proc. 95-17, 1995-1 C.B. 556 (Feb. 8, 1995). These
factors, which are displayed on EBSA's website in a tabular format,
incorporate daily compounding of an interest rate over a set period
of time.
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(iii) Payment of Lost Earnings after Recovery Date. If Lost
Earnings are not paid to the plan on the Recovery Date along with the
Principal Amount, payment of Lost Earnings shall include interest on
the amount of Lost Earnings. Such interest shall be calculated in the
same manner as Lost Earnings described in paragraph (b)(6)(ii) above,
for the period beginning on the Recovery Date and ending on the date
the Lost Earnings are paid to the plan.
(iv) Special Rule for Transactions Causing Large Losses. If the
amount of Lost Earnings (determined in accordance with paragraph
(b)(6)(ii) above) and any interest added to such Lost Earnings
(determined in accordance with paragraph (b)(6)(iii) above), exceed
$100,000, the amount of Lost Earnings and interest, if any, to be paid
to the plan shall be determined in accordance with paragraphs
(b)(6)(ii) and (iii) above, substituting the applicable underpayment
rates under section 6621(c)(1) of the Code \64\ in lieu of the rates
under section 6621(a)(2).
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\64\ These underpayment rates are displayed on EBSA's website
and will be updated when necessary.
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(v) Method of Calculation for VFC Program Applications. For
purposes of calculating Lost Earnings and interest, if any, a Plan
Official may either (A) use the Online Calculator described in
paragraph (b)(8) below, or (B) perform a manual calculation in
accordance with subparagraphs (i) through (iv) of this paragraph
(b)(6). A Plan Official using the Online Calculator or performing a
manual calculation shall include as part of the VFC Program application
sufficient information to verify the correctness of the amounts to be
paid to the plan.
(vi) Method of Calculation under the SCC. For purposes of
calculating Lost Earnings and interest, if any, the self-corrector must
use the Online Calculator described in paragraph (b)(8) below.
(7) Restoration of Profits. (i) General. If the Principal Amount
was used for a specific purpose such that a profit on the use of the
Principal Amount is determinable, the Plan Official must calculate the
Restoration of Profits amount and compare it to the Lost Earnings
amount to determine the correction amount (see paragraph (b)(1) of this
section). If the Restoration of Profits amount exceeds Lost Earnings
and interest, if any, the Restoration of Profits amount must be paid to
the plan instead of Lost Earnings. ``Restoration of Profits'' is a
combination of two amounts: (A) the amount of profit made on the use of
the Principal Amount by the fiduciary or party in interest who engaged
in the Breach, or by a person who knowingly participated in the Breach,
and (B) if the profit is returned to the plan on a date later than the
date on which the profit was realized (i.e., received or determined),
the amount of interest earned on such profit from the date the profit
was realized to the date on which the profit is paid to the plan. The
amount of such interest shall be determined in accordance with
paragraph (b)(7)(ii) below.
(ii) Calculation of Interest. Interest shall be calculated by: (A)
determining the applicable corporate underpayment rate(s) established
under section 6621(a)(2) of the Code for each quarter (or portion
thereof) for the period beginning with the date the profit was realized
(i.e. received or determined) and ending with the date on which the
profit is paid to the plan; (B) determining, by reference to IRS
Revenue Procedure 95-17, the applicable factor(s) for such quarterly
underpayment rate(s) for each quarter (or portion thereof) of the
period beginning with the date the profit was realized and ending with
the date on which the profit is paid to the plan; and (C) multiplying
the first applicable factor by the profit on the Principal Amount,
referred to in paragraph (b)(7)(i)(A) above, to determine the amount of
interest for the first quarter (or portion thereof). If the date the
profit was realized and the date the profit is paid to the plan are
within the same quarter, the initial calculation is complete. If the
date the profit was realized is not in the same quarter as the date the
profit was paid to the plan, the applicable factor for each subsequent
quarter (or portion thereof) must be applied to the sum of the profit
on the Principal Amount, referred to in paragraph (b)(7)(i)(A) above,
and all interest as of the end of the immediately preceding quarter (or
portion thereof), until interest has been calculated for the entire
period, ending with the date the profit is paid to the plan.
(iii) Special Rule for Transactions Resulting in Large
Restorations. If the amount of Restoration of Profits (determined in
accordance with paragraph (b)(7)(i) above) exceeds $100,000, the amount
of any interest on the Restoration of Profits to be paid to the plan
shall be determined in accordance with paragraph (b)(7)(ii) above,
substituting the applicable underpayment rates under section
[[Page 4214]]
6621(c)(1) of the Code in lieu of the rates under section 6621(a)(2).
(iv) Method of Calculation for VFC Program Applications. For
purposes of calculating the interest amount for Restoration of Profits,
pursuant to paragraphs (b)(7)(ii) and (iii) above, a Plan Official may
either (A) use the Online Calculator described in paragraph (b)(8)
below, or (B) perform a manual calculation in accordance with
subparagraphs (ii) and (iii) of this paragraph (b)(7). A Plan Official
using the Online Calculator or performing a manual calculation shall
include as part of the VFC Program application sufficient information
to verify the correctness of the amounts to be paid to the plan.
(8) Online Calculator. ``Online Calculator'' is an internet based
compliance assistance tool provided on EBSA's website that permits
applicants and self-correctors to calculate the amount of Lost
Earnings, any interest on Lost Earnings, and the interest amount for
Restoration of Profits, if applicable, for certain transactions. The
Online Calculator will be updated as necessary.
(i) Lost Earnings and Interest. To calculate Lost Earnings,
applicants or self-correctors must input the (A) Principal Amount, (B)
Loss Date, (C) Recovery Date, and, if the final payment will occur
after the Recovery Date, (D) the date of such final payment. The Online
Calculator selects the applicable factors under Revenue Procedure 95-17
after referencing the underpayment rates over the relevant time period.
The Online Calculator then automatically applies the factors to provide
applicants and self-correctors with the amount of Lost Earnings and
interest, if any, that must be paid to the plan.
(ii) Interest Amount for Restoration of Profits. To calculate the
interest amount on the profit, applicants must input (A) the amount of
profit, (B) the date the amount of profit was realized (i.e. received
or determined), and (C) the date of payment of the Restoration of
Profits amount. The Online Calculator selects the applicable factors
under Revenue Procedure 95-17 after referencing the underpayment rates
over the relevant time period. The Online Calculator then automatically
applies the factors to provide applicants with the interest amount on
the profit that must be paid to the plan.
(9) The principles of paragraph (b) of this section are illustrated
by example in Appendix D.
(c) Costs of Correction. (1) The fiduciary, plan sponsor or other
Plan Official, must pay the correction amount and costs of correction.
The costs of correction cannot be paid from plan assets, including
charges against participant accounts or plan forfeiture accounts.
(2) The correction amount and the costs of correction include,
where appropriate, the Principal Amount and Lost Earnings and such
expenses of correction as closing costs, prepayment penalties, or sale
or purchase costs associated with correcting the transaction.
(3) The principle of paragraph (c)(1) of this section is
illustrated in the following example and in paragraph (d) below:
Example. The plan fiduciaries did not obtain a required independent
appraisal in connection with a transaction described in section 7. In
connection with correcting the transaction, the plan fiduciaries now
propose to have the appraisal performed as of the date of purchase. The
plan document permits the plan to pay reasonable and necessary
expenses; the fiduciaries have objectively determined that the cost of
the proposed appraisal is reasonable and is not more expensive than the
cost of an appraisal contemporaneous with the purchase. The plan may
therefore pay for this appraisal. However, the plan may not pay any
costs associated with recalculating participant account balances to
take into account the new valuation. There would be no need for these
additional calculations or any increased appraisal cost if the plan's
assets had been valued properly at the time of the purchase. Therefore,
the cost of recalculating the plan participants' account balances is
not a reasonable plan expense but is part of the costs of correction.
(d) Distributions. Plans will have to make supplemental
distributions to former employees, beneficiaries receiving benefits, or
alternate payees, if the original distributions were too low because of
the Breach. In these situations, the Plan Official or plan
administrator must determine who received distributions from the plan
during the time period affected by the Breach, recalculate the account
balances, and determine the amount of the underpayment to each affected
individual. The applicant must demonstrate proof of payment to
participants and beneficiaries whose current location is known to the
plan and/or applicant. For individuals whose location is unknown,
applicants must demonstrate that they have segregated adequate funds to
pay the missing individuals and that the applicant has commenced the
process of locating the missing individuals using methods involving
nominal expense such as certified mail and electronic search
technologies as well as checking related plan records and with any
designated plan beneficiary. If these methods are unsuccessful, the
applicant should consider the use of commercial locator services,
credit reporting agencies, information brokers and investigation
databases as well as analogous computer services depending on the
amount of underpayment in relation to the cost of the services. The
costs of such efforts are part of the costs of correction. See Missing
Participants--Best Practices for Pension Plans (available at
<a href="http://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance">www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance</a>) for more
information on fiduciary best practices that based on EBSA's experience
working with plans have proven effective at minimizing and mitigating
the problem of missing or nonresponsive participants.
(e) De Minimis Exception. Where correction under the Program
requires distributions in amounts less than $35 to former employees,
their beneficiaries and alternate payees, who neither have account
balances with, nor have a right to future benefits from the plan, and
the applicant demonstrates in its submission that the cost of making
the distribution to each such individual exceeds the amount of the
payment to which such individual is entitled in connection with the
correction of the transaction that is the subject of the application,
the applicant need not make distributions to such individuals who would
receive less than $35 each as part of the correction. However, the
applicant must pay to the plan as a whole the total of such de minimis
amounts not distributed to such individuals.
Example. Employer X sponsors Plan Y. Employer X submits an
application under the VFC Program to correct a failure to timely
forward participant contributions to Plan Y. Employer X had paid the
delinquent contributions six months late but had not paid Lost Earnings
on the delinquency. The correction under the VFC Program, therefore,
required only payment of Lost Earnings for the six-month delinquency.
During the six-month period 25 employees separated from service and
rolled over their plan accounts to individual retirement accounts. The
amount of Lost Earnings due to 20 of those former employees is less
than $35, and Employer X demonstrates that the cost of making the
distribution to those former employees is $42 per individual. Employer
X need not make distributions to those 20 former employees. However,
the total amount of distributions that
[[Page 4215]]
would have been due to those former employees must be paid to Plan Y.
The payment to Plan Y may be used for any purpose that payments or
credits, which are not allocated directly to participant accounts, are
used.\65\ Employer X must make distributions to the five former
employees who are entitled to receive distributions of more than $35.
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\65\ For example, the Department has taken the position that
where a plan document is silent as to the payment of reasonable
administrative expenses, the plan may pay reasonable administrative
expenses. Where a plan document provides that the employer will pay
any such expenses, and if the employer has reserved the right to
amend the plan document, ERISA would not prevent the employer from
amending the plan to require, prospectively, that the relevant
expenses be paid by the plan. The Department does not believe that
ERISA would permit a fiduciary to implement a plan amendment that
attempted to retroactively relieve the employer of an obligation to
pay plan expenses.
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Section 6. VFC Program Application and Self-Correction Component
Procedures
6.1 VFC Program Application Procedures
(a) In general. Each application must adhere to the requirements
set forth below. Failure to do so may render the application invalid.
(b) Applicant. The application must be prepared by a Plan Official
or an authorized representative (e.g., attorney, accountant, or other
service provider). If a representative of the Plan Official is
submitting the application, the application must include a statement
signed by the Plan Official that the representative is authorized to
represent the Plan Official. Any fees paid to such representative for
services relating to the preparation and submission of the application
may not be paid from plan assets, including charges to participants
accounts or plan forfeiture accounts.
(c) Contact person. Each application must include the name, address
(street and email) and telephone number of a contact person. The
contact person must be familiar with the contents of the application
and have authority to respond to inquiries from EBSA.
(d) Detailed narrative. The applicant must provide to EBSA a
detailed narrative describing the Breach and the corrective action. The
narrative must include:
(1) A list of all persons materially involved in the Breach and its
correction (e.g., fiduciaries, service providers, borrowers);
(2) The plan sponsor's nine-digit number (EIN), plan number, and
address of the plan sponsor and administrator;
(3) The date the plan's most recent Form 5500 was filed; or, in the
case of a bulk VFC Program application, for each plan named in the
application, either the date the most recent Form 5500 was filed or the
plan sponsor's nine-digit number (EIN);
(4) An explanation of the Breach, including the date it occurred;
(5) An explanation of how the Breach was corrected, by whom and
when; and
(6)(i) If the applicant performs a manual calculation in accordance
with paragraphs (b)(6)(i) through (iv) of section 5 or paragraphs
(b)(7)(i) through (iii), specific calculations demonstrating how
Principal Amount and Lost Earnings or, if applicable, Restoration of
Profits were computed;
(ii) If the applicant uses the Online Calculator in accordance with
paragraph (b)(8) of section 5, the data elements required to be input
into the Online Calculator under paragraphs (b)(8)(i) and/or (ii) of
section 5, as applicable (to satisfy this requirement, applicants may
submit a copy of the page(s) that results from the ``View Printable
Results'' function used after inputting data elements and completing
use of the Online Calculator); and
(iii) An explanation of why payment of Lost Earnings or Restoration
of Profits was chosen to correct the Breach.
(e) Supporting documentation. The applicant must also include:
(1) Copies of the relevant portions of the plan document and any
other pertinent documents (such as the adoption agreement, trust
agreement, or insurance contract); \66\
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\66\ Applicants must supply complete copies of the plan
documents and other pertinent documents if requested by EBSA during
its review of the application.
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(2) Documentation that supports the narrative description of the
transaction and its correction;
(3) Documentation establishing the Lost Earnings amount;
(4) Documentation establishing the amount of Restoration of
Profits, if applicable;
(5) All documents described in section 7 with respect to the
transaction involved; and
(6) Proof of payment of Principal Amount and Lost Earnings or
Restoration of Profits.
Applicants using the Online Calculator may satisfy the requirements
of paragraph (e)(3) above, with respect to Lost Earnings, and paragraph
(e)(4) above, as to the amount of interest, if any, payable with
respect to the profit amount, by complying with the requirements of
paragraph (d)(6)(ii) of this section. Except for proof of payment, as
described in paragraph (e)(6) above, applicants correcting participant
loan transactions in section 7.3(a) and (b) are not required to submit
the other documentation described above unless requested by EBSA.
(f) Examples of supporting documentation. (1) Examples of
documentation supporting the description of the transaction and
correction are leases, appraisals, notes and loan documents, service
provider contracts, invoices, settlement documents, deeds, perfected
security interests, and amended annual reports.
(2) Examples of acceptable proof of payment include copies of
canceled checks, executed wire transfers, a signed, dated receipt from
the recipient of funds transferred to the plan (such as a financial
institution), and bank statements for the plan's account.
(g) Penalty of Perjury Statement. Each application must include the
following statement: ``Under penalties of perjury I certify that I am
not Under Investigation (as defined in section 3(b)(3) of the VFC
Program) and that I have reviewed this application, including all
supporting documentation, and to the best of my knowledge and belief
the contents are true, correct, and complete.''
(1) Applicants in general. The Penalty of Perjury Statement must be
signed and dated by a plan fiduciary with knowledge of the transaction
that is the subject of the application and the authorized
representative of the applicant, if any. In addition, each Plan
Official applying under the VFC Program must sign and date the Penalty
of Perjury Statement. The statement must accompany the application and
any subsequent additions to the application. Use of the Penalty of
Perjury Statement included with the Model Application Form in Appendix
E will satisfy the requirements of paragraph (g) of this section.
(2) Bulk Applicants. The Penalty of Perjury Statement must be
signed and dated by the bulk applicant with knowledge of the
transaction that is the subject of the application and the authorized
representative of the bulk applicant, if any. The statement must
accompany the application and any subsequent additions to the
application. Use of the Penalty of Perjury Statement included with the
Model Application Form in Appendix E will satisfy the requirements of
paragraph (g) of this section.
(3) Contributing or Adopting Employers in Multiemployer Plans or
Multiple Employer Plans. In the case of an employer that contributes to
or has adopted a multiemployer plan or multiple employer plan and
wishes to correct a Breach, the Penalty of Perjury Statement may be
signed and dated by
[[Page 4216]]
the employer and, regardless of the employer's status as a plan
fiduciary, the Penalty of Perjury Statement need not be signed by
another plan fiduciary.
(h) Checklist. The checklist in Appendix B must be completed,
signed, dated and submitted with the application. Use of the checklist
included with the Model Application Form in Appendix E also will
satisfy the requirements of paragraph (h) of this section.
(i) Where to apply. The application shall be submitted to the
appropriate EBSA Regional Office listed in Appendix C. Applicants
should check with the relevant EBSA Regional Office whether the office
accepts email submissions of applications and supporting documentation.
(j) Submission of Additional Documentation. If EBSA determines that
required information is missing from the application or that additional
documentation is needed to complete EBSA's review, EBSA will request
such documentation in writing from the applicant or authorized
representative. If EBSA does not receive the requested documentation
within a time period specified in writing by the EBSA reviewer, EBSA
may suspend its review of the application and consider appropriate
action. EBSA will notify the applicant or authorized representative in
writing regarding such suspension. If EBSA does not receive the
requested documentation within a reasonable time after providing notice
of the suspension, EBSA will issue a rejection letter.
(k) Recordkeeping. The applicant must maintain copies of the
application and any subsequent correspondence with EBSA for the period
required by section 107 of ERISA.
6.2 VFC Program Self-Correction Component Procedures
(a) In general. Each self-corrector must adhere to the requirements
set forth below. Failure to do so may render the self-correction
invalid.
(b) Self-corrector. The SCC notice must be submitted by the self-
corrector who is a Plan Official or an authorized representative (e.g.,
attorney, accountant, or other service provider). If a representative
of the Plan Official is submitting the SCC notice, the plan
administrator must retain a statement signed by the Plan Official that
the representative is authorized to represent the Plan Official. Use of
the model authorization included in the SCC Retention Record Checklist
in Appendix F will satisfy this requirement. Any fees paid to such
representative for services relating to the correction under the SCC
may not be paid from plan assets.
(c) Submission of SCC notice. The self-corrector must notify EBSA
of participation in the SCC by submitting the SCC notice through the
online VFC Program web tool in accordance with paragraphs
7.1(b)(2)(iii) and 7.3(c)(2)(ii).\67\ EBSA will acknowledge receipt of
a properly completed and submitted SCC notice in an email addressed to
the self-corrector.
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\67\ The online VFC Program web tool will be located on EBSA's
website.
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(d) SCC Retention Record Checklist--Applicable to Self-Corrections
under section 7.1(b). The self-corrector of delinquent participant
contributions and loan repayments under section 7.1(b) must complete
the SCC Retention Record Checklist in Appendix F, prepare or collect
the documents listed in this Appendix, and provide copies of the
completed checklist and required documentation to the plan
administrator.
(e) Penalty of Perjury Statement for Self-Corrections under Section
7.1(b). The plan administrator must retain the following statement:
``Under penalties of perjury I certify that I am not Under
Investigation (as defined in section 3(b)(3) of the VFC Program) and
that I have reviewed the SCC notice acknowledgment and summary, the
checklist and all the required documentation, and to the best of my
knowledge and belief the contents are true, correct, and complete.''
The statement must be signed and dated by a plan fiduciary with
knowledge of the transaction that is the subject of the self-correction
and the authorized representative of the plan sponsor, if any. In
addition, each Plan Official who is seeking the relief afforded under
the Program must sign and date the Penalty of Perjury Statement. Use of
the Penalty of Perjury Statement included in Appendix F will satisfy
the requirements of paragraph (e) of this section.
(f) Penalty of Perjury Statement for Self-Corrections under Section
7.3(c). The plan administrator must retain the following statement:
``Under penalties of perjury I certify that I have reviewed the SCC
notice acknowledgment and summary, and all the required documentation,
and to the best of my knowledge and belief the contents are true,
correct, and complete.'' The statement must be signed and dated by a
plan fiduciary with knowledge of the transaction that is the subject of
the self-correction and the authorized representative of the plan
sponsor, if any. In addition, each Plan Official who is seeking the
relief afforded under the Program must sign and date the Penalty of
Perjury Statement.
(g) Contributing or Adopting Employers in Multiemployer Plans or
Multiple Employer Plans. In the case of an employer that contributes to
or has adopted a multiemployer plan or multiple employer plan and
wishes to self-correct a Breach, the Penalty of Perjury Statement may
be signed and dated by the employer and, regardless of the employer's
status as a plan fiduciary, the Penalty of Perjury Statement need not
be signed by another plan fiduciary.
(h) Recordkeeping.
(1) For self-corrections of delinquent participant contributions
and loan repayments under section 7.1(b), the plan administrator must
retain a copy of the SCC Retention Record Checklist in Appendix F along
with copies of the required documentation, the authorization form, if
any, and a signed Penalty of Perjury Statement, for the period required
by section 107 of ERISA.
(2) For self-corrections of participant loan failures under section
7.3(c), the plan administrator must retain proof of payment of
Principal Amount and Lost Earnings, or Restoration of Profits, as
applicable; a copy of the SCC Notice Acknowledgment and Summary page;
the authorization form, if any; and a signed Penalty of Perjury
Statement, for the period required by section 107 of ERISA.
Section 7. Description of Eligible Transactions and Corrections Under
the VFC Program
EBSA has identified certain Breaches and methods of correction that
are suitable for the VFC Program. Any Plan Official may correct a
Breach listed in this section in accordance with section 5 and the
applicable correction method. The correction methods set forth are
strictly construed and are the only acceptable correction methods under
the VFC Program and the SCC for the identified transactions described
in this section.
7.1 Delinquent Remittance of Participant Funds
(a) Delinquent Participant Contributions and Loan Repayments to Pension
Plans Under VFC Program Applications
(1) Description of Transaction. An employer receives directly from
participants, or withholds from employees' paychecks, certain amounts
for either participants' contribution to a pension plan or for
repayment of participants' plan loans. Instead of forwarding such
contributions or loan
[[Page 4217]]
repayments to the plan for investment in accordance with the provisions
of the plan and by reference to the principles of the Department's
regulation at 29 CFR 2510.3-102, the employer retains such amounts for
a longer period of time.
(2) Correction of Transaction. (i) Unpaid Participant Contributions
or Loan Repayments. Pay to the plan the Principal Amount plus the
greater of (A) Lost Earnings on the Principal Amount or (B) Restoration
of Profits resulting from the employer's use of the Principal Amount,
as described in section 5(b). The Loss Date for such contributions or
repayments is the date on which each contribution reasonably could have
been segregated from the employer's general assets. In no event shall
the Loss Date for such contributions or repayments be later than the
applicable maximum time period described in 29 CFR 2510.3-102.\68\ Any
penalties, late fees or other charges shall be paid by the employer or
another Plan Official and not from such contributions or loan
repayments.
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\68\ The Department amended paragraph (a)(1) of 29 CFR 2510.3-
102 to extend the application of the regulation to amounts paid by a
participant or beneficiary or withheld by an employer from a
participant's wages for purposes of repaying a participant's loan
(regardless of plan size). 75 FR 2068 (2010).
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(ii) Late Participant Contributions or Loan Repayments. If
participant contributions or loan repayments were remitted to the plan
outside of the time periods described above, the only correction
required is to pay to the plan the greater of (A) Lost Earnings or (B)
Restoration of Profits resulting from the employer's use of the
Principal Amount as described in section 5(b). Any penalties, late fees
or other charges shall be paid by the employer or another Plan Official
and not from participant contributions or loan repayments.
(iii) For this transaction, the Principal Amount is the amount of
delinquent participant contributions or loan repayments retained by the
employer.
(iv) Example. The principles of paragraph (a)(2) of this section
are illustrated by example in Appendix D.
(3) Documentation. In addition to the documentation required by
section 6.1, submit the following documents:
(i) A statement from a Plan Official identifying the earliest date
on which the participant contributions and/or repayments reasonably
could have been segregated from the employer's general assets, along
with the supporting documentation on which the Plan Official relied in
reaching this conclusion;
(ii) If restored participant contributions and/or repayments
(exclusive of Lost Earnings) either total $50,000 or less, or exceed
$50,000 and were remitted to the plan within 180 calendar days from the
date such amounts were received by the employer, or the date such
amounts otherwise would have been payable to the participants in cash
(regarding amounts withheld by an employer from employees' paychecks),
submit:
(A) A
[…truncated; see source link]Indexed from Federal Register on January 15, 2025.
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.