Rule2025-00328
Prohibited Transaction Exemption (PTE) 2002-51 To Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 15, 2025
Effective
March 17, 2025
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document amends Prohibited Transaction Exemption 2002-51, an exemption for certain transactions identified in the Department of Labor's Voluntary Fiduciary Correction Program (VFC Program or Program). 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. PTE 2002-51 is a related class exemption that allows excise tax relief from excise taxes imposed by the Internal Revenue Code of 1986, as amended, for certain eligible transactions corrected pursuant to the VFC Program. This amendment to PTE 2002-51 is being finalized in connection with the Department's amendment and restatement of the VFC Program, published elsewhere in this issue of the Federal Register (2025 VFC Program). These amendments simplify and expand the VFC Program and exemptive relief to make the Program and exemption easier to use and more useful for employers and others who wish to avail themselves of the relief provided. The amendment to PTE 2002-51 affects plans, participants and beneficiaries of such plans, and certain other persons engaging in such transactions.
Full Text
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<title>Federal Register, Volume 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 3667-3673]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00328]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
[Application No. D-11799]
RIN 1210-ZA23
Prohibited Transaction Exemption (PTE) 2002-51 To Permit Certain
Transactions Identified in the Voluntary Fiduciary Correction Program
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Exemption amendment.
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SUMMARY: This document amends Prohibited Transaction Exemption 2002-51,
an exemption for certain transactions identified in the Department of
Labor's Voluntary Fiduciary Correction Program (VFC Program or
Program). 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. PTE 2002-51 is a related
class exemption that allows excise tax relief from excise taxes imposed
by the Internal Revenue Code of 1986, as amended, for certain eligible
transactions corrected pursuant to the VFC Program. This amendment to
PTE 2002-51 is being finalized in connection with the Department's
amendment and restatement of the VFC Program, published elsewhere in
this issue of the Federal Register (2025 VFC Program). These amendments
simplify and expand the VFC Program and exemptive relief to make the
Program and exemption easier to use and more useful for employers and
others who wish to avail themselves of the relief provided. The
amendment to PTE 2002-51 affects plans, participants and beneficiaries
of such plans, and certain other persons engaging in such transactions.
DATES: This amendment will be in effect on March 17, 2025.
FOR FURTHER INFORMATION CONTACT: Emily Harris, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone number (202) 693-8540. 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. 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 to the 2025 VFC Program. (These are not toll-free numbers.)
Customer Service Information: Individuals interested in obtaining
information from the Department concerning the Employee Retirement
Income Security Act of 1974 (ERISA) and employee benefit plans may call
the Employee Benefits Security Administration's Toll-Free Hotline, at
1-866-444-EBSA (3272) or visit the Department's website (<a href="http://www.dol.gov/ebsa">www.dol.gov/ebsa</a>).
SUPPLEMENTARY INFORMATION:
Background
History of the VFC Program and Class Exemption
The VFC Program gives plans and fiduciaries a ready means to
correct violations of ERISA, without the transaction costs and burden
associated
[[Page 3668]]
with enforcement actions for violations of the fiduciary standards in
title I of ERISA. As an enforcement policy, the VFC 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 ERISA section 408(a) to issue
exemptions from the prohibited transaction rules in ERISA sections 406
and 407 and Internal Revenue Code (Code) section 4975.\1\ Accordingly,
in tandem with an amendment to the VFC Program published elsewhere in
this issue of the Federal Register, the Department is publishing this
associated amendment 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 Department of Labor's Employee Benefits Security Administration
(EBSA) originally 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 enforcement actions
and certain penalties, provided they meet the VFC Program's criteria
and follow the procedures outlined in the VFC 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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The VFC Program describes how to apply for relief and lists the
specific transactions covered and the acceptable methods for correcting
fiduciary breaches under the Program. The most frequently corrected
transaction under the Program is the correction of delinquent
participant contributions. The Program provides a model application
form, a checklist, and an online calculator for determining amounts to
be restored to plans. The VFC Program has been, and will continue to
be, administered in EBSA's Regional Offices.
The Department granted PTE 2002-51 in connection with the VFC
Program. Some of the breaches that may be corrected under the VFC
Program are also prohibited transactions subject to excise tax under
Code section 4975. Reorganization Plan No. 4 of 1978 transferred the
authority of the Secretary of Treasury to issue exemptions from the
prohibited transaction provisions of Code section 4975 to the Secretary
of Labor.\3\ The exemption allows excise tax relief for certain
specified breaches under the VFC Program. PTE 2002-51 is subject to
several general conditions, including that the breach be appropriately
corrected and the party applying must satisfy all the conditions of the
VFC Program. The exemption also includes certain transaction-specific
conditions.
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\3\ 5 U.S.C. App.
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2022 Proposal
On November 21, 2022, the Department published in the Federal
Register proposed revisions to the VFC Program with a request for
public comments.\4\ The 2022 VFC Program proposed revisions would
establish a self-correction feature for certain delinquent participant
contributions and loan repayments to pension plans (the SCC). On the
same date, the Department also published in the Federal Register a
proposed amendment to PTE 2002-51 that would make certain conforming
amendments to the class exemption.\5\ The Department received seven
comments on the proposed amendment.
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\4\ 87 FR 71164 (Nov. 21, 2022).
\5\ 87 FR 70753 (Nov. 21, 2022).
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On February 14, 2023, the Department reopened the comment period on
both the 2022 Program VFC Program proposed revisions and the proposed
amendment to PTE 2002-51 in light of section 305(b)(2) of the SECURE
2.0 Act of 2022 (SECURE 2.0 Act.\6\ This provision requires the
Department to treat eligible inadvertent failures related to
participant loans that are self-corrected under the Employee Plans
Compliance Resolution System \7\ (IRS's EPCRS) as meeting the
requirements of the VFC Program ``if, with respect to the violation of
the fiduciary standards of the ERISA, there is a similar loan error
eligible for correction under EPCRS and the loan error is corrected in
such manner.'' The Department requested comments on what revisions, if
any, it should make to the VFC Program and exemption to reflect the
treatment of corrections of loans to participants as described in
SECURE 2.0 Act. Only one commenter addressed PTE 2002-51 in response
and stated that no further amendments are required to the exemption.
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\6\ Enacted on December 29, 2022, as Division T of the
Consolidated Appropriations Act, 2023, Public Law 117 328, 136 Stat.
4459 (2022).
\7\ As described in Rev. Proc. 2021-30, or any successor
guidance).
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2025 VFC Program
The Department is finalizing the amendment to the VFC Program
elsewhere in this edition of the Federal Register. With these
amendments, EBSA intends to facilitate more efficient and less costly
corrections of fiduciary breaches under the VFC Program, encourage
greater participation in the VFC Program, and respond to requests from
stakeholders for adjustments based on their experiences using the VFC
Program. In this regard, the amendments are designed to simplify the
VFC 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 VFC Program--the delinquent transmittal of
participant contributions and loan repayments to pension plans--as well
as to certain participant loan failures that are self-corrected under
the IRS's EPCRS. The Department anticipates that many users of the
amended Program will find it improved and less resource intensive to
comply with, without sacrificing protections of their affected plans.
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, and sets forth acceptable methods for
correcting fiduciary breaches under the VFC Program. It also provides
examples of potential breaches and related permissible corrective
actions. The VFC 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 VFC
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.
The most significant changes in the 2025 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,\8\
and the second is in section 7.3(c) for certain
[[Page 3669]]
participant loan failures that are self-corrected under the IRS's
EPCRS. The other 2025 VFC Program amendments: (1) clarify existing
transactions eligible for correction under the VFC 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 VFC Program.
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\8\ 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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Description of the Amendments to PTE 2002-51
The Department is amending PTE 2002-51 to provide excise tax relief
for transactions that are corrected pursuant to the SCC in the 2025 VFC
Program and to make certain administrative or procedural changes for
participation in, and correction of, transactions under the VFC
Program.\9\
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\9\ As noted above, 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 to the
Secretary of Labor.
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Self-Correction Feature for Delinquent Participant Contributions and
Loan Repayments to Pension Plans
The 2025 VFC Program establishes the SCC for certain delinquent
contributions to pension plans. The SCC allows ``self-correctors'' to
make a plan whole and receive relief under the VFC Program without
submitting an application to EBSA and receiving a no-action letter.
Instead, self-correctors provide a notice (the SCC notice) to EBSA
through an electronic tool on EBSA's website and receive an email
acknowledgement from EBSA of a properly completed and submitted SCC
notice.
The Department is amending PTE 2002-51 to allow excise tax relief
to self-correctors. The Department is adding transactions that are
corrected under the SCC to section I.A. These transactions must comply
with the applicable exemption conditions, including the requirement
that delinquent contributions may not have been transmitted to the plan
more than 180 calendar days from the date they were either received by
the employer or otherwise would have been payable to the participant in
cash. The Department is also amending section III.B of the exemption,
which provides that the exemption will apply only if the applicant
receives an EBSA no-action letter pursuant to the VFC Program. Since
self-correctors will receive an email acknowledgement instead of a no-
action letter from EBSA, this condition is amended to add a specific
reference to the email acknowledgement of a properly completed and
submitted SCC notice.
Frequency of Use
Historically, PTE 2002-51 was generally not available to VFC
Program applicants that had taken advantage of the relief provided by
the VFC Program and the exemption for a similar type of transaction
within the previous three years. The Department proposed to eliminate
the three-year limitation to encourage greater use of the VFC Program.
The Department requested comment in the proposal regarding whether
the proposed removal of the three-year limitation would encourage
greater use of the VFC Program without loss of meaningful protections
for participants and beneficiaries. Several commenters supported the
proposal and stated that the existing limitation was unnecessary to
protect participants. However, one commenter disagreed with the
proposal and cautioned that removing the three-year limitation may
encourage more employers to delay depositing employee contributions and
instead use that money for business expenses. This commenter suggested
that if the Department chose to eliminate the three-year limitation
period, it should do so on a trial basis so that the Department could
monitor how often employers are using the VFC Program. After
considering this comment, the Department has decided to finalize the
amendment as proposed; however, it will monitor how frequently plan
fiduciaries rely on the VFC Program (including the SCC) and may
consider further amendments in the future.
Sale and Leaseback of Real Property to an Employer
Section I.D. of PTE 2002-51 applies to the sale of real property to
a plan by the sponsoring employer and the leaseback of such property to
the same employer if it is corrected as required under the VFC Program.
The Department is amending this section as proposed. The amendment
expands the covered transactions in section I.D. to include affiliates
of plan sponsors, which reflects a change made in the 2025 VFC Program.
Accordingly, the amended exemption is available for a sale of real
property by an affiliate of the employer sponsoring the plan, to the
plan, and a leaseback of such property to the affiliate of the
sponsoring employer.
As amended, the term ``affiliate'' of a person is defined as
follows--
(1) any person directly, or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person; (2) any officer, director, partner, employee, or
member of the family (as defined in Code section 4975(e)(6)) of the
person; or (3) any corporation or partnership of which such person
is an officer, director, partner or employee.
The term ``control'' is defined as the power to exercise a controlling
influence over the management of a person other than an individual.\10\
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\10\ Both terms are defined in a new section V.
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Deletion of Section II.E.
The Department is deleting section II.E. of the exemption as
proposed. The condition related to all the covered transactions under
section I and required that ``the transaction was not part of an
agreement, arrangement or understanding designed to benefit a
disqualified person.'' The Department believes that this condition is
unnecessary in light of the other, more specific conditions of the
exemption, including the requirement that the transaction must have
been corrected in accordance with the applicable requirements of the
VFC Program for the exemption to apply.
Notice to Interested Persons
Section IV governs notice to interested persons. VFC Program
applicants generally must inform interested persons of the prohibited
transaction(s) that occurred and the steps taken to correct those
violations. The notice must give participants and beneficiaries the
opportunity to comment on the transactions and corrections to the
applicable EBSA Regional Office.
The Department proposed two key changes to the notice requirement
for VFC Program applicants. First, the Department proposed that the
notice could not be provided through posting alone. The Department
explained that although section IV.B. had historically allowed notice
through ``posting, regular mail, or electronic mail, or any combination
thereof,'' the Department no longer believed that posting is reasonably
calculated to ensure that interested persons actually receive the
notice. Therefore, the Department is finalizing this provision as
proposed.
The Department also included a model notice to interested persons
as an appendix to the proposal. The Department drafted this model
notice after reviewing several notices to interested persons that were
submitted to the Regional Offices but did not meet the applicable
requirements of section IV. The Department is publishing the model
notice as an appendix to the final amendment to ensure that
participants and beneficiaries receive meaningful
[[Page 3670]]
notice of transactions for which relief is sought by their plans. The
only change to the model notice from the proposal is that the final
model notice states that you may ``contact'' the appropriate EBSA
Regional Office instead of ``mail.'' The Department intends for the
model notice to facilitate compliance with the exemption, but it is not
requiring VFC Program applicants to use the model notice.
Regardless of whether a VFC Program applicant uses the model
notice, the notice must be written in a manner reasonably calculated to
be understood by the average Plan participant or beneficiary. In this
regard, if a plan fiduciary knows or has reason to know that the
average Plan participant or beneficiary covered by its plan would not
understand a notice written in English, the fiduciary must take
appropriate action to ensure that these interested parties have a
reasonable opportunity to become informed of their rights described in
the notice.\11\ As a compliance aid, the Department is making the model
notice available on its website in twelve non-English languages.
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\11\ See e.g., 29 CFR 2520.102-2(c)(2) regarding summary plan
descriptions.
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Notice Exception for Self-Correctors
In light of the streamlined procedure for self-correction and the
SCC's limitation to corrections when the amount of lost earnings is
$1,000 or less, the proposed exemption provided that self-correctors
would not have to provide notice to interested persons. Instead, they
would be required to pay the amount of the excise tax that would
otherwise be imposed by Code section 4975 to the plan. Self-correctors
would be required to retain a completed Form 5330 or other written
documentation that shows the calculation of the amount of otherwise
applicable excise taxes and proof they paid that amount to the plan.
However, there would no requirement to provide this documentation to
EBSA. The Department is finalizing the special notice rule for self-
correctors as proposed.
Some commenters expressed concern that this contribution
requirement would discourage use of the SCC and suggested that the
Department should allow self-correctors to choose whether (a) to
provide notice to interested persons (but not to EBSA) or (b) make the
plan contribution. After considering these comments, the Department has
not made this change. Self-correctors have a streamlined procedure for
self-correction and the amount of otherwise applicable excise taxes
that will be owed to their plans will be small due to the $1,000
limitation on lost earnings. The Department has determined that
requiring these amounts to be paid to the plan is the most beneficial
to and protective of participants in plans that self-correct under the
SCC.
Other Ministerial Amendments
The Department is finalizing certain ministerial changes to PTE
2002-51 to improve readability. For example, the Department is
replacing references ``to sections of the Code'' to instead refer to
``Code section.''
Executive Order 12866 (Regulatory Planning and Review), Executive Order
14094 (Modernizing Regulatory Review), and 13563 (Improving Regulation
and Regulatory Review)
Under Executive Order 12866 (as amended by Executive Order 14094),
the Office of Management and Budget (OMB)'s Office of Information and
Regulatory Affairs determines whether a regulatory action is
significant and, therefore, subject to the requirements of the
Executive order and review by OMB. 58 FR 51735. As amended by Executive
Order 14094, section 3(f) of Executive Order 12866 defines a
``significant regulatory action'' as a 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; 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 impact of entitlements,
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. OMB has
determined that this amendment is a significant regulatory action under
Executive Order 12866.\12\
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\12\ See 2022 VFC Program proposed revisions, section D,
``Regulatory Impact Analysis.''
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Executive Order 13563 directs agencies to propose or adopt a
regulation only upon a reasoned determination that its benefits justify
its costs; the regulation is tailored to impose the least burden on
society, consistent with achieving the regulatory objectives; and in
choosing among alternative regulatory approaches, the agency has
selected those approaches that maximize net benefits. Executive Order
13563 recognizes that some benefits are difficult to quantify and
provides that, where appropriate and permitted by law, agencies may
consider and discuss qualitative values that are difficult or
impossible to quantify, including equity, human dignity, fairness, and
distributive impacts. See the 2025 VFC Program amendment published
elsewhere in this issue of the Federal Register for the regulatory
impact analysis.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3506(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 comments that addressed the burden
estimates used in the analysis of the 2022 VFC Program proposed
revisions. The Department reviewed these public comments in developing
the paperwork burden analysis.
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 at <a href="http://RegInfo.gov">RegInfo.gov</a> (<a href="http://reginfo.gov/public/do/PRAMain">reginfo.gov/public/do/PRAMain</a>) or by contacting the PRA addressee:
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By mail.............................. PRA Officer, Office of Research
and Analysis, Employee Benefits
Security Administration, U.S.
Department of Labor, 200
Constitution Avenue NW, Room N-
5718, Washington, DC 20210.
By email............................. <a href="/cdn-cgi/l/email-protection#4f2a2d3c2e61203f3d0f2b202361282039"><span class="__cf_email__" data-cfemail="bcd9decfdd92d3cccefcd8d3d092dbd3ca">[email protected]</span></a>.
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See the 2025 VFC Program amendment published elsewhere in this
issue of the Federal Register for the paperwork burden of the amended
VFC Program and the amended PTE 2002-51.
[[Page 3671]]
Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA) \13\ 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.\14\ Pursuant
to section 605 of the RFA, the Department certifies that these proposed
amendments to PTE 2002-51 will not have a significant economic impact
on a substantial number of small entities.\15\ See the 2025 VFC Program
amendment published elsewhere in this issue of the Federal Register for
the factual basis for the certification.
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\13\ 5 U.S.C. 601 et seq. (1980).
\14\ 5 U.S.C. 551 et seq. (1946).
\15\ 5 U.S.C. 605 (1980).
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General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under Code section 4975(c)(2) does not relieve a fiduciary or other
disqualified person with respect to a plan from certain other
provisions of ERISA and the Code, including any prohibited transaction
provisions to which the exemption does not apply, the requirement that
all assets of an employee benefit plan be held in trust by one or more
trustees, and the general fiduciary responsibility provisions of ERISA
which require, among other things, that a fiduciary discharge their
duties respecting the plan solely in the interests of the participants
and beneficiaries of the plan and in a prudent fashion; nor does it
affect the requirement of Code section 401(a) that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries.
(2) The amendment to PTE 2002-51 does not extend to transactions
prohibited under Code section 4975(c)(1)(F).
(3) The Department finds that the amendment is administratively
feasible, in the interests of plans and their participants and
beneficiaries, and protective of the rights of participants and
beneficiaries of such plans.
(4) The exemption, as amended, is supplemental to, and not in
derogation of other provisions of ERISA and the Code, including
statutory or administrative exemptions and transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction.
(5) The exemption, as amended, is applicable to a transaction only
if the conditions specified in the class exemption are satisfied.
The Department has republished the entire text of the amended PTE
2002-51 for the convenience of readers.
Amendment to PTE 2002-51
Under Code section 4975(c)(2) and in accordance with the procedures
set forth in 29 CFR 2570, subpart B (76 FR 66637, October 27, 2011),
the Department amends and restates PTE 2002-51 as set forth below.
Section I. Eligible Transactions
The sanctions resulting from the application of Code section
4975(a) and (b), by reason of Code section 4975(c)(1)(A) through (E),
shall not apply to the following eligible transactions described in
section 7 of the Voluntary Fiduciary Correction (VFC) Program, as
amended, provided that the applicable conditions set forth in sections
II, III, and IV are met:
A. Failure to forward participant contributions and/or loan
repayments to a pension plan for investment within the time frames
determined with reference to the principles of the Department's
regulation at 29 CFR 2510.3-102 so that the employer retains such
contributions or loan repayments for a longer period of time. (See VFC
Program, sections 7.1(a) and (b).)
B. Loan at a fair market interest rate to a disqualified person
with respect to a plan. (See VFC Program, section 7.2(a).)
C. Purchase or sale of an asset (including real property) between a
plan and a disqualified person at fair market value. (See VFC Program,
sections 7.4(a) and (b).)
D. Sale of real property to a plan by the employer or an affiliate
of such an employer and the leaseback of the property to the employer
or the affiliate, at fair market value and fair market rental value,
respectively. (See VFC Program, section 7.4(c).)
E. Purchase of an asset (including real property) by a plan, where
the asset has later been determined to be illiquid as described under
the VFC Program in a transaction which was a prohibited transaction
pursuant to Code section 4975(c)(1), or in which the asset was acquired
from an unrelated third party, and/or the subsequent sale of such asset
in a transaction prohibited pursuant to Code section 4975(c)(1). (See
VFC Program, section 7.4(f).)
F. Use of plan assets to pay expenses, including commissions or
fees, to a service provider (e.g., attorney, accountant, recordkeeper,
actuary, financial advisor, or insurance agent) for services provided
in connection with the establishment, design or termination of the plan
(settlor expenses), which relate to the activities of the plan sponsor
in its capacity as settlor, provided that the payment of the settlor
expense was not expressly prohibited by a plan provision relating to
the payment of expenses by the plan. (See VFC Program, section 7.6(b).)
Section II. Conditions
A. With respect to a transaction involving participant
contributions or loan repayments to pension plans described in section
I.A., the contributions or repayments were transmitted to the pension
plan not more than 180 calendar days from the date the amounts were
received by the employer (in the case of amounts that a participant or
beneficiary pays to an employer) or the date the amounts otherwise
would have been payable to the participant in cash (in the case of
amounts withheld by an employer from a participant's wages).
B. With respect to the transactions described in sections I.B.,
I.C., I.D., or I.E., the plan assets involved in the transaction, or
series of related transactions, did not, in the aggregate, exceed 10
percent of the fair market value of all the assets of the plan at the
time of the transaction.
C. The fair market value of any plan asset involved in a
transaction described in sections I.C., I.D., or I.E., was determined
in accordance with section 5 of the VFC Program.
D. The terms of a transaction described in sections I.B., I.C.,
I.D., I.E., or I.F., were at least as favorable to the plan as the
terms generally available in arm's-length transactions between
unrelated parties.
E. With respect to a transaction involving a sale of an illiquid
asset under the VFC Program described in section I.E., the plan paid no
brokerage fees, or commissions in connection with the sale of the
asset.
F. With respect to any transaction described in section I.F., the
amount of plan assets involved in the transaction or series of related
transactions did not, in the aggregate, exceed the lesser of $10,000 or
five (5) percent of the fair market value of all the assets of the plan
at the time of the transaction.
Section III. Compliance With the VFC Program
A. The applicant or self-corrector, as applicable, has met all
applicable requirements of the VFC Program.
[[Page 3672]]
B. EBSA has issued a no-action letter to the applicant pursuant to
the VFC Program with respect to a transaction described in section I,
other than for transactions corrected pursuant to the SCC of the VFC
Program. For transactions corrected pursuant to the SCC of the VFC
Program, the terms of this section will be satisfied if EBSA has
acknowledged receipt of the SCC notice in accordance with section 6.2
of the VFC Program.
Section IV. Notice to Interested Persons and Special Rules for Self-
Correctors
A. Written notice of the transaction(s) for which the applicant is
seeking relief pursuant to the VFC Program, and this exemption, and the
method of correcting the transaction, was provided to interested
persons within 60 calendar days following the date of the submission of
an application under the VFC Program. A copy of the notice was provided
to the appropriate Regional Office of the United States Department of
Labor, Employee Benefits Security Administration, within the same 60-
day period, and the applicant indicated the date upon which notice was
distributed to interested persons. Plan assets were not used to pay for
the notice. The notice included an objective description of the
transaction and the steps taken to correct it, written in a manner
reasonably calculated to be understood by the average Plan participant
or beneficiary. The notice provided for a period of 30 calendar days,
beginning on the date the notice was distributed, for interested
persons to provide comments to the appropriate Regional Office, and it
included the address and telephone number of such Regional Office. The
Model Notice to Interested Persons contained in Appendix A may be used
to satisfy the written notice requirement contained in this section IV.
B. The notice to interested persons described in section IV.A. was
provided in a manner that was reasonably calculated, taking into
consideration the circumstances of the plan, to result in the receipt
of such notice by interested persons, including but not limited to
regular mail, or electronic mail, or any combination thereof. The
notice informed interested persons of the applicant's participation in
the VFC Program and intention of availing itself of relief under the
exemption.
C. Notwithstanding the foregoing and solely with respect to
applicants seeking relief with respect to the VFC Program other than
through the SCC, section IV.A. and IV.B. shall not apply to a
transaction described in section I.A., provided that: (1) the applicant
under the VFC Program has met all of the other applicable Program
requirements; (2) the amount of the excise tax that otherwise would be
imposed by Code section 4975 with respect to any transaction(s)
described in section I.A would be less than or equal to $100; (3) the
amount of the excise tax that otherwise would be imposed by Code
section 4975 was paid to the plan and allocated to the individual
accounts of participants and beneficiaries in the same manner as
provided under the plan with respect to plan earnings; and (4) the
applicant under the VFC Program provides a copy of a completed IRS Form
5330 or written documentation containing the information required by
IRS Form 5330 and proof of payment with the submission of the
application to the appropriate EBSA Regional Office. For the sole
purpose of determining whether the excise tax due under Code section
4975 on the ``amount involved'' with respect to the prohibited
transaction involving the failure to timely transmit participant
contributions and loan repayments is less than or equal to $100, an
applicant may calculate the excise tax due based upon the Lost Earnings
amount computed using the online calculator provided under the Program.
D. Notwithstanding the foregoing and solely with respect to self-
correctors seeking relief with respect to transactions corrected
pursuant to the SCC of the VFC Program, section IV.A. and B. shall not
apply, and additionally the self-corrector must: (1) pay to the plan
the amount of the excise tax that otherwise would be imposed by Code
section 4975 and allocate such amount to the individual accounts of
participants and beneficiaries in the same manner as provided under the
plan with respect to plan earnings, and (2) retain a copy of a
completed IRS Form 5330 or written documentation regarding the
determination of the otherwise applicable excise tax and proof of
payment of the amounts paid to the plan pursuant to the VFC Program and
this exemption and (3) provide to the plan administrator a copy of such
documentation. Self-correctors must calculate the excise tax otherwise
due based upon the Lost Earnings amount computed using the online
calculator provided under the Program.
Section V. Definitions
A. For purposes of this exemption the term ``affiliate'' of a
person means (1) any person directly, or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person; (2) any officer, director, partner, employee, member
of the family (as defined in Code section 4975(e)(6)) of the person; or
(3) any corporation or partnership of which such person is an officer,
director, partner or employee.
B. For purposes of this section V, the term ``control'' means the
power to exercise a controlling influence over the management or
policies of a person other than an individual.
Signed at Washington, DC, this 3rd day of January 2025.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
Appendix A--Model Notice to Interested Persons
Dear [Participant or Beneficiary],
The purpose of this letter is to notify you that the [Insert
Name of Applicant] is participating in the U.S. Department of
Labor's Voluntary Fiduciary Correction (VFC) Program with respect to
the [Insert Name of Plan]. The VFC Program is a voluntary
enforcement program that encourages the correction of possible
breaches of Title I of the Employee Retirement Income Security Act
(ERISA).
ERISA is the federal law that covers most employee benefit plans
in the private sector. The U.S. Department of Labor's Employee
Benefits Security Administration (EBSA) enforces many parts of
ERISA. If the terms and conditions of the VFC Program are met by
[Insert Name of Applicant], EBSA will not initiate a civil
investigation under Title I of ERISA with respect to the transaction
and voluntary correction described below.
The VFC Program is accompanied by a ``class exemption'' from
certain excise taxes imposed under the Internal Revenue Code on
parties participating in ``prohibited transactions'' as defined in
ERISA and the Code. The purpose of the prohibited transaction rules
is to prevent dealings with persons or entities that may be in a
position to exercise improper influence over employee benefit plan
assets including [Name of the Plan]. If the terms of the class
exemption are met, [Insert Name of Applicant] will qualify for
relief from the excise taxes that would otherwise apply.
One of the requirements for excise tax relief is for [Insert
Name of Applicant] to provide you with this notice so you have an
opportunity to provide comments to EBSA about the prohibited
transaction and the steps taken to correct the prohibited
transaction, both of which are described below. To the extent that
you are interested in providing your written comments to EBSA, you
may contact them [Insert the Name of the Appropriate EBSA Regional
Office from the VFC Program Notice, Appendix C]. The written
comments should be made to the attention of the ``VFC Program
Coordinator.'' The address and telephone number for this office are
[Insert from VFC Program Notice, Appendix C]. You have 30 calendar
days, beginning on the date this notice was distributed, to provide
written comments. Individuals submitting written
[[Page 3673]]
comments on this matter are advised not to disclose sensitive
personal data such as social security numbers.
[Insert An Objective Description of the Transaction and the
Steps Taken to Correct the Transaction]
Please feel free to contact me if you have any questions at
[Insert Telephone Number of a Person Employed by the Applicant Who
Is Knowledgeable About this Matter].
Sincerely,
[Insert Name and Title of Person Employed by the Applicant]
[FR Doc. 2025-00328 Filed 1-14-25; 8:45 am]
BILLING CODE 4510-29-P
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</html>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.