Benefitsblog

Changes to EBSA's Voluntary Fiduciary Correction Program

This week EBSA announced that it was amending and restating the Voluntary Fiduciary Correction Program ("VFC") which permits ERISA fiduciaries to correct certain violations that occur under ERISA. Generally, under the program, applicants are required to fully correct any violations, restore to the plan any losses or profits with interest, and distribute any supplemental benefits owed to eligible participants and beneficiaries. A "no action" letter is given to plan officials who properly correct violations.

Proposed amendments include:

• Three new eligible transactions dealing with delinquent participant loan repayments, illiquid plan assets sold to interested parties, and participant loans that violate certain plan restrictions on such loans;
• Simpler methods and an online calculator for figuring out the amount to be restored to plans;
• Streamlined documentation and clarified eligibility requirements, and
• A model application form.

Access the following:

DOL's Press Release announcing expansion and simplification of the VFC program
Voluntary Fiduciary Correction Program; Notice 70 Fed. Reg. 17515 (Apr. 6, 2005)]
EBSA's Fact Sheet
Proposed Amendment to Prohibited Transaction Exemption 2002–51 (PTE 2002–51) To Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program

Please note that the program only allows correction for certain enumerated violations (new ones added by the Notice are underlined):

• Delinquent participant contributions and participant loan repayments to pension plans
• Delinquent participant contributions to insured welfare plans
• Delinquent participant contributions to welfare plan trusts
• Loans at fair market interest rate to a party in interest with respect to the plan
• Loans at below-market interest rate to a party in interest with respect to the plan
• Loans at below-market interest rate to a person who is not a party in interest with respect to the plan
• Loans at below-market interest rate solely due to a delay in perfecting the plan’s security interest
• Participant loans in excess of plan limitations
• Participant loans with duration in excess of plan limitations
• Purchase of an asset (including real property) by a plan from a party in interest
• Sale of an asset (including real property) by a plan to a party in interest
• Sale and leaseback of real property to the employer
• 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 other than fair market value
• 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 other than fair market value
• Holding of an illiquid asset previously purchased by a plan
• Payment of benefits without properly valuing plan assets on which payment is based
• Duplication, excessive, or unnecessary compensation paid by a plan
• Payment of dual compensation to a plan fiduciary.

Also, with respect to the correction of delinquent participant contributions or loan repayments, the documentation requirements of the program have been simplified for breaches involving amounts below $50,000, or amounts greater than $50,000 that were remitted within 180 calendar days after receipt by the employer. Here's what the Notice has to say about this simplified documentation requirement:

EBSA believes that introducing more simplified documentation requirements in certain cases rather than the detailed information and copies of accounting and payroll records required under the original VFC Program will streamline the application process, increase the efficiencey of EBSA's reviewers, and be less burdensome for applicants making smaller corrections. Based on EBSA's experience to date, the majority of VFC Program applicants, under the revised Program, would be able to avail themselves of this reduced documentation requirements.

Posted by B. Janell Grenier at April 8, 2005 11:02 PM