Proposed Amendments to Voluntary Fiduciary Correction Program, 87 Fed. Reg. 71164 (Nov. 21, 2022); Proposed Amendments to PTE 2002-51, 87 Fed. Reg. 70753 (Nov. 21, 2022)
The Department of Labor’s Employee Benefits Security Administration (EBSA) maintains and enforces a Voluntary Fiduciary Correction Program (VFC Program) to encourage plan sponsors and fiduciaries to voluntarily comply with ERISA and allow responsible parties with potential liability to apply for relief from civil enforcement actions and civil penalties by engaging in permissible corrective actions (see our Checkpoint Question of the Week). To simplify and expand the VFC Program to make it more useful for employers sponsoring retirement plans such as 401(k) plans, EBSA has released a proposed amended and restated VFC Program that would, most importantly, add a new self-correction component for certain failures to timely transmit participant contributions and participant loan repayments. It has also proposed amendments to the associated prohibited transaction class exemption, PTE 2002-51.
Under the proposal, self-correction would be available to any plan regardless of the number of plan participants or the amount of plan assets, but only for corrections where the amount of lost earnings—determined using an online calculator—was $1,000 or less (excluding any excise tax paid to the plan under PTE 2002-51). In addition, the delinquent contributions would have to be submitted to the plan no later than 180 calendar days from the date of withholding or receipt. Plan sponsors and fiduciaries could not be under investigation and would have to notify EBSA of the self-correction electronically through a new online VFC Program web tool to be located on EBSA’s website. Upon EBSA’s receipt of the filing, an automatic acknowledgement email will be sent to the self-corrector. Lastly, self-correctors would have to complete an SCC Retention Record Checklist, set forth in Appendix F of the proposal, prepare and collect applicable documentation, provide this information to the plan administrator (even in cases where the employer is also the plan administrator), and maintain these documents in accordance with applicable record retention laws.
A self-corrector who complies with the proposed self-correction component terms and conditions would not receive a “no action letter” (as is issued upon satisfactory correction under the VFC program). The proposal indicates that the self-corrector would not be subject to civil monetary penalties or an EBSA civil enforcement action, although it explicitly states that EBSA would reserve the right to investigate and take other actions with respect to the self-corrected transaction, such as seeking removal of responsible individuals from fiduciary status.
The proposal includes other minor changes to the existing VFC program. Written comments should be submitted by January 20, 2023.
EBIA Comment: The proposed amendment and restatement of the VFC Program and related PTE 2002-51 to incorporate self-correction of the transmittal of delinquent contributions and loan repayments is a mixed bag at best. Although delinquent contributions are the number one failure corrected through the VFC Program, the $1,000-or-less limit on lost earnings may limit the self-correction component’s utility. The self-correction component would also not apply to delinquent matching contributions, which is an issue covered by IRS correction programs. In addition, risk-averse fiduciaries may prefer to file under the existing VFC Program and receive a “no action” letter. Another disadvantage may be that use of the self-correction component would immediately put the filer on the DOL’s radar. The EBSA stated that, although there would be no limit on the number of times a self-corrector could use the component, it would be monitoring for frequent use, and could communicate with repeat users or open investigations to identify and correct systemic issues. This fact is likely to trouble many plan sponsors and fiduciaries. For more information, see EBIA’s 401(k) Plans manual at Sections XXXIV.C.2 (“VFC Program: Correction and Waiver of Excise Tax”) and XXXVI (“Correcting Plan Mistakes: DOL’s VFC Program”).
Contributing Editors: EBIA Staff.