Voluntary Fiduciary Correction Program |
U.S. Department of Labor On April 19, 2006, the Department of Labor published in the Federal Register a 2006 Update of the Voluntary Fiduciary Correction Program (VFCP), which simplified and expanded the original VFCP published in 2002. The VFCP is designed to encourage employers to voluntarily comply with the Employee Retirement Income Security Act (ERISA) by self-correcting certain violations of the law. Many workers can benefit from the VFCP as a result of the increased retirement security associated with restoration of plan assets and payment of additional benefits. It also will help plan officials understand the law. The 2006 Update of the VFCP describes how to apply, the 19 categories of transactions covered, acceptable methods for correcting violations, and examples of potential violations and corrective actions. The Department issued the Update in response to public and internal comments on the preliminary revision of the VFCP published in April 2005. The 2006 Update of the VFCP was effective May 19, 2006. The Department also provides applicants conditional relief from payment of excise taxes for certain VFCP transactions under a class exemption related to the VFCP, which is discussed in more detail below. The amended class exemption was also effective on May 19, 2006. Who Is Eligible Anyone who may be liable for fiduciary violations under ERISA, including employee benefit plan sponsors, officials, and parties in interest, may voluntarily apply for relief from enforcement actions, provided they comply with the criteria and satisfy the procedures outlined in the VFCP. VFCP Criteria Persons using the VFCP must fully and accurately correct violations. Incomplete or unacceptable applications may be rejected. If rejected, applicants may be subject to enforcement action, including assessment of civil monetary penalties under Sections 502(l) and 502(i) of ERISA. How To Apply Applicants do not need to consult or negotiate with EBSA to use the VFCP. They merely need to follow the procedures outlined in the notice published in the April 19, 2006, Federal Register. Violations can be fully and correctly resolved in four easy steps:
Covered Transactions The VFCP provides descriptions of 19 categories of transactions and their methods of correction. Corrective remedies are prescribed for the following fiduciary violations involving employee benefit plans:
Acceptable Corrections The VFCP provides rules for making acceptable corrections involving the transactions listed above. Applicants generally must:
VFCP Documentation Under the VFCP, applicants must provide supporting documentation to the appropriate regional office of EBSA. Required documentation generally includes:
The VFCP also provides a model application form. While use of this model application form is entirely voluntary, EBSA encourages its use to avoid common application errors that frequently result in processing delays or rejections. Restitution To Plans Applicants must restore the plan, participants, and beneficiaries to the condition they would have been in had the breach not occurred. The VFCP includes an online calculator to assist applicants by automatically calculating correction amounts that must be paid to the plan. Plans must then file, where necessary, amended returns to reflect corrected transactions or valuations. Applicants also must provide proof of payment to participants and beneficiaries, or properly segregate the affected assets in cases where the plan is unable to identify the location of missing individuals. Payment of the correction amount may be made directly to the plan where distributions to separated participants would be less than $20 and the cost of correction exceeds the distributions owed. Excise Tax Exemption The Department has adopted an amendment to PTE 2002-51 to expand the relief under the exemption to additional transactions included in the 2006 Update of the VFCP. The class exemption provides relief from certain excise tax provisions of the Internal Revenue Code if the terms of the Program and exemption are met. Prior to the 2006 amendment, the exemption covered most transactions involving:
The amended exemption continues to provide excise tax relief for these four transactions, and also provides relief for two additional transactions:
Additionally, for de minimis situations involving delinquent participant contributions and/or the failure to transmit participant loan repayments, the Department has eliminated the notice requirement. Please refer to the class exemption to determine if you meet all the terms. Contacts For Additional Information For additional information, VFCP applicants may contact the appropriate EBSA regional office at our toll-free number: 866.444.3272 and request the VFCP coordinator. This fact sheet has been developed by the U.S. Department of Labor, Employee Benefits Security Administration, Washington, DC 20210. It will be made available in alternate formats upon request: Voice phone: 202.693.8664; Text telephone: 202.501.3911. In addition, the information in this fact sheet constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996. |
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