|
May 2002
|
|
The Voluntary Fiduciary Correction Program
(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 program 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 program describes how to
apply, the 15 specific transactions covered, acceptable
methods for correcting violations and examples of potential
violations and corrective actions. In addition, the Department
of Labor is giving applicants immediate relief from payment of
excise taxes under a November 2002 class exemption.
|
|
On
This Page |
|
|
|
|
|
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
program.
|
|
|
Persons using the program 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 Section 502(l) of ERISA.
|
|
|
Applicants do not need to consult or
negotiate with EBSA to use the program. They merely need to
follow the procedures outlined in the notice published in the
March 28, 2002, Federal Register. See www.dol.gov/ebsa/regs/fedreg/notices/2002007516.pdf
for more information. Violations can be fully and correctly
resolved in four easy steps:
-
Identify any violations
and determine whether they fall within the transactions
covered by the program;
-
Follow the process for
correcting specific violations (i.e., improper loans or
incorrect valuation of plan assets);
-
Calculate and restore
any losses and profits with interest and distribute any
supplemental benefits to participants; and
-
File an application with
the appropriate EBSA regional office that includes
documentation showing evidence of corrected financial
transactions.
|
|
|
The program provides descriptions of 15
transactions and their methods of correction. Corrective
remedies are prescribed for the following fiduciary violations
involving employee benefit plans:
-
Delinquent Participant
Contributions to Pension Plans
-
Delinquent Participant
Contributions to Insured Welfare Plans
-
Delinquent Participant
Contributions to Welfare Plan Trusts
-
Fair Market Interest
Rate Loans With Parties-in-Interest
-
Below Market Interest
Rate Loans With Parties-in-Interest
-
Below Market Interest
Rate Loans With Non Parties-in-Interest
-
Below Market Interest
Rate Loans Due to Delay in Perfecting Security Interest
-
Purchase of Assets by
Plans from Parties-in-Interest
-
Sale of Assets by Plans
to Parties-in-Interest
-
Sale and Leaseback of
Property to Sponsoring Employers
-
Purchase of Assets from
Non Parties-in-Interest at Other Than Fair Market Value
-
Sale of Assets to Non
Parties-in-Interest at Other Than Fair Market Value
-
Benefit Payments Based
on Improper Valuation of Plan Assets
-
Payment of Duplicate,
Excessive, or Unnecessary Compensation
-
Payment of Dual
Compensation to Plan Fiduciaries
|
|
|
The program provides rules for making
acceptable corrections involving the transactions listed
above. Applicants must:
-
Conduct valuations of
plan assets using generally recognized markets for the
assets or obtain written appraisal reports from qualified
professionals that are based on generally accepted
appraisal standards;
-
Restore to the plan the
principal amount involved, plus the greater of: lost
earnings starting on the date of the loss and extending to
the recovery date or profits resulting from the use of the
principal amount for the same period;
-
Pay the expenses
associated with correcting transactions, such as appraisal
costs or recalculating participant account balances; and
-
Make supplemental
distributions to former employees, beneficiaries, or
alternate payees when appropriate and provide proof of the
payments.
|
|
|
Under the program, applicants provide
supporting documentation to the appropriate regional office of
EBSA. Documentation must include:
-
Statement showing the
plan has a current fidelity bond, the name of the company
providing the bond, and the policy number;
-
Copy of relevant
portions of plan and related documents;
-
Documents supporting
transactions, such as leases and loan documents and
applicable corrections;
-
Documentation of lost
earnings amounts;
-
Documentation of
restored profits;
-
Proof of payment of
affected amounts;
-
Documents on affected
transactions as outlined in Section 7 of the notice;
-
Signed checklist; and
-
Penalty of perjury
statement.
|
|
|
Applicants must restore the plan,
participants, and beneficiaries to the condition they would
have been in had the breach not occurred. Plans must then
file, where necessary, amended returns to reflect corrected
transactions or valuations.
|
Under the revised program, applicants also
must provide proof of payment to participants and
beneficiaries or properly segregate 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. In addition, the program was
modified to allow applicants to use the “blended rate” in
calculating rate of return on affected transactions involving
404(c) plans only for affected participants who have not made
investment allocations.
|
|
|
In order to encourage use of the program,
the Department of Labor granted a class exemption providing
limited relief from the excise taxes under the Internal
Revenue Code imposed on certain transactions covered by the
VFC Program. Four specific transactions are now exempt from
excise tax, provided applicants comply with the conditions
contained in the exemption. The exemption covers transactions
involving:
-
Failure to timely remit
participant contributions to plans;
-
Loans made at fair
market interest rate by plans with parties-in-interest;
-
Purchases or sales of
assets between plans and parties-in-interest at fair
market value;
-
Sales of real property
to plans by employers and leaseback of the property at
fair market value and fair market rental value,
respectively.
|
Under the exemption, applicants must repay delinquent
contributions to plans no more than 180 days from the date the money was
received by the employer or would be payable to participants in cash. The
exemption also requires, except in the case of delinquent participant
contributions, no more than 10 percent of the fair market value of total plan
assets be involved. In addition, the exemption requires that notice of the
transaction and the correction be provided to interested persons. Finally,
covered transactions under the exemption cannot be part of an arrangement or
understanding that benefits a related party and the exemption does not apply to
any transactions for which an application for a similar transaction was
submitted under the VFCP within the past 3 years.
|
A copy of the November 25, 2002, class
exemption is available at: www.dol.gov/ebsa/regs/fedreg/notices/2002029799.pdf.
|
|
|
For additional information, VFCP applicants
may contact the appropriate regional office at EBSA’s
toll-free Employee and Employer Hotline number: 1.866.444.EBSA
(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; TTY: 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.
|