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The VFCP is a voluntary enforcement program that
encourages the correction of possible violations 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 (Department), Employee
Benefits Security Administration (EBSA), enforces
many parts of ERISA.
The Program allows plan officials to identify and
fully correct certain transactions such as
prohibited purchases, sales and exchanges, improper
loans, delinquent participant contributions, and
improper plan expenses. The Program includes 19
specific transactions and their acceptable means of
correction, eligibility requirements, and
application procedures. If an eligible party
documents the acceptable correction of a specified
transaction and satisfies the terms of the Program,
we will issue a no action letter.
In part, we developed the VFCP in response to
requests from the employee benefits community for a
formal Program that would permit self-correction of
fiduciary violations and reduce the risk of
enforcement action. Most of EBSA’s investigations
are resolved by fiduciaries taking corrective action
after EBSA identifies violations. We recognized that
as the private benefit system evolves, there is a
need for innovation in voluntary compliance. The
VFCP informs plan fiduciaries about their ability to
make complete and fully acceptable corrections
without discussion or negotiation with EBSA.
The original and revised Programs were very
successful in encouraging and making it easy for
plan officials to correct certain violations of
ERISA’s fiduciary responsibility and prohibited
transaction rules. Based on our experience, as well
as comments from employee benefit plan
practitioners, we believed that additional changes
to the Program were needed to further encourage
people to use the Program. These changes will also
improve administration of the Program by EBSA’s
Regional Offices.
Several major changes were made: four additional
transactions are now eligible for correction under
the Program; additional ways to correct were added
to some transactions; the method of calculating the
correction amount has been simplified; and the
Department developed an online calculator to help
you make accurate Program corrections. In addition,
the Program has adopted a new model application
form, reduced the number of supporting documents to
be filed, modified the definition of “Under
Investigation”, and made other miscellaneous
changes.
EBSA will consider an application if neither the
plan nor the applicant is “Under Investigation”
(as defined in the Program) and if the application
contains no evidence of potential criminal
violations as determined by EBSA. We have made the
Program available to more applicants by revising the
definition of who is “Under Investigation.”
A plan or potential applicant is “Under
Investigation” if:
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EBSA is conducting an investigation of the
plan;
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EBSA is conducting an investigation of the
potential applicant or plan sponsor in connection
with an act or transaction directly related to the
plan;
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any governmental agency is conducting a
criminal investigation of the plan, or of the
potential applicant or plan sponsor in connection
with an act or transaction directly related to the
plan;
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the Tax Exempt and Government Entities
Division of the IRS is conducting an Employee Plans
examination of the plan; or
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the Pension Benefit Guaranty Corporation (PBGC),
any state attorney general, or any state insurance
commissioner is conducting an investigation or
examination of the plan, or of the applicant or plan
sponsor in connection with an act or transaction
directly related to the plan, unless the applicant notifies
us, in writing, of the investigation or examination
at the time of the application
You must have received written or oral notice of
the investigation or examination.
If the SIMPLE IRA plan was established for your
employees, it is generally covered by ERISA. Any
plan covered by ERISA is eligible to participate.
We expect to continue the Program indefinitely.
However, we may change it again.
We may need to negotiate with the sponsor for
full correction. In that case, the Section 502(l)
penalty may apply to amounts restored as a result of
the negotiation. Depending on the facts, EBSA may
also need to conduct a civil or criminal
investigation or take other action, such as seeking
removal of persons from positions of authority with
a plan.
If the applicant meets the conditions of the
Program, no Section 502(l) or 502(i) penalty would
apply to correction amounts paid to the plan or to
participants. We can still impose civil penalties
under Section 502(c)(2) of ERISA if you fail to file
a complete and accurate annual report Form 5500 on
time. (See the Department’s DFVC Program to
correct filing violations.) The Department must
refer information about prohibited transactions to
the IRS, as required by Section 3003(c) of ERISA.
However, you may be eligible for relief from IRS
excise taxes for certain VFCP transactions if you
meet the conditions in the VFCP class exemption.
This relief was expanded by a final amendment to the
class exemption in April of 2006 to include the
sale of certain illiquid assets to a party in
interest and the payment of certain “settlor”
fees.
Yes. If you satisfy the terms of the Program, we
will send you a no-action letter. The no-action
letter states that we will not initiate a civil
investigation under Title I of ERISA regarding your
responsibility for any transaction described in the
no-action letter, nor assess a Section 502(l)
penalty. However, even if we issue a no-action
letter, other government agencies or any other
persons may still enforce their rights.
The Program includes application procedures, and
an application form that we encourage you to use.
Briefly, you must submit a written narrative and
supporting documents describing the transaction and
its correction, the checklist in the Program, proof
of correction, and a signed penalty of perjury
statement.
No, but we encourage you to use the form. It will
help you submit a complete and accurate application.
Yes. The checklist is required. For your
convenience, the Model Application Form includes a
copy of the checklist.
If you paid money to the plan, you must send us
proof that the plan received it. For example, you
could send us a copy of the canceled check or the
plan’s bank statement showing the deposit. If you
took other actions, such as selling a plan asset,
you should include proof of the action in your
application.
No. The Online Calculator was developed to make
it easier for you to calculate the amount of money
that needs to be paid back to the plan. If you
decide to calculate this amount manually, you must
submit your calculations. The Online Calculator
instruction page also describes how to calculate
this amount manually.
Applications should be mailed to the appropriate
EBSA regional office.
No. The Program requires that you submit proof of
corrective action with the application. If EBSA
enters into negotiations with you because the
violation hasn’t been properly corrected prior to
submission, the correction could lead to a
settlement within the meaning of Section 502(l) and
the assessment of the penalty.
You must correct pursuant to the provisions in
the Program in order to get a no action letter. If
the applicant and EBSA negotiate the correction
amount, the correction could lead to a settlement
agreement within the meaning of Section 502(l) and
the assessment of the penalty.
Interested parties may contact the appropriate
EBSA regional office. Regional coordinators
assigned to the Program will assist you with your
questions. Information about the VFCP can also be
obtained by calling EBSA's Toll-Free Hotline number
at 1.866.444.EBSA (3272) and ask for the VFCP Coordinator.
The general rule is that contributions (other
than union dues) withheld from an employee’s wages
or paid to the employer by a participant must be
sent to the plan on the earliest date these
contributions can reasonably be separated from the
employer’s general assets. This means that if you
know how much should be sent to the plan three days
after the pay date and it takes you another day to
prepare the check, you must submit employee
contributions four days after the pay date. In no
event may these contributions be forwarded later
than the 15th business day following the month of
withholding. We expect that most employers can
forward employee contributions well before this
maximum time period ends.
You must provide a description of the process you
use to segregate employee contributions from the
company’s general assets. The description could
include:
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how you determine the amount to be sent to the
plan
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how the company is organized to perform this
function
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any requirements of a third party
administrator
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any other information affecting the earliest
date contributions can be segregated
You must also submit any documents used to
determine this date. This documentation might be
your past withholding and remittance history, your
payroll policies and procedures, and documents
supporting a third party’s requirements.
No one is required to file an application under
the VFCP to correct a violation. Participation is
voluntary. Of course, you must take appropriate
actions to correct the violation even if you don’t
submit an application. However, if you don’t file
an application with us, you can’t get the relief
available under the Program. In addition, if we
discover the violation during an investigation, and
the correction was not complete, a civil penalty may
be assessed on any additional amount required to
fully correct the violation. Remember, too, that you
aren’t eligible for the IRS excise tax relief
unless you receive a no action letter. See the FAQs
on the class exemption for more information.
“Restoration of Profits” is the amount earned
by the fiduciary or party in interest on the use of
the employee contributions not forwarded to the
plan. If you can determine how this money was used
and how much the money earned, the money earned is
the amount of “Restoration of Profits.” We have
found that usually the profit from the use of the withheld
employee contributions usually can’t be
determined.
You should contact the IRS Voluntary Correction Coordinator at the following locations.
-
Brooklyn, New
York
Tel: 718.488.2255
-
Chicago, Illinois
Tel: 312.566.3833
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Dallas, Texas
Tel: 214.413.5508
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. No relief is
provided from the prohibited transaction provisions
of ERISA because such relief is provided under the
VFCP.
Based on growing public use of the VFCP and the
related exemption, we expanded the VFCP to include
new transactions and amended the class exemption to
add two of these transactions, the illiquid asset
and settlor fees transactions. In addition, the IRS
recommended that we eliminate the notice requirement
in some delinquent employee contribution situations
if the amount of the excise tax is less than or
equal to $100 and certain requirements were met. We
adopted this recommendation.
The class exemption only covers six of the
prohibited transactions identified in the VFCP. The
six transactions are:
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The failure to transmit participant contributions
to a pension plan within the time frames described
in the Department’s regulations (29 C.F.R. section
2510.3-102) and/or the failure to transmit
participant loan repayments to a pension plan within
a reasonable time after withholding or receipt by
the employer.
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The making of a loan by a plan at a fair market
interest rate to a party in interest with respect to
the plan.
-
The purchase or sale of an asset (including real
property) between a plan and a party in interest at
fair market value.
-
The sale of real property to a plan by the
employer and the leaseback of such property to the
employer, at fair market value and fair market
rental value, respectively.
-
Purchase of an asset (including real property) by
a plan where the asset has later been determined to
be illiquid as described under the Program in a
transaction which was a prohibited transaction,
and/or the subsequent sale of such asset to a party
in interest.
-
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), 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.
We have said informally that more than one pay
period can be treated as one transaction if the pay
periods are close together in time and the
delinquencies are related to the same cause. So, for
example, if the employee responsible for payroll
leaves the company, and for the next few pay periods
the employer is late in depositing contributions,
that can be one transaction. On the other hand, if
there is no real related cause and the employer
misses the deadline in December, March and June, but
is not delinquent the rest of the time, the missed
deadlines cannot be treated as one transaction.
You do not have to send a notice to interested
parties if:
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the violation involves delinquent employee
contributions (including loan repayments),
-
you meet all the terms of the Program,
-
the excise tax otherwise payable to the IRS is
less than or equal to $100,
-
the excise tax otherwise payable to the IRS is
paid to the plan, and allocated to participants and
beneficiaries as earnings would be,
-
you send us a copy of the IRS Form 5330 used to
determine the amount, or the same information that
would be entered on the IRS Form 5330, and
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you include proof of payment of the amount with
your application.
For the sole purpose of determining the amount of
the excise tax discussed above, you may use the
Online Calculator to determine the “amount
involved”.
It is not necessary to apply to the Department
for relief under the class exemption. However, you
must meet all of the applicable conditions in the
exemption in order to obtain excise tax relief. In
part, those conditions require participation in the
VFCP. You must meet all of the VFCP’s applicable
requirements, and must receive a no action letter
from EBSA with respect to the prohibited transaction
described in the VFCP application. Additionally,
under the class exemption, you must provide notice
to interested persons regarding the transaction and
its correction, and provide a copy of the notice to
the appropriate Regional Office of the Department,
within 60 days after submission of an application
under the VFCP. (You should indicate on the
checklist submitted with your VFCP application that
you will provide notice to interested persons and
the Department’s Regional Office.) This notice to
interested parties does not have to be sent if you
meet the conditions of the exception previously
described.
Questions may be referred to the Department of
Labor’s Office of Exemption Determinations at
202.693.8540.
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