The comment period for changes to the Department of Labor’s popular Voluntary Fiduciary Correction Program (VFCP) is rapidly coming to a close, with all comments due by Friday, Jan. 20.
The proposed changes, released in November, simplify and expand the original VFCP, “thereby making it easier for, and more useful to, employers and others who wish to avail themselves of the relief provided by the program,” according to the department.
Specifically, the program’s amendments do the following:
- Add a self-correction feature,
- Clarify some existing transactions eligible for correction under the program,
- Expand the scope of other transactions currently eligible for correction, and
- Simplify certain administrative or procedural requirements for participating in and correcting transactions under the VFC Program.
“It’s a popular program that’s been around for a while, and it gives plan fiduciaries and other service providers the opportunity to avoid civil enforcement and penalties through proactive corrective steps they can take,” American Retirement Association (ARA) General Counsel Allison Wielobob said.
Noting that the program is smaller in scope than the IRS Employee Plans Compliance Resolution System (EPCRS), it does similarly provide “no-action” relief for specified transactions that may be considered fiduciary breaches or prohibited transactions.
“It’s a very useful tool for many plans sponsors,” she added. “One of the more popular features was the addition of an online calculator for lost earnings. Plan sponsors will use the program to calculate and correct late employee deferral contributions and the lost earnings attributable to those errors.”
The ARA is currently completing its comment letter that it will submit before the deadline.
“The program is, technically speaking as a legal matter, a prohibited transaction exemption, but I don’t know that people necessarily realize that,” Wielobob explained. “There are specific things for which it grants relief. We applaud the Department of Labor for adding a self-correction component for late transmittal of contributions because we think it will enhance compliance overall.”
The Employee Benefits Security Administration (EBSA) initially adopted the VFCP in 2002 and revised it in 2005 and 2006. EBSA designed the program to encourage employers and plan fiduciaries to voluntarily comply with ERISA.
If they meet the program’s criteria and follow its outlined procedures, those potentially liable for certain specified fiduciary breaches under ERISA can apply for relief from civil enforcement actions and certain civil penalties.
The existing VFC Program describes how to apply for relief, lists the specific transactions covered, and sets forth acceptable methods for correcting fiduciary breaches under the program. It also provides examples of potential breaches and related permissible corrective actions.
It defines the term “breach” as any transaction that is or may be a violation of the fiduciary responsibilities contained in Part 4 of Title I of ERISA.
Last updated in 2006, the department concluded that certain revisions to the program “would facilitate more efficient and less costly corrections of fiduciary breaches, encourage greater participation in the program, and respond to requests from stakeholders for adjustments based on their experiences using the program.”
However, it added the proposed self-correction components can only be used if the following conditions are met:
- Participant contributions or loan repayments to the plan must be remitted no more than 180 calendar days from the date of withholding or receipt.
- Lost earnings must not exceed $1,000 calculated from the date of withholding or receipt.
- The plan or self-corrector must not be under investigation as defined in the program.
- Self-correctors must use the program’s online calculator to calculate lost earnings and an online web tool to complete and file the self-correction component notice. Self-correctors must also complete and retain the self-correction retention record checklist.
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