# Voluntary Fiduciary Correction Program

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-24703

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** November 21, 2022
- **Citation:** 87 FR 71164

## Text

DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2560 and 2570
RIN 1210-AB64
Voluntary Fiduciary Correction Program

AGENCY:

Employee Benefits Security Administration, Department of Labor.

ACTION:

Proposed program amendments; request for comment.

SUMMARY:

This document contains an amended and restated Voluntary Fiduciary Correction Program (VFC Program or Program) under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and a request for comment. The VFC Program is designed to encourage correction of fiduciary breaches by permitting persons to avoid potential Department of Labor (Department) civil enforcement actions and civil penalties if they voluntarily correct eligible transactions in a manner that meets the requirements of the Program. Based on its experience since the last revision of the Program in 2006, the Employee Benefits Security Administration (EBSA) has identified certain changes that will both simplify and expand the original VFC Program, thereby making the Program easier for, and more useful to, employers and others who wish to avail themselves of the relief provided by the Program. Specifically, the Program amendments 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 participation in and correction of transactions under the VFC Program.

DATES:

Written comments on the amended and restated VFC Program should be submitted on or before January 20, 2023. The Department will notify the public of the availability of the amended and restated VFC Program in a subsequent
Federal Register
document.

ADDRESSES:

You may submit written comments, identified by RIN 1210-AB64, to one of the following addresses:

•
Federal eRulemaking Portal: www.regulations.gov.
Follow the instructions for submitting comments.

•
Mail:
Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attention: Amendment and Restatement of Voluntary Fiduciary Correction Program.

Instructions:
Persons submitting comments electronically are encouraged not to submit paper copies. Comments will be available to the public, without charge online at
www.regulations.gov,
at
www.dol.gov/agencies/ebsa,
and at the Public Disclosure Room, EBSA, U.S. Department of Labor, Suite N-1513, 200 Constitution Avenue NW, Washington, DC 20210.

Warning:
Do not include any personally identifiable or confidential business information that you do not want publicly disclosed. Comments are public records and can be retrieved by most internet search engines.

FOR FURTHER INFORMATION CONTACT:

Yolanda R. Wartenberg, Office of Regulations and Interpretations, EBSA, (202) 693-8500, for questions regarding the VFC Program amendments in this document. Susan Wilker, Office of Exemption Determinations, EBSA, (202) 693-8540, for questions regarding the proposed amendments to the associated class exemption PTE 2002-51. James Butikofer, Office of Research and Analysis, EBSA, (202) 693-8410, for questions regarding the regulatory impact analysis. (These are not toll-free numbers.)

For general questions regarding the VFC Program: contact Dawn Miatech-Plaska, Office of Enforcement, EBSA, (202) 693-8691. For questions regarding specific applications and self-corrections under the VFC Program: contact the appropriate EBSA Regional Office listed in Appendix C. (These are not toll-free numbers.)

Customer Service Information:
Individuals interested in obtaining information from the Department concerning ERISA and employee benefit plans may call the Employee Benefits Security Administration (EBSA) Toll-Free Hotline, at 1-866- 444-EBSA (3272) or visit the Department's website (
www.dol.gov/ebsa
).

SUPPLEMENTARY INFORMATION:

A. Summary Overview

The Department of Labor's (Department) authority to establish the Voluntary Fiduciary Correction Program (VFC Program or Program) derives from its authority to enforce the fiduciary standards in Title I of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1132(a)(2) and 1132(a)(5), and thereby to establish policies on how this authority will be implemented. The Department also has the authority under section 408(a) of ERISA (29 U.S.C. 1108) to issue exemptions from the prohibited transaction rules in sections 406 and 407 of ERISA (29 U.S.C. 1106 and 1107) and in section 4975 of the Internal Revenue Code (Code).
1

1
Under Reorganization Plan No. 4 of 1978, 5 U.S.C. App. at 252 (2020), the authority of the Secretary of Treasury to issue exemptions pursuant to section 4975 of the Internal Revenue Code was transferred, with certain exceptions not relevant here, to the Secretary of Labor.

The Employee Benefits Security Administration (EBSA) originally adopted the VFC Program in 2002, and later revised it in 2005 and 2006.
2

EBSA designed the VFC Program to encourage employers and plan fiduciaries to voluntarily comply with ERISA and allow those potentially liable for certain specified fiduciary breaches under ERISA to voluntarily apply for relief from civil enforcement actions and certain civil penalties, provided they meet the Program's criteria and follow the procedures outlined in the Program. 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.
3

It also provides examples of potential breaches and related permissible corrective actions. The Program defines the term “Breach” to mean any transaction that is or may be a violation of the fiduciary responsibilities contained in Part 4 of Title I of ERISA. The Program also provides a model application form, a checklist, and an Online Calculator for determining correction amounts. Eligible applicants that satisfy the terms and conditions of the existing VFC Program receive a no action letter from EBSA and are not subject to civil monetary penalties for the corrected transactions. Excise tax relief for six specific VFC Program transactions is conditionally available under an associated class exemption, PTE 2002-51.
4

The VFC Program has been, and will continue to be, administered in EBSA Regional Offices.

2
70 FR 17516 (2005), 71 FR 20262 (2006).

3
EBSA acknowledges, based on its experience, that certain transactions may fit within one or more of the listed categories of transactions, even if not specifically named in the category, for example certain transactions involving contributions in kind under Section 7.4(a) of the Program. EBSA encourages potential applicants to discuss eligibility and similar issues with the appropriate regional VFC Program coordinator.

4
PTE 2002-51 at 67 FR 70623 (2002); amended at 71 FR 20135 (2006). The current exemptive relief for these six transactions remains available while the proposed amendments to the exemption are being finalized.

While the VFC Program continues to be successful in encouraging and facilitating the correction of violations

of ERISA's fiduciary responsibility and prohibited transaction rules, based on a review of the current VFC Program, which was last revised in 2006,
5

the Department concluded that certain revisions to the Program would facilitate more efficient and less costly corrections of fiduciary breaches under the Program, encourage greater participation in the Program, and respond to requests from stakeholders for adjustments based on their experiences using the Program.

5
71 FR 20262 (2006); 71 FR 20135 (2006).

The most significant change to the Program is the addition of a new self-correction feature contained in section 7.1(b) of the VFC Program for certain failures to timely transmit participant contributions (and participant loan repayments) to pension plans. Delinquent participant contributions is the type of transaction most frequently corrected under the Program. The Department has received input from stakeholders who said the time and expense required to file a VFC Program application with the Department is a disincentive to use the Program to correct these transactions, especially when they involve small dollar amounts. After carefully considering the issue, the Department agrees that a self-correction feature for delinquent participant contributions to pension plans that includes appropriately designed safeguards would encourage more voluntary corrections by offering plan officials and other responsible fiduciaries a streamlined correction process. It would also enable EBSA to better allocate resources currently dedicated to processing VFC Program applications for these transactions. The other Program amendments contained in this document (1) clarify existing transactions eligible for correction under the Program, (2) expand the scope of certain transactions currently eligible for correction, and (3) simplify certain administrative or procedural requirements for participation in the VFC Program and correction of transactions under the Program. A more detailed summary of the Program revisions is set forth below in the section of this preamble entitled “VFC Program 2022 Amendments.”
6

6
As is the case under the current VFC Program, multiemployer plans and multiple employer plans would be permitted to use the amended VFC Program (including the new SC Component) when it becomes available. The preamble to the 2006 revision of the VFC Program stated that the definition of “Plan official” in cases of multiemployer plans or multiple employer plans was not limited so that an application could be made only by the “plan administrator” rather than by any contributing or adopting employer. 71 FR 20262, 20264 (April 19, 2006). The Department explained that the plan administrator of such a plan could apply on behalf of the entire plan, but any participating employer may apply on its own behalf. The Department solicits comments on whether additional guidance on those points would be helpful, and if so, what the guidance should provide.

In tandem with today's publication of amendments to the VFC Program, EBSA is publishing a proposed amendment to PTE 2002-51, the Program's associated class exemption, to make certain conforming amendments to the class exemption. For a more comprehensive discussion of the proposed changes to the class exemption and the request for public comments on those proposed changes, see the proposed amendment to PTE 2002-51 published elsewhere in today's issue of the
Federal Register
.

As discussed in greater detail below in the section entitled “Statement on Availability and Request for Comment,” this amended and restated VFC Program will become available to the public following approval by the Office of Management and Budget (OMB) of the revised information collections in the Program in accordance with the Paperwork Reduction Act of 1995 (PRA). The availability will be announced by the Department in a subsequent
Federal Register
Notice. Further, the expanded excise tax relief afforded by the proposed amendments to PTE 2002-51 is not available until such amendments are adopted in final form, which also will be communicated in the
Federal Register
. However, the existing VFC Program and PTE 2002-51 remain available during the Department's consideration of the changes.

B. VFC Program 2022 Amendments

The VFC Program 2022 Amendments set forth in this document would retain the fundamentals of the current VFC Program. To facilitate reference to the Program, this document includes a restatement of the Program in its entirety. Stakeholders interested in a discussion of the existing components of the VFC Program should review the
Federal Register
notices announcing the original 2002 program and the 2005 and 2006 revisions to the Program.
7

The following is an overview of the VFC Program amendments contained in this document.

7

See
67 FR 15062 (March 28, 2002), 70 FR 17516 (April 6, 2005), and 71 FR 20262 (April 19, 2006). Prior to adoption in March 2002, the VFC Program was made available on an interim basis during which the Department invited and considered public comments on the Program. (
See
65 FR 14164, March 15, 2000)).

(1) Self-Correction Feature for Delinquent Participant Contributions to Pension Plans—Section 7.1(b)

A major change, prompted by input from the regulated community, is the addition of a new Self-Correction Component (SC Component or SCC) to section 7, “Description of Eligible Transactions and Corrections Under the VFC Program.” Specifically, section 7.1(b) “Delinquent Participant Contributions and Loan Repayments to Pension Plans under the Self-Correction Component” provides a new self-correction process for pension plans.
8

8
To reflect the inclusion of the SCC into the Program, section 6 in the amended program has been renamed “VFC Program Application and Self-Correction Component Procedures” and the prior section 6 has been renamed and re-designated as section 6.1 “VFC Program Application Procedures.”

In the past, as noted in the preamble to the April 2006 VFC Program Notice, EBSA was of the view that a self-correction feature would not give the Department sufficient information and certainty of correction compared to that afforded by the Program's application and approval process. However, based on its experience with the Program and input from stakeholders, EBSA is persuaded that delinquent participant contribution/loan repayment transactions are suitable for a self-correction procedure. EBSA expects that a well-designed self-correction feature will mean more voluntary corrections and more participant accounts receiving more timely correction amounts.

Certain other conditions apply to relief under the SC Component. Relief under the SC Component for delinquent participant contributions and delinquent plan loan repayments is available to any pension plan regardless of the size of the plan's participant population or amount of plan assets, but is limited to corrections where the amount of Lost Earnings is $1,000.00 or less excluding any excise tax paid to the plan under the associated class exemption, PTE 2002-51.
9

The delinquent participant contributions or loan repayments also must have been remitted to the plan no more than 180 calendar days from the date of withholding or receipt. These conditions are designed to exclude from the SCC delinquencies involving lost earning amounts that suggest the need for more active evaluation by EBSA of the circumstances surrounding the Breach and timing of the correction.

9

See
proposed amendments to PTE 2002-51 elsewhere in today's
Federal Register
.

The Department considered but did not include at this time a limit on the frequency with which a self-corrector may use the SC Component versus

following the application process for correcting delinquent participant contributions. For example, the Department considered adopting a three-year provision modeled on the provisions in the current VFC prohibited transaction exemption (PTE) that precludes reliance on the PTE to avoid excise taxes for similar VFC Program covered transactions more frequently than once every three years.
10

The Department concluded, however, that the PTE provision was not comparable because it does not preclude reliance on the VFC Program; it just limits relief from applicable excise taxes and even that limitation was subject to several exceptions. The Department was also concerned about a frequency limit unintentionally creating disincentives to use the VFC Program and encouraging corrections outside the VFC Program. Moreover, as discussed in greater detail in the proposed PTE amendment, the Department is soliciting public comments on a proposal to remove the three-year limitation provision from the PTE. As noted above, no similar frequency limitation applies to the use of the VFC Program so parties are able to obtain a “no action” letter from the Department even in the case of repeated use of the VFC Program for similar types of transactions. The preamble to the proposed amendments to the PTE also notes that the three-year provision was initially included in the PTE to prevent parties from becoming lax in efforts to comply with their fiduciary duties in connection with covered transactions because of the availability of the exemption. However, the Department's experience with the VFC Program and exemption indicated that the risk of such behavior was low. Also, the application and reporting requirements under the VFC Program and the SC Component together with the “under investigation” ineligibility condition provide the Department with a system under which it receives notice of repeat usage and a means of protecting against any potentially inappropriate use of the exemption in connection with covered transactions. Accordingly, the Department decided that it would solicit comments on whether a frequency limitation should be included in the PTE, and if so, what it should be and should any exceptions apply. Nonetheless, the Department will be monitoring for frequent use of the SCC and may communicate with repeat users or open investigations to identify and correct systemic issues leading to repeated failures to transmit participant contributions in a timely fashion.

10
The exemption is currently unavailable to VFC Program applicants that have, within the previous three years, taken advantage of the relief provided by the VFC Program or the exemption for a similar type of transaction.

Relief under the SCC is further conditioned on a particular correction method being used. Correction amounts under the SC Component consist of the (1) Principal Amount and (2) Lost Earnings. Specifically, the Principal Amount is the amount of participant contributions or loan repayments that would have been available to the plan if the employer had not retained such amounts, while Lost Earnings is the amount of earnings that would have been earned on the Principal Amount but for the failure to timely remit such amounts to the plan. The SC Component requires that Lost Earnings be paid from the “Date of Withholding or Receipt,” and mandates the use of the Online Calculator to determine the amount of the loss payable to the plan. For this transaction, Date of Withholding or Receipt means the date the amount would otherwise have been payable to the participant in cash in the case of amounts withheld by an employer from a participant's wages, or the day on which the participant contribution or loan payment is received by the employer in the case of amounts that a participant or beneficiary pays to an employer. Use of the Online Calculator and the Date of Withholding or Receipt—which is a stricter standard than the date on which participant contributions or loan repayments could reasonably have been segregated from the employer's general assets—are critical elements of the SCC that, in the Department's view, will help ensure full correction without the need for the protections afforded by the Program's application and approval process. These elements also will provide self-correctors with assurance of the accuracy of their calculations.

Under the SC Component, section 7.1(b)(2)(iii) details an electronically filed notice requirement (SCC notice) which replaces the paper application requirements in section 7.1(a)(3) of the Program. The required data elements in the SCC notice include: the name and an email address for the self-corrector; the plan name; the plan sponsor's nine-digit number (EIN) and the plan's three-digit number (PN); the Principal Amount; the amount of Lost Earnings and the date paid to the plan; the Loss Date (Date(s) of Withholding or Receipt); and the number of participants affected by the correction. The SCC notice must be submitted electronically to EBSA using a new online VFC Program web tool to be located on EBSA's website. Self-correctors using the web tool will receive an automatic EBSA email acknowledging the SCC notice submission.

Prior to submitting the SCC notice, self-correctors must calculate the Lost Earnings amount using the VFC Program's Online Calculator. The Lost Earnings calculation is intended to be a reasonable approximation of the amount that would have been earned on the delinquent participant contributions or loan repayments but for the employer's delinquent transmission of the contributions or repayments. Lost Earnings is calculated by entering the Principal Amount which is the total amount of the delinquent participant contributions or loan repayments, the Loss Date (Date of Withholding or Receipt) which may require multiple entries based on delinquencies in multiple pay periods, and the date the Lost Earnings amount is paid to the plan. The Date of Withholding or Receipt is the date the amount would otherwise have been payable to the participant in cash in the case of amounts withheld by an employer from a participant's wages, or the day on which the participant contribution or loan payment is received by the employer in the case of amounts that a participant or beneficiary pays to an employer. Detailed instructions for the VFC Program Online Calculator are on EBSA's website. Definitions of capitalized terms are contained in sections 5 and 7.1(b).

Self-correctors also must complete the SCC Retention Record Checklist in Appendix F, prepare or collect the documents listed in the Appendix, and provide the completed checklist and required documentation to the plan administrator as required by sections 6.2(d) and 7.1(b)(3). This obligation applies even if the employer is the plan administrator. Such “dual role” situations do not relieve the employer as plan administrator from fiduciary recordkeeping and obligations under ERISA. The plan administrator then must maintain these documents as part of the plan's records as required by law. Although self-correctors that satisfy the terms and conditions of the VFC Program do not receive a no action letter from EBSA, similar to a no action letter, the SCC provides that compliance with the SCC terms and conditions results in not being subject to civil monetary penalties or an EBSA civil enforcement action. As with an application under the Program, however, and in accordance with section 2(b) “Verification,” EBSA reserves the right to investigate and take other actions with respect to the transaction corrected through the SCC, including taking steps to confirm the

corrective action was in fact taken. The relief does not extend to criminal investigations or to persons other than the self-corrector. Also, if EBSA determines that the terms and conditions of the SCC were not satisfied, the “self-corrector” would, obviously, not be exempt from civil penalties or EBSA enforcement actions related to relevant participant contributions.

Other procedural requirements for self-correction are detailed in section 6.2 “VFC Program Self-Correction Component Procedures,” including a Penalty of Perjury Statement. For convenience, a compliant Penalty of Perjury Statement is included as part of the SCC Retention Record Checklist in Appendix F.

EBSA is seeking comments from interested persons on the revisions to the Program set forth in this document, including comments on the SCC criteria and conditions and whether other criteria or conditions would adequately protect plans and participants while being less burdensome or less costly. For example, the Department invites public comments on whether the SCC should incorporate additional protections for pension plans that are classified as small based on their participant population (generally those covering fewer than 100 participants).
11

A possible additional protection would be to limit the participation of small plans to only those whose plan sponsors comply with the safe harbor standard in 29 CFR 2510.3-102(a)(2) for the timely handling of participant contributions. Compliance could require, for example, either an existing practice or an agreement to put in place a customary practice of depositing participant contributions and loan payments with the plan not later than the 7th business day following the day on which such amount would otherwise have been payable to the participant in cash in the case of amounts withheld by an employer from a participant's wages, or the 7th business day following the day on which the participant contribution or loan payment is received by the employer in the case of amounts that a participant or beneficiary pays to an employer. The additional protection that would result from requiring compliance with the safe harbor as a condition of SCC relief is that small employers would either have or agree to implement clear procedures for the timely handling of participant contributions. In the Department's view, the use of the small plan safe harbor standard for large plans would be inappropriate. EBSA expects that large plans generally can and should be depositing participant contributions with the plan sooner than 7 business days after the contributions are withheld or received by the employer.

11
In determining whether a plan qualifies as a “small” plan, self-correctors can rely on the end of year participant count reported on the latest Form 5500 or Form 5500-SF filed for the plan because that would be the annual report count closest in time to use of the SCC. If there is no Form 5500 or Form 5500-SF for the prior year, the self-corrector should use the participant count for the end of the year that would have been reported if a Form 5500 or Form 5500-SF were required or that will be reported when the prior year Form 5500 or Form 5500-SF is filed. Images of the Form 5500 and Form 5500-SF filings for plan years after 2008 can be accessed on EBSA's website at
efast.dol.gov/5500search/.
The Department notes that potential self-correctors who fail to meet the SCC conditions for participating in the SCC may still be eligible to correct the delinquency violation through the normal application process under the VFC Program.

(2) Conforming Revisions to Current Application Process Provisions for Delinquent Participant Contributions (Sections 7.1(a), (c) and (d))

Section 7.1(a) has been renamed “Delinquent Participant Contributions and Loan Repayments to Pension Plans under VFC Program Applications” to clarify that it applies only to corrections pursuant to Program applications in contrast to self-corrections under section 7.1(b). Additionally, section 7.1(a) has been revised to reflect the Department's amendment of its regulation defining plan assets in 2010 to include participant loan repayments within these regulatory principles. (See 29 CFR 2510.3-102(a)(1)). Language has also been added to sections 7.1(a)(3)(ii)(A) and (iii)(A) to explain that the required narrative in the application must include a description of any steps taken to prevent future delinquencies. Language referring to Restoration of Profits has been deleted from sections 7.1(a)(2)(i) and (ii) to simplify the Program because in the Department's experience no applicant has reported generating a profit through use of the delinquent amounts.

Sections 7.1(b) “Delinquent Participant Contributions to Insured Welfare Plans” and (c) “Delinquent Participant Contributions to Welfare Plan Trusts” are being re-designated as sections 7.1(c) and (d) respectively. A change also has been made to each of these sections to clarify that the participant contributions were remitted to the insurance provider in section 7.1(c)(3)(iii) and to the trust in section 7.1(d)(3)(ii) rather than the plan as previously stated. A change was also made to delete language referring to Restoration of Profits in sections 7.1(d)(2)(i) and (ii) to simplify the Program because, as stated above, no applicant has reported generating a profit through use of the delinquent amounts.

The VFC Program does not include a correction for delinquent matching employer contributions. Although some applications filed under the current VFC Program for delinquent participant contributions have sought relief for matching employer contributions, EBSA historically concluded that the different characteristics of the plan asset and fiduciary obligations that apply in the case of employer contributions make it inappropriate to include matching employer contributions as a transaction in a VFC Program. The Agency's position on that subject has not changed. Nonetheless, to the extent that a Program application provides that the employer will apply the same correction formula to the employer matching contributions that it is required to apply to the delinquent participant contributions, EBSA anticipates that it will not reject or refuse to process such applications even though the “correction” of the employer contribution is not a covered transaction under the VFC Program, is not entitled to any relief under the Program, and will not be covered by any no action letter.

(3) Loans—Sections 7.2(b), (c) and (d)

The original VFC Program included as an eligible transaction “Loan at Below-Market Interest Rate to a Party in Interest with Respect to the Plan.” The corrective action in section 7.2(b) under both the current and this amended and restated Program requires the payment of the loan in full, plus penalties, and the greater of the Lost Earnings or Restoration of Profits. In addition to the required section 6.1 documentation, an applicant currently must provide both a written copy of an independent commercial lender's fair market interest rate determination under section 7.2(b)(3)(ii) and a copy of an independent fiduciary's dated, written approval of the fair market interest rate determination under section 7.2(b)(3)(iii). To reduce applicants' costs, the VFC Program 2022 Amendments would amend section 7.2(b)(3)(iii) to eliminate the requirement that an independent fiduciary validate in writing the process used to determine the fair market interest rate determination for loans in the amount of $10,000 or less. Thus, under these amendments to the Program, in the case of below-market interest rate loans in the amount of $10,000 or less, a copy of the independent commercial lender's written fair market interest rate

determination will now suffice to validate the interest rate.

As a further clarifying change, the wording in section 7.2(b)(3)(i) is being revised to require a narrative describing the process used to determine the interest rate at the time the loan was made.

Section 7.2(c) “Loan at Below-Market Interest Rate to a Person Who is Not a Party in Interest With Respect to the Plan” is also a transaction that dates from the original VFC Program. Sections 7.2(c)(2)(i) and (ii) are being re-organized to clarify the required correction for this transaction. Section 7.2(c)(2)(ii) also adds an alternative to payment of the present value of the Principal Amounts from the Recovery Date to the loan's maturity date. The present value payment method must be coupled with the borrower's continued payment of the outstanding loan balance under the original repayment schedule for the duration of the loan. The new alternative permits the borrower's payment of the amortized outstanding loan balance over the remaining payment schedule of the loan at the interest rate that would have been applicable if the loan had originally been made at the fair market interest rate. When this new alternative is used, the applicant must submit a copy of the loan repayment schedule for the re-amortized loan repayments under section 7.2(c)(3)(iii). Any fair market interest rate must be determined by an independent commercial lender.

The wording in section 7.2(c)(3)(i) is being revised in a similar fashion to the wording in section 7.2(b)(3)(i) to require a narrative describing the process used to determine the interest rate at the time the loan was made.

Section 7.2(d) “Loan at Below-Market Interest Rate Solely Due to a Delay in Perfecting the Plan's Security Interest” is another transaction dating back to the original 2002 Program. It provides a correction for when a plan made a purportedly secured loan to a non-party in interest, but a delay occurred in recording or otherwise perfecting the plan's interest in the loan collateral, resulting in the loan being treated as an unsecured loan until the plan's security interest was perfected. Section 7.2(d)(2) is being re-organized to clarify the correction. Section 7.2(d)(2)(ii) specifically requires that the plan's interest in the loan collateral be recorded or perfected. For situations where the delay in perfecting the loan's security caused a permanent change in the risk characteristics of the loan, section 7.2(d)(2)(iii) is being amended to add an alternative to the payment of the present value of the remaining Principal Amounts from the date the loan is fully secured to the maturity date of the loan. The present value payment method must be coupled with the borrower's continued payment of the outstanding loan balance under the original repayment schedule for the duration of the loan. The new alternative permits the borrower's payment of the amortized outstanding loan balance over the remaining payment schedule of the loan at the interest rate that would have been applicable for a loan with the changed risk characteristics. When this new alternative is used, the applicant must submit a copy of the loan repayment schedule for the re-amortized loan repayments under section 7.2(d)(3)(iii). Any fair market interest rate must be determined by an independent commercial lender.

In a related modification applicable to these three types of loans, section 5(a) is being revised to include a specific explanation in section 5(a)(5) for when a commercial lender will be considered to be “independent” using the same criteria as is used to determine the “independence” of an appraiser.

As an ongoing protection for plans and their participants, EBSA staff, as part of the application review process, will continue to monitor a commercial lender's interest rate determination process and will object if it appears that a lender is not truly “independent” or the interest rate determination process is otherwise flawed.

(4) Purchases, Sales and Exchanges—Section 7.4

Section 7.4(a) “Purchase of an Asset (Including Real Property) by a Plan from a Party in Interest” provides a method of correction for situations when the plan purchased an asset (including real property) from a party in interest in a transaction to which no prohibited transaction exemption applies. A plan's purchase from a party in interest can be corrected by reversing the transaction provided the plan receives the higher of the fair market value at resale or the Principal Amount plus the greater of either Lost Earnings or Restoration of Profits. As an alternative correction, a plan may retain the asset plus receive an amount resulting from application of a formulaic calculation, but only if an independent fiduciary determines that the plan will realize a greater benefit from this alternative correction than from the resale of the asset. Section 7.4(a)(2) is being amended by adding a new paragraph (iii) that provides a third method of correction in situations when the purchase cannot be reversed or the asset retained because the plan no longer owns the asset (
e.g.,
sales, maturity, destruction). Under this new correction, the plan can receive a “cash settlement” if the asset has been sold and a Plan Official provides a statement, as required by section 7.4(a)(3)(v), that the sale was upon the advice of an independent fiduciary and not in anticipation of applying for relief under the Program. The determination of the cash settlement amount is prescribed in section 7.4(a)(2)(iii) and takes into account, among other factors, whether the plan realized a profit on the resale of the asset, or a loss on the resale, maturity or destruction of the asset.

As a further clarifying change, the wording in section 7.4(a)(2)(ii), is being modified to permit the subtraction of any earnings received on the asset up to the Recovery Date from Lost Earnings.

EBSA is also amending section 7.4(b) “Sale of an Asset (Including Real Property) by a Plan to a Party in Interest.” Section 7.4(b) provides a method of correction in situations when the plan sold an asset for cash to a party in interest in a transaction to which no prohibited transaction exemption applies. The amendment adds a condition to the section 7.4(b)(2)(ii) correction to permit the plan to receive the correction amount rather than to repurchase the asset by permitting a Plan Official to determine that the asset cannot be repurchased (
e.g.,
destruction, maturity). This new condition in section 7.4(b)(2)(ii) is an alternative to the section's existing condition requiring an independent fiduciary to determine that the plan will recognize a greater benefit from this correction than the correction in section 7.4(b)(2)(i). As part of the required documentation under section 7.4(b)(3)(iv), the Plan Official making this determination must provide a written explanation of why the asset cannot be repurchased.

(5) Sales/Leasebacks—Section 7.4(c)

Section 7.4(c) “Sale and Leaseback of Real Property to Employer” provides a method of correction for a plan sponsor that sells a parcel of real property to the plan, which is then leased back to the plan sponsor and is not otherwise exempt. To more accurately reflect the statutory exemption provided by ERISA section 408(e), which does not limit the transaction to the plan sponsor, the VFC Program 2022 Amendments would explicitly expand the transaction to allow correction of leases to affiliates of the plan sponsor. Changes, where appropriate, to the associated class exemption are being proposed for consistency with these amendments.

(6) Illiquid Assets—Section 7.4(f)

The April 2005 Program revision added a correction for a transaction that permits a plan to divest, rather than continue to hold in its portfolio, a previously purchased asset that is determined to be illiquid and that had been acquired under three possible circumstances described in the transaction. The transaction was further expanded in 2006 by adding a fourth scenario reflecting the acquisition of an asset from a party in interest to which a statutory or administrative exemption applied. This amendment of the VFC Program retains the four scenarios that compose the transaction, as well as the correction method, which permits the sale of the asset to a party in interest, provided the plan receives the higher of (A) the fair market value of the asset at the time of resale, without a reduction for the costs of sale; or (B) the Principal Amount, plus Lost Earnings as described in section 5(b). This correction encompasses a sale of the illiquid asset to a party in interest by the plan even if the original purchase of the asset by the plan was not a prohibited transaction or imprudent. In this regard, the definition of Principal Amount is being modified to take into account the possibility that the transaction being corrected was neither a prohibited transaction nor a fiduciary Breach. Section 7.4(f)(2)(ii) will now define Principal Amount as either the amount that would have been available had the Breach not occurred, or the plan's original purchase price if the original purchase was not a prohibited transaction or imprudent. The amendments also clarify that in the case of an illiquid asset that is a parcel of real estate, no party in interest may own real estate that is contiguous to the plan's parcel of real estate on the Recovery Date.

(7) Definitions—Section 3

The definition of “Under Investigation” in section 3(b)(3)(i) is being modified to state that an investigation of a plan resulting from an EBSA staff review, which could include a review by an EBSA Benefits Advisor, is considered an investigation by EBSA that automatically makes an applicant, self-corrector or plan sponsor ineligible to participate in the Program in connection with the plan provided that, as is currently required, written or oral notice of an investigation, review or examination has been received by the plan, a Plan Official, or an authorized plan representative. However, section 3(b)(3) makes clear that a plan will not be considered to be “Under Investigation” merely because EBSA staff has contacted the plan, the applicant, the self-corrector, or the plan sponsor in connection with a participant complaint, unless the participant complaint concerns the transaction described in the application or identified in the SCC notice and the plan has not received the correction amount due under the Program as of the date EBSA staff contacted the plan, the applicant, the self-corrector, or the plan sponsor.

There is a new limited exception to the definition of “Under Investigation” for bulk applicants that is discussed more fully below. Moreover, the existing exception from the definition of “Under Investigation” in section 3(b)(3) for a work paper review of the accountant of a plan by EBSA's Office of the Chief Accountant remains unchanged.

(8) Eligibility Criteria—Section 4

Section 4 “VFC Program Eligibility” is being amended to add two new limited exceptions to the existing eligibility requirements to promote increased usage of the Program. Currently, in order to be eligible to participate in the VFC Program there are two requirements involving possible criminal activity. First, if “any governmental agency is conducting a criminal investigation of the plan, or of the potential applicant, self-corrector or plan sponsor in connection with an act or transaction directly related to the plan,” such plan is considered “Under Investigation” in accordance with section 3(b)(3)(iii) and is not eligible for relief under the Program. This requirement remains. However, in addition to the first requirement, a second eligibility requirement in section 4(b) requires that there can be “no evidence of potential criminal violations as determined by EBSA.” EBSA has received applications involving clear evidence of potential criminal violations such as when a bookkeeper allegedly embezzled money from the plan sponsor, including participant contributions. In some situations, the plan sponsor repaid the money to the plan, including Lost Earnings, and referred the embezzlement to the local authorities who subsequently prosecuted the alleged embezzler. In situations like this, EBSA does not believe an innocent applicant who applies under the Program in such situations should be ineligible for relief under the Program. Accordingly, an exception is being added in paragraph (b)(2) to the section 4 requirements for eligibility to allow participation in the Program by an innocent plan administrator, plan sponsor or applicant for cases involving delinquent participant contributions and loan repayments when (1) all funds have been repaid to the plan; (2) the appropriate law enforcement agency has been notified of the alleged criminal activity; and (3) the applicant submits a statement (covered by the Penalty of Perjury Statement) with the application providing contact information for the law enforcement agency, asserting that the applicant was not involved in the alleged criminal activity, and reporting whether a claim relating to the potential criminal violation has been made under an ERISA section 412 fidelity bond. In light of that change, section 4(b) is re-named and re-designated as section 4(b)(1), “In general.” EBSA always retains the right to reject any VFC Program application based on its review of the criminal activity involved.

With regard to the ERISA fidelity bond, although a copy was originally required to be included with an application, the 2002 Program was modified to instead permit applicants to include information concerning the plan's ERISA fidelity bond. This informational requirement was eliminated in the 2006 Program. Although the informational requirement is not being added back to the Program under the VFC Program 2022 Amendments, EBSA emphasizes that these modifications focused merely on streamlining the application process and should not be misconstrued as eliminating or modifying the ERISA section 412 bonding requirements that protect plans against loss by reason of acts of fraud or dishonesty.
12

12

See
FAB 2008-04, (Nov. 25, 2008); 29 CFR 2550.412-1 (1975) and Part 2580 (1985).

As noted above, a plan is automatically ineligible to participate in the Program if it is considered “Under Investigation” by EBSA as defined in section 3(b)(3) of the Program. Over the past several years, EBSA has received Program applications from service providers to correct Breaches involving multiple plans. Some of these applications have involved hundreds, or even thousands, of plans, some of which are Under Investigation by EBSA. Consequently under the 2006 Program, such plans could not be included in any resulting no action letter. EBSA would like to be able to issue a no action letter to the service provider that covers all plans named in the application in certain circumstances. Accordingly, an exception is being added in section 4(d) to permit the submission of bulk applications by a single service provider when certain conditions are met. To qualify: (1) the application must cover at

least ten named plans and each plan must have participated in the transaction being corrected; (2) the applicant must be a service provider that is applying for relief only on its own behalf; (3) the applicant is currently or was providing services to each of the named plans at the time of the transaction being corrected; and (4) the service provider cannot be Under Investigation by EBSA and the corrective action cannot have been taken as a result of an EBSA investigation or review of any named plan. EBSA, of course, retains the right to determine whether the corrective action was taken as a result of any investigation, and to exclude any plan involved in the investigation from the no action letter. Also, section 6.1(d)(3) is being amended to permit a bulk applicant to provide for each named plan either the Annual Report Form 5500 filing information or the plan sponsor's nine-digit number (EIN). This procedural change will avoid undue delay while a service provider attempts to secure Annual Report Form 5500 filing information, which may not be directly related to the Breach. Section 6.1(g) is also being amended to permit a bulk applicant with knowledge of the transaction that is the subject of the application to sign and date the Penalty of Perjury Statement in which the applicant certifies that it is not Under Investigation by EBSA instead of requiring a signature from a plan fiduciary for each plan covered by the application.

(9) Miscellaneous Modifications

This document contains assorted other clarifying changes to update the Program, assist Program users and maintain consistency among provisions. For example, section 5(d) “Distributions” reflects the cessation of both the Internal Revenue Service (IRS) and Social Security Administration letter forwarding services for missing participants and now provides revised guidance on locating individuals who are owed supplemental distributions. Another example is sections 7.3(a)(3) and (b)(3). Those sections provide that only certain supporting documentation must be provided with the application. The words “unless otherwise requested by EBSA” have been added to confirm that EBSA may in individual cases request copies of other supporting documentation. Similarly, references to self-corrector, self-correction and the SCC notice have been added to various provisions where appropriate. Additionally, in sections 7.4(d) and (e) dealing with transactions at greater and less than fair market value respectively, the documentation requirement for the qualified, independent appraiser's report has been revised to correctly specify value rather than fair market value at the time of the transaction. In section 7.5 “Benefits,” concerning the distribution of overvalued plan assets in a defined contribution plan, the correction specifically requires the restoration to the plan of the amount that exceeded the paid distribution amount to which all affected participants were entitled under the terms of the plan, plus Lost Earnings as described in section 5(b) on the overpaid distributions.

C. Statement on Availability and Request for Comments

Although the Department is not required to seek public comments on an enforcement policy, the Department solicits comments from the public on the revisions to the VFC Program discussed in this document, including whether there are different ways in which the new transactions included in the Program could be corrected in accordance with the goals of the Program. Additionally, as the VFC Program includes information collections that are subject to the PRA, the Department seeks public comment below on the revisions to the information collections included in this amended and restated VFC Program. The Department will then seek approval of the revisions from OMB in accordance with procedures established by the PRA. A separate notice will be published in the
Federal Register
with a 30-day comment period when the Department submits the VFC Program to OMB seeking OMB's approval of the revised information collections. This amended and restated VFC Program, including the SC Component, will become available following OMB approval and the Department will announce the availability in a subsequent
Federal Register
Notice. Until such time, the existing VFC Program remains available.

The amendments to the associated class exemption, PTE 2002-51, are proposed so that its conditional relief also is not available until the amendments are published in final form; however, relief remains available under the conditions of the existing exemption. The Department expects that the availability of the amended and restated Program will encourage employers and fiduciaries, which otherwise might not do so, to correct Breaches and reimburse plan losses. Of course, implementation of this amended and restated Program does not foreclose resolution of fiduciary Breaches by other means, including entering into settlement agreements with the Department.

Comments may be submitted on any aspect of the VFC Program, including the amendments being announced in this document. The Department is particularly interested in comments on whether the Program should be further expanded in four respects.

First, EBSA has undertaken a nationwide compliance initiative to help retirement plans focus on practices to maintain complete and accurate census information, communicate with participants and beneficiaries about their eligibility for benefits, and implement effective policies and procedures to locate missing participants and beneficiaries. The Agency has a national enforcement project focused on these issues in defined benefit plans, has issued a compliance assistance release, and published a set of best practices that the fiduciaries of defined benefit and defined contribution plans, such as 401(k) plans, can follow to ensure that plan participants and beneficiaries receive promised benefits when they reach retirement age. The Department is interested in public comments on whether the VFC Program should include a transaction for correction of fiduciary breaches involved in such recordkeeping, communication, and benefit payment failures.

Second, the VFC Program contains a transaction for certain participant loans that fail to qualify for ERISA's statutory exemption for plan loan programs in ERISA section 408(b)(1). The covered transaction is for a loan the terms of which did not comply with plan provisions that incorporated requirements of section 72(p) of the Code. The VFC Program requires that the plan official voluntarily correct the loan with IRS approval under the Voluntary Correction Program of the IRS' Employee Plans Compliance Resolution System (EPCRS). The Department is interested in public comments on whether there are other circumstances in which the VFC Program could be integrated with corrections under EPCRS. For example, the IRS now allows participant loan transactions to be corrected under the Self-Correction Program component of EPCRS, but the VFC Program does not have a corollary self-correction component for participant loan transactions and requires that applicants correct participant loan transactions under the normal EPCRS procedures to be eligible for VFC Program correction under Title I of ERISA. Further, the latest updated version of EPCRS in Rev.

Proc. 2021-30 makes improvements to the program's rules for correcting benefit overpayments from defined benefit (DB) pension plans that give DB plan fiduciaries new options for correcting such overpayments and addressing inequities that may arise if the plan seeks to place a repayment burden on the participant. The Department has issued guidance that the hardship of a participant or beneficiary resulting from a recovery attempt, or the cost of collection efforts, may be such that it would be prudent for the plan not to seek recovery notwithstanding the fact that an overpayment of benefits to a participant or beneficiary may involve a fiduciary's failure to properly administer the plan in accordance with the terms of the plan's governing documents. See Advisory Opinions 77-07, 77-08, 77-32A, 77-33, 77-34. The Department is interested in comments on whether changes should be made to better integrate the VFC Program provisions on participant loan transactions with the IRS EPCRS and whether a transaction for correcting overpayments from DB pension plans should be added to the VFC Program that is integrated with correction of the overpayment under the IRS EPCRS.

Third, the Department is considering revising the program to either permit or require that VFC Program applications be submitted electronically. The Department is evaluating available alternative approaches to e-submission,
e.g.,
email versus an internet or web-based portal, but is particularly interested in comments on whether e-submission should be required and whether applicants or classes of applicants have issues or challenges with e-submission that the Department should consider ways to accommodate. The VFC Program application process is currently administered out of EBSA's Regional Offices. Some EBSA Regional Offices have email boxes that can be used for e-submission of VFC Program applications and supporting documents. As an interim step while EBSA considers a more uniform approach, text is being added to the VFC Program to encourage applicants to contact the relevant Regional Office about email submission options and format requirements,
e.g.,
penalty of perjury statements.

Fourth, on June 3, 2022, the IRS announced a pre-audit compliance pilot program for retirement plans. See Employee Plans News | Internal Revenue Service at
www.irs.gov/retirement-plans/employee-plans-news.
Under the program, the IRS will send a pre-audit letter to plan sponsors whose retirement plans have been selected for audit giving the plan sponsor a 90-day window to review the plan's documents and operations to determine if they meet current tax law requirements. If that review reveals mistakes, the plan sponsor may be able to self-correct or request a closing agreement, notify the IRS of correction actions taken and potentially avoid or limit the scope of the IRS examination. The goal is to reduce taxpayer burden and reduce the amount of time spent on retirement plan examinations. The IRS newsletter states that at the end of the pilot, the IRS intends to evaluate its effectiveness and determine if it should continue to be part of the IRS' overall compliance strategy. This is a change from the IRS' existing position that generally allows voluntary correction only until the IRS had identified the plan for audit. The VFC Program includes a similar principle under which persons are ineligible to use the VFC Program if they have received written or oral notice of an investigation, review, or examination by EBSA, IRS, and certain other governmental authorities. The Department is interested in comments on whether it should adopt a pre-audit program similar to the IRS pilot program, and if so, whether the “under investigation” provisions of the VFC Program should be revised to accommodate voluntary correction of covered transactions in connection with such a pre-audit program.

D. Regulatory Impact Analysis

The following is a discussion of the examination of the effects of this regulatory action as required by Executive Order 12866,
13

Executive Order 13563,
14

the Paperwork Reduction Act of 1995,
15

the Regulatory Flexibility Act,
16

section 202 of the Unfunded Mandates Reform Act of 1995,
17

Executive Order 13132,
18

and the Congressional Review Act.
19

13
Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).

14
Improving Regulation and Regulatory Review, 76 FR 3821 (Jan. 18, 2011).

15
44 U.S.C. 3506(c)(2)(A) (1995).

16
5 U.S.C. 601
et seq.
(1980).

17
2 U.S.C. 1501
et seq.
(1995).

18
Federalism, 64 FR 153 (Aug. 4, 1999).

19
5 U.S.C. 804(2) (1996).

Executive Orders 12866 and 13563

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing and streamlining rules, and of promoting flexibility.

Under Executive Order 12866, “significant” regulatory actions are subject to the requirements of the executive order and review by the Office of Management and Budget (OMB). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action that is likely to result in a rule (1) having an annual effect on the economy of $100 million or more, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as “economically significant”); (2) creating serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. For this purpose, a “rule” includes “an agency statement of general applicability and future effect . . . that is designed to implement, interpret, or prescribe . . . policy or to describe the procedure or practice requirements of an agency.”

OMB has determined that this action is significant under section 3(f)(4) because it raises novel legal or policy issues arising from the President's priorities. Accordingly, OMB has reviewed this action, and the Department has assessed the costs and benefits of its amended enforcement policy and related PTE proposal.

The VFC Program is designed to provide an efficient, cost-effective method for Plan Officials to correct a variety of ERISA fiduciary breaches and prohibited transactions and receive Departmental recognition of the correction. The Department expects that the amendments to the VFC Program will increase efficiency and accessibility for potential applicants and self-correctors. These changes, described further below, include in part, a new Self-Correction Component for delinquent participant contributions and loan repayments involving Lost Earnings less than or equal to $1,000, acceptance of bulk applications with modified requirements, and increased flexibility in the procedures for a variety of other transactions. These changes

also include proposed elimination from the exemption of a three-year limitation for VFC Program applicants that take advantage of the relief provided by the VFC Program and the exemption for a similar type of transaction.

All pension and welfare plans can utilize the VFC Program if they have a fiduciary breach for which there is an eligible transaction. Parties that are covered by section 4975 of the Code can rely on the related class exemption for excise tax relief for transactions identified in the exemption that are corrected under the VFC Program. In 2019 there were 686,809 defined contribution plans and 46,870 defined benefit plans that would be impacted by these changes.
20

In 2021 there were 2,468,363 health plans
21

and 673,000 other welfare benefit plans that would also be impacted by these changes.
22

20
Employee Benefits Security Administration. “Private Pension Plan Bulletin: Abstract of 2019 Form 5500 Annual Reports.” (September 2021).

21
U.S. Department of Labor, EBSA calculations using the 2021 Medical Expenditure Panel Survey, Insurance Component (MEPS-IC), the Form 5500 and 2019 Census County Business Patterns.

22
U.S. Department of Labor, EBSA calculations using non-health welfare plan Form 5500 filings and projecting non-filers using estimates based on the non-filing health universe.

An average of 1,429 applicants per year used the VFC Program from 2018 to 2020. Since the Department does not have data on the Self-Correction Component, as it is new, the Department assumes that 74 percent of VFC Program applicants will move to the Self-Correction Component.
23

The Department projects that the changes to the VFC Program will result in two new Program users filing bulk applications, 367 Program users filing non-bulk applications,
24

1,072 plans using the new Self-Correction Component,
25

for a total of 1,441 users of the program and PTE.
26

23
The Department estimates that the Self-Correction Component will streamline the process for the 74 percent of small and large VFC Program applicants involving lost earnings less than or equal to $1,000.

24
1,429 applicants × (100% minus 74.3%) = 367 non-bulk applicants.

25
The estimate includes a one percent increase in the number of self-corrections, resulting from the removal of the three-year limitation provision for self-correctors. (1,429 applicants × 74.3% × 1.01 = 1,072.)

26
1,072 self-correctors + 2 bulk applicants + 367 non-bulk applicants = 1,441 Program Users.

The Department believes that the benefits of the amended VFC Program and related PTE justify its costs. Because participation is voluntary, the VFC Program imposes no costs unless Plan Officials choose to avail themselves of the opportunity to correct a potential fiduciary breach under the terms of the VFC Program. The Department expects that the revised VFC Program will be easier and more useful for potential applicants. The greater efficiency and accessibility that will result from the availability of a Self-Correction Component for delinquent participant contributions, and other expansions and clarifying modifications of the Program, are expected to make the Program easier to use, to lessen the cost of participation in many instances, and to increase efficiency for both applicants and reviewers.

The VFC Program has been very successful to date in encouraging and facilitating the correction of violations. The Department anticipates that the revised VFC Program will encourage Plan Officials, who otherwise might not do so, to correct violations and reimburse plan losses. The Department is unable to predict with certainty either the reduction in application costs that will arise from the revisions to the Program, or the potential increase in participation that will be associated with these revisions. However, these changes to the VFC Program will reduce associated costs by reducing the number of hours required to make corrections and file applications. Compared with the existing VFC Program, the Department expects the amended Program's per-user costs to be lower because the amendments could move 74 percent of VFC Program applications to the Self-Correction Component.
27

Moreover, implementing the Self-Correction Component will reduce the recordkeeping and reporting cost for Plan Officials with small amounts of delinquent participant contributions and loan repayments, because they no longer will have to submit an application to the Department with extensive supporting documentation, but merely submit a self-correction notice with minimal data to the Department and provide corroborating documentation to the plan administrator. This Self-Correction Component provides additional flexibility to Plan Officials. The Department is also providing additional flexibility by proposing to eliminate the three-year limitation in the PTE. The Department estimates that the total cost savings associated with the Self-Correction Component is $206,550.
28

27
The Department estimates that the Self-Correction Component will streamline the process for 74 percent of small and large VFC cases involving lost earnings less than or equal to $1,000.

28
The Department estimates that the quantified cost of the VFC Program before the addition of the Self-Correction Component would have been $794,724. The Department estimates that the quantified cost of the VFC Program with the Self-Correction Component is $588,174. Thus, the Department estimates that total cost savings associated with the Self-Correction Component is $206,550 ($794,724−$588,174).

Plans or their service providers will need to familiarize themselves with the changes to the VFC Program and amendments to the PTE. Service providers can help multiple plans in a year or across years, so although it could take a service provider multiple hours to review the amended requirements the actual burden impact on an individual plan would be less. With an hourly rate for the in-house compensation and benefits manager of $124.75 per hour,
29

the Department estimates that the total cost burden for compensation and benefit managers to become familiar with the changes to the VFC Program and amended PTE will be $359,530.
30

29
Internal DOL calculation based on 2021 labor cost data. For a description of the Department's methodology for calculating labor rates, see:
https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.

30
1,441 users × 2 hours × $124.75 = $359,530.

Overall, the Department estimates that the costs of the VFC Program and the associated class exemption, in their amended forms, would total approximately $1,359,006 ($1,289,305 in annual equivalent costs reflecting the monetized cost of the work performed by in-house personnel and outside service providers and $69,701 in annual cost burden reflecting the cost of materials and postage). These costs are quantified and discussed in more detail in the Paperwork Reduction Act section, below. This total represents a cost savings due to the new Self-Correction Component.

Benefits for Plan Officials who are granted relief under the VFC Program include elimination of risks arising from an otherwise uncorrected fiduciary breach, as well as savings of resources that otherwise might have been needed to defend against a civil action by the Department based on the breach. An additional and significant benefit of the VFC Program accrues to participants and beneficiaries through the correction of fiduciary breaches and the restoration to the plan of amounts representing losses or improperly generated profits arising from impermissible transactions, resulting in greater security of plan assets and future benefits. The changes to the VFC Program will allow Plan Officials to obtain the above benefits at a reduced cost. The Department hopes that this cost reduction may encourage other Plan Officials to correct previously undetected and unreported fiduciary breaches, which would enhance the retirement income security of participants and beneficiaries; however,

it has no data to reliably predict the extent of the increased usage. The Department will continue to actively monitor the use of the VFC Program in order to better evaluate its benefits and costs.

Regulatory Flexibility Analysis

The Regulatory Flexibility Act (RFA)
31

imposes certain requirements with respect to federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act, or any other law, and are likely to have a significant economic impact on a substantial number of small entities.
32

Unless the head of an agency certifies that a proposed rule will not have a significant economic impact on a substantial number of small entities, section 603 of the RFA requires the agency to prepare and make available for public comment an initial regulatory flexibility analysis of the proposed rule.
33

31
5 U.S.C. 601
et seq.
(1980).

32
5 U.S.C. 551
et seq.
(1946).

33
5 U.S.C. 604 (1980).

This document describes an enforcement policy of the Department that is not being issued as a general notice of proposed rulemaking. Therefore, the RFA does not apply. However, the Department is also issuing a proposed amendment to a class exemption (PTE 2002-51) to which the Regulatory Flexibility Act does apply. The Department certifies that the amendments to PTE 2002-51 will not have a significant economic impact on a substantial number of small entities. However, EBSA considered the potential costs and benefits of this action for small pension plans and the Plan Officials in developing the proposed amendment to the class exemption and believes that its greater simplicity and accessibility would make the Program more useful to small employers who wish to avail themselves of the relief offered under the exemption. Below is the factual basis for the certification.

As mentioned previously, all pension and welfare plans can utilize the VFC Program with the related PTE if they have a fiduciary breach for which there is an eligible transaction. In 2019 there were 600,165 small defined contribution plans and 39,586 small defined benefit plans and plan officials that would be impacted by these changes.
34

In 2021 there were 2,386,024 small health plans that would also be impacted by these changes.
35

Currently 1,429 plan fiduciaries make use of the VFC Program in a given year and the Department projects a small increase to 1,441 fiduciaries making use of the VFC Program in a given year. An estimated 1,072 plans will utilize the new Self-Correction Component in a given year.

34
Employee Benefits Security Administration. “Private Pension Plan Bulletin: Abstract of 2019 Form 5500 Annual Reports.” (September 2021).

35
U.S. Department of Labor, EBSA calculations using the 2021 Medical Expenditure Panel Survey, Insurance Component (MEPS-IC), the Form 5500 and 2019 Census County Business Patterns.

The Department is proposing to amend the related PTE so that excise tax relief will be available for transactions that are corrected under the Self-Correction Component. The Department is also proposing to amend the PTE to eliminate the three-year limitation. Thus, all plans eligible to use the VFC Program would be eligible to use the PTE more than just once every three years. However, the Department estimates that, of the total number of pension and welfare plans significantly less than one percent will use the PTE in a given year.
36

36
In 2019, there were 733,678 pension plans. (
Source:
Employee Benefits Security Administration. “Private Pension Plan Bulletin: Abstract of 2019 Form 5500 Annual Reports.” (September 2021).) In 2021, there were 673,000 welfare benefit plans. (
Source:
U.S. Department of Labor, EBSA calculations using non-health welfare plan Form 5500 filings and projecting non-filers using estimates based on the non-filing health universe.) Thus, 0.08% of all pension and welfare plans will use the PTE in a given year. (1,072 plans/(733,678 plans + 673,000 welfare benefit plans) = 0.08%.)

The proposed amended PTE would provide excise tax relief for self-correctors if they pay the amount of the excise tax owed to the plan. The Self-Correction Component can only be used in situations where the size of lost earnings is $1,000 or less. Section 4975(a) imposes an excise tax on each prohibited transaction equal to 15 percent of the amount involved with respect to the prohibited transaction for each year (or part thereof) in the taxable period. Therefore, the maximum excise tax owed for each year would generally not exceed $150.
37

37
Under Reorganization Plan No. 4 of 1978, supra n. 1, the Secretary of the Treasury retains interpretive authority over Code sections 4975(a) and (b).

Plans or their service providers will need to familiarize themselves with the amendments to the PTE. Service providers can help multiple plans in a year or across years, so although it could take a service provider multiple hours to review the amended requirements the actual burden impact on an individual plan would be less. The Department estimates that all 1,072 self-correctors will use the new provisions of the amended class exemption.
38

The per-plan cost for rule familiarization would be $125.
39

38
Internal DOL calculation based on 2021 labor cost data. For a description of the Department's methodology for calculating labor rates, see:
https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.

39
With an hourly rate for the in-house compensation and benefits manager of $124.75 per hour and one hour of burden allocated to a plan the burden be plan would be $125 (rounded).

For plans with the maximum lost earnings of $1,000 and an excise tax of 15 percent the maximum excise tax in each year would generally not exceed $150. Including the cost of rule familiarization of $125, the total expense could be $275 in a year. Based on the foregoing, the Department hereby certifies that these proposed amendments will not have a significant economic impact on a substantial number of small entities. Therefore, the Department has not prepared an Initial Regulatory Flexibility Analysis.

Paperwork Reduction Act

As part of its continuing effort to reduce paperwork and respondent burden, the Department conducts a preclearance consultation program to provide the general public and federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed.

The ICRs in the VFC Program and PTE 2002-51 are currently approved under OMB Control Number 1210-0118. A copy of the ICRs may be obtained by contacting the office listed in the Addresses section below.

The Department is seeking comment the revisions to the information collections in the enforcement policy and proposed amendments to PTE 2002-51. The Department is particularly interested in comments that:

• Evaluate whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

• Evaluate the accuracy of the agency's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used;

• Enhance the quality, utility, and clarity of the information to be collected; and

• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
e.g.,
permitting electronic submission of responses.

Dates:
Written comments must be submitted to the office shown in the Addresses section on or before January 20, 2023.

Addresses:
Comments should be sent to James Butikofer, Office of Research and Analysis, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue NW, Room N-5718, Washington, DC 20210 or email:
ebsa.opr@dol.gov.

The amended VFC Program, described above, includes a Self-Correction Component for delinquent participant contributions and loan repayments to pension plans involving Lost Earnings less than or equal to $1,000, streamlined requirements for bulk applications, and it expands and modifies transactions that are currently eligible for the VFC Program. The Self-Correction Component permits applicants to self-correct, and then provide EBSA with a notice of the self-correction through the online VFC Program web tool. Service providers are able to submit bulk applications to the VFC Program, under the existing terms and requirements of the Program, with some easing of the eligibility and information requirements. Under the new bulk applicant provisions, the bulk applicant will receive a no action letter providing relief only to the service provider correcting transactions involving each of the plans named in the application.

An average of 1,429 applicants per year used the VFC Program from 2018 to 2020. Since the Department does not have data on the Self-Correction Component, as it is new, the Department assumes that 74 percent of VFC Program applicants will move to the Self-Correction Component.
40

The Department projects that the changes to the VFC Program will result in two new Program users filing bulk applications, 367 Program users filing non-bulk applications,
41

1,072 plans using the new Self-Correction Component,
42

for a total of 1,441 users of the program and PTE.
43

40
The Department estimates that the Self-Correction Component will streamline the process for the 74 percent of small and large VFC Program applicants involving lost earnings less than or equal to $1,000.

41
1,429 applicants × (100% minus 74.3%) = 367 non-bulk applicants.

42
The estimate includes a one percent increase in the number of self-corrections, resulting from the removal of the three-year limitation provision for self-correctors. (1,429 applicants × 74.3% × 1.01 = 1,072.)

43
1,072 self-correctors + 2 bulk applicants + 367 non-bulk applicants = 1,441 Program Users.

In addition to the VFC Program, the Department is publishing a proposed amendment to the associated class exemption PTE 2002-51, which applies only to qualifying applicants and self-correctors participating in the VFC Program. The exemption is currently unavailable to VFC Program applicants that have, within the previous three years, taken advantage of the relief provided by the VFC Program and the exemption for a similar type of transaction. The Department is proposing to eliminate the three-year limitation. The three-year provision was initially included in the exemption to prevent parties from becoming lax in complying with fiduciary and other ERISA duties because of the availability of the exemption. Based on the Department's experience with the VFC Program and the exemption, the Department concluded that the risk of such behavior is low.

The overall paperwork burden for the amended VFC Program and the amended PTE 2002-51 is provided below.

VFC Program

For the VFC Program, the Department estimates that Plan Officials will devote 2.5 hours of clerical staff gathering paperwork, one hour of a compensation and benefits manager calculating Lost Earnings, and one hour of clerical staff engaging in recordkeeping activities for each non-bulk application or self-correction. The Department estimates that for each bulk application, Plan Officials will devote 25 hours of clerical staff gathering paperwork, 10 hours of a compensation and benefits manager calculating Lost Earnings, and 10 hours of clerical staff engaging in recordkeeping activities. Therefore, total burden hours for Plan Officials will equal approximately 6,566 hours.
44

With an hourly rate for the in-house compensation and benefits manager of $124.75 per hour
45

and an hourly rate for in-house clerical staff of $58.66 per hour,
46

this results in an equivalent cost of approximately $481,558.
47

44
[((1,072 self-correctors) + 367 non-bulk applicants) × (2.5 hours of gathering paperwork + 1 hour of calculating Lost Earnings + 1 hour of recordkeeping)] + [2 bulk applicants × (25 hours of gathering paperwork + 10 hours of calculating Lost Earnings + 10 hours of recordkeeping)] = 6,566 hours.

45
Internal DOL calculation based on 2021 labor cost data. For a description of the Department's methodology for calculating labor rates, see:
https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.

46

Ibid.

47
[((1,072 self-correctors) + 367 non-bulk applicants) × (2.5 hours of gathering paperwork × $58.66 + 1 hour of calculating Lost Earnings × $124.75 + 1 hour of recordkeeping × $58.66)] + [2 bulk applicants × (25 hours of gathering paperwork × $58.66 + 10 hours of calculating Lost Earnings × $124.75 + 10 hours of recordkeeping × $58.66)] = $481,558.

The Department estimates that external service providers will spend about 10 minutes completing and submitting the online Self-Correction Component notice, 20 hours completing and submitting bulk applications, and two hours completing and submitting all other applications.
48

Therefore, total hour burden for external service providers will be 952 hours.
49

With a rate of $108.04 per hour for an accounting professional,
50

the hour burden is equivalent to approximately $102,926.
51

48
It should be noted that the required checklist for applications filed with the Department under the Program appears twice within the Appendices to the Program. While it is required to be submitted only once, it is included as the separate Appendix B for applicants who do not choose to use the model application in Appendix E, and separately as the final item in the model application for ease of use for those who do choose to use the model application.

49
(1,072 self-correctors 10 minutes) + (367 non-bulk application × 2 hours) + (2 bulk application × 20 hours) = 952 hours.

50
Internal DOL calculation based on 2021 labor cost data. For a description of the Department's methodology for calculating labor rates, see:
https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.

51
(1,072 self-correctors × 10 minutes × $108.04) + (367 non-bulk application × 2 hours × $108.04) + (2 bulk application × 20 hours × $108.04) = $102,926.

Factoring in mailing costs of $10 per application for all applications except those under the Self-Correction Component, the total cost burden for applicants will be approximately $3,690.
52

52
(367 non-bulk applications + 2 bulk applications) × $10 materials and postage per application = $3690.

The total hour burden associated with the VFC Program will be 7,518 hours with an equivalent cost of $584,484. The total cost burden associated with the VFC Program will be $3,690.

VFCP Class Exemption (PTE 2002-51)

The Department estimates that all 1,072 self-correctors and 286 of the VFC Program applicants will use the amended class exemption. The Department has determined that service

providers will prepare the documentation required by the exemption at a cost of $108.04 per hour, which will require approximately one hour for completion and delivery. The hour burden associated with the exemption therefore is 1,358 hours with an equivalent cost of $146,718.
53

53
1 hour × 1,358 users = 1,358 hours; 1 hour × 1,358 users × $108.04 per hour × = $146,718.

Of the 286 VFC Program applicants using the exemption, 167 VFC Program applicants are required to send notices to their participants and beneficiaries.
54

Mailing notices to these 167 VFC Program applicants' estimated 242,956 participants and beneficiaries will result in a cost burden of $66,011
55

and a hour burden of 3,385 hours
56

and an equivalent cost of $198,574.

54
The 1,072 self-correctors that meet the requirements of section IV D. of the exemption and 167 VFC Program applicants for whom a small amount of excise taxes otherwise would be imposed and that meet the requirement of section IV C. of the exemption are not required to provide the notice.

55
For materials and postage for paper notices. 242,956 notices × 41.8% paper notices × ($0.65 per paper notice)] = $66,011. Electronic notices will be distributed at de minimis cost.

56
For labor costs for paper notices. 242,956 notices × 41.8% paper notices × 2 minutes = 3,385; 242,956 notices × 41.8% paper notices × 2 minutes × $58.66 = $198,574. Electronic notices will be distributed at de minimis cost.

The total hour burden associated with the VFCP exemption will be 4,743 hours with an equivalent cost of $345,292. The total cost burden associated with the VFCP exemption will be $66,011.

Summary

The total aggregate annual hour burden for the information collection arising from the VFC Program and the exemption is estimated at 12,261 hours with an equivalent cost of $929,776 (7,518 hours with an equivalent cost of $584,484 for the VFC Program, 4,743 hours with an equivalent cost of $345,292 for VFCP exemption).

The total aggregate annual cost burden for the information collection arising from the VFC Program and the exemption is estimated at $69,701 ($3,690 for the VFC Program and $66,011 for VFCP exemption).

In summary, the categories in the table below encompass the numbers for both the VFC Program and the amended class exemption:

Type of Review:
Revision of currently approved collection of information.

Agency:
Department of Labor, Employee Benefits Security Administration.

Title:
Voluntary Fiduciary Correction Program.

OMB Number:
1210-0118.

Affected Public:
Individuals or households; Business or other for-profit; Not-for-profit institutions.

Respondents:
1,442.

Frequency of Response:
On occasion.

Responses:
244,397.

Estimated Total Burden Hours:
12,261.

Total Annual Cost (Operating and Maintenance):
$69,701.

Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval of the information collection request; they will also become a matter of public record. The Department notes that persons are not required to respond to the revised information collection unless it displays a currently valid OMB control number.

Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), as well as Executive Order 12875, this action does not include any Federal mandate that may result in expenditures by State, local, or tribal governments in the aggregate of more than $100 million, adjusted for inflation, or increase expenditures by the private sector of more than $100 million, adjusted for inflation.

Federalism Statement

Executive Order 13132 (August 4, 1999) outlines fundamental principles of federalism and requires the adherence to specific criteria by Federal agencies in the process of their formulation and implementation of policies that have “substantial direct effects” on the States, the relationship between the national government and States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have federalism implications must consult with State and local officials and describe the extent of their consultation and the nature of the concerns of State and local officials. This action does not have federalism implications because it has no substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Section 514 of ERISA provides, with certain exceptions specifically enumerated, that the provisions of Titles I and IV of ERISA supersede any and all laws of the States as they relate to any employee benefit plan covered under ERISA. The amendments of the VFC Program in this document do not alter the fundamental provisions of the statute with respect to employee benefit plans, and as such would have no implications for the States or the relationship or distribution of power between the national government and the States.

Authority:

Secretary of Labor's Order 1-2011, 77 FR 1088 (January 9, 2012). 29 U.S.C. 1132(a)(2) and (a)(5), 1136(b).

Voluntary Fiduciary Correction Program

Section 1. Purpose and Overview of the VFC Program

Section 2. Effect of the VFC Program

Section 3. Definitions

Section 4. VFC Program Eligibility

Section 5. General Rules for Acceptable Corrections

(a) Fair Market Determinations

(b) Correction Amount

(c) Costs of Correction

(d) Distributions

(e)
De Minimis
Exception

Section 6. VFC Program Application and Self-Correction Component Procedures

6.1 VFC Program Application Procedures

6.2 VFC Program Self-Correction Component Procedures

Section 7. Description of Eligible Transactions and Corrections Under the VFC Program

7.1 Delinquent Remittance of Funds

(a) Delinquent Participant Contributions and Loan Repayments to Pension Plans Under VFC Program Applications

(b) Delinquent Participant Contributions and Loan Repayments to Pension Plans Under the Self-Correction Component

(c) Delinquent Participant Contributions to Insured Welfare Plans

(d) Delinquent Participant Contributions to Welfare Plan Trusts

7.2 Loans

(a) Loan at Fair Market Interest Rate to a Party in Interest With Respect to the Plan

(b) Loan at Below-Market Interest Rate to a Party in Interest With Respect to the Plan

(c) Loan at Below-Market Interest Rate to a Person Who is Not a Party in Interest With Respect to the Plan

(d) Loan at Below-Market Interest Rate Solely Due to a Delay in Perfecting the Plan's Security Interest

7.3 Participant Loans

(a) Loans Failing to Comply With Plan Provisions for Amount, Duration, or Level Amortization

(b) Default Loans

7.4 Purchases, Sales and Exchanges

(a) Purchase of an Asset (Including Real Property) by a Plan From a

Party in Interest

(b) Sale of an Asset (Including Real Property) by a Plan to a Party in Interest

(c) Sale and Leaseback of Real Property to Employer

(d) Purchase of an Asset (Including Real Property) by a Plan From a Person Who is Not a Party in Interest With Respect to the Plan at a Price More Than Fair Market Value

(e) Sale of an Asset (Including Real Property) by a Plan to a Person Who is Not a Party in Interest With Respect to the Plan at a Price Less Than Fair Market Value

(f) Holding of an Illiquid Asset Previously Purchased by a Plan

7.5 Benefits

(a) Payment of Benefits Without Properly Valuing Plan Assets on Which Payment is Based

7.6 Plan Expenses

(a) Duplicative, Excessive, or Unnecessary Compensation Paid by a Plan

(b) Expenses Improperly Paid by a Plan

(c) Payment of Dual Compensation to a Plan Fiduciary

Appendix A. Sample VFC Program No Action Letter

Appendix B. VFC Program Application Checklist (Required)

Appendix C. List of EBSA Regional Offices

Appendix D. Lost Earnings Example

Appendix E. Model Application Form (Optional)

Appendix F. SCC Retention Record Checklist (Required)

Section 1. Purpose and Overview of the VFC Program

The purpose of the Voluntary Fiduciary Correction Program (VFC Program or Program), including its Self-Correction Component (SC Component or SCC), is to protect the financial security of workers by encouraging identification and correction of transactions that violate or may violate Part 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Part 4 of Title I of ERISA sets out the responsibilities of employee benefit plan fiduciaries. Section 409 of ERISA provides that a fiduciary who breaches any of these responsibilities shall be personally liable to make good to the plan any losses to the plan resulting from each breach and to restore to the plan any profits the fiduciary made through the use of the plan's assets. Section 405 of ERISA provides that a fiduciary may be liable, under certain circumstances, for a breach of fiduciary responsibility by a co-fiduciary. In addition, under certain circumstances, there may be liability for knowing participation in a fiduciary breach. In order to assist all affected persons in understanding the requirements of ERISA and meeting their legal responsibilities, the Employee Benefits Security Administration (EBSA) is providing guidance on what constitutes adequate correction under Title I of ERISA for the Breaches described in this Program.

Section 2. Effect of the VFC Program

(a)(1)
Effect of a no action letter.
EBSA generally will issue to the applicant a no action letter
57

with respect to a Breach identified in the Program application if the eligibility requirements of section 4 are satisfied and a Plan Official corrects a Breach, as defined in section 3, in accordance with the requirements of sections 5, 6 and 7. Pursuant to the no action letter it issues, EBSA will not initiate a civil investigation under Title I of ERISA regarding the applicant's responsibility for any transaction described in the no action letter, or assess civil penalties under either section 502(l) or 502(i) of ERISA on the correction amount paid to the plan or its participants.

57

See
Appendix A.

(2)
Effect of correction under the SCC.
EBSA will not issue a no action letter to a self-corrector under the Self-Correction Component of the Program. A self-corrector will receive an acknowledgment and summary of the SCC notice submission by email. If the self-corrector satisfies the eligibility requirements of section 4 and corrects a Breach, as defined in section 3, in accordance with the requirements of sections 5, 6 and 7, EBSA will not initiate a civil investigation under Title I of ERISA regarding the self-corrector's responsibility for the Breach identified in the SCC notice or assess civil penalties under section 502(l) or 502(i) of ERISA on the correction amount paid to the plan or its participants.

(b)
Verification.
EBSA reserves the right to conduct an investigation at any time to determine (1) the truthfulness and completeness of the factual statements set forth in the Program application or the SCC notice and (2) that the corrective action was, in fact, taken.

(c)
Limits on the effect of a no action letter under the VFC Program.
(1)
In general.
Any no action letter issued under the VFC Program is limited to the Breach and applicants identified therein. Moreover, the method of calculating the correction amount described in this Program is only intended to correct the specific Breach described in the application. Methods of calculating losses other than, or in addition to, those set forth in the Program may be more appropriate, depending on the facts and circumstances, if the transaction violates provisions of ERISA other than those that can be corrected under the Program. If a transaction gave rise to Breaches not specifically described in the Program, the relief afforded by the Program would not extend to such additional Breaches.

(2)
No implied approval of other matters.
A no action letter does not imply Departmental approval of matters not included therein, including steps that the fiduciaries take to prevent recurrence of the Breach described in the application and to ensure the plan's future compliance with Title I of ERISA.

(3)
Material misrepresentation.
Any no action letter issued under the VFC Program is conditioned on the truthfulness, completeness and accuracy of the statements made in the application and of any subsequent oral and written statements or submissions. Any material misrepresentations or omissions will void the no action letter, retroactive to the date that the letter was issued by EBSA, with respect to the transaction that was materially misrepresented.

(4)
Applicant fails to satisfy terms of the VFC Program.
If an application fails to satisfy the terms of the VFC Program, as determined by EBSA, EBSA reserves the right to investigate and take any other action with respect to the transaction and/or plan that is the subject of the application, including issuing a rejection letter.

(5)
Criminal investigations not precluded.
Participation in the VFC Program will not preclude:

(i) EBSA or any other governmental agency from conducting a criminal investigation of the transaction identified in the application;

(ii) EBSA's assistance to such other agency; or

(iii) EBSA from making the appropriate referrals of criminal violations as required by section 506(b) of ERISA.
58

58
Section 506(b) provides that the Secretary of Labor shall have the responsibility and authority to detect and investigate and refer, where appropriate, civil and criminal violations related to the provisions of Title I of ERISA and other related Federal laws, including the detection, investigation, and appropriate referrals of related violations of Title 18 of the United States Code.

(6)
Other actions not precluded.
Compliance with the terms of the VFC Program will not preclude EBSA from taking any of the following actions:

(i) Seeking removal from positions of responsibility with respect to a plan or other non-monetary injunctive relief against any person responsible for the transaction at issue;

(ii) Referring information regarding the transaction to the Internal Revenue Service as required by section 3003(c) of ERISA;
59

or

59
Section 3003(c) provides that, whenever the Secretary of Labor obtains information indicating that a party in interest or disqualified person is violating section 406 of ERISA, the Secretary shall transmit such information to the Secretary of the Treasury.

(iii) Imposing civil penalties under section 502(c)(2) of ERISA based on the failure or refusal to file a timely, complete and accurate Annual Report Form 5500. Applicants should be aware that amended annual report filings may be required if possible Breaches of ERISA have been identified, or if action is taken to correct possible Breaches in accordance with the VFC Program.

(7)
Not binding on others.
The issuance of a no action letter does not affect the ability of any other government agency, or any other person, to enforce any rights or carry out any authority they may have, with respect to matters described in the no action letter.

(8)
Example.
A plan fiduciary causes the plan to purchase real estate from the plan sponsor under circumstances to which no prohibited transaction exemption applies. In connection with this transaction, the purchase causes the plan assets to be no longer diversified, in violation of ERISA section 404(a)(1)(C). If the application reflects full compliance with the requirements of the Program, the Department's no action letter would apply to the violation of ERISA section 406(a)(1)(A) but would not apply to the violation of section 404(a)(1)(C).

(d)
Limits on the effect of self-correction under the SCC. (1) In general.
Any relief afforded by a self-correction under the SCC is limited to the Breaches described in section 7.1(b) of the Program and to the Plan Officials who complete the Penalty of Perjury Statement in accordance with section 6.2(e). If a transaction gives rise to Breaches not specifically described in section 7.1(b) of the Program, the relief afforded by the SCC will not extend to such additional Breaches.

(2)
Self-corrector fails to satisfy the terms of the SCC.
If a self-corrector fails to satisfy the terms of the SCC, as determined by EBSA, EBSA reserves the right to investigate and take any other action with respect to the transaction and/or plan that is the subject of the self-correction.

(3)
Criminal investigations not precluded.
Participation in the SCC will not preclude:

(i) EBSA or any other governmental agency from conducting a criminal investigation of the transactions identified in section 7.1(b) of the Program;

(ii) EBSA's assistance to such other agency; or

(iii) EBSA from making the appropriate referrals of criminal violations as required by section 506(b) of ERISA.
60

60

See supra
note 58.

(4)
Other actions not precluded.
Compliance with the terms of the SCC will not preclude EBSA from taking any of the following actions:

(i) Seeking removal from positions of responsibility with respect to a plan or other non-monetary injunctive relief against any person responsible for the transaction at issue; or

(ii) Imposing civil penalties under section 502(c)(2) of ERISA based on the failure or refusal to file a timely, complete and accurate Annual Report Form 5500. Self-correctors should be aware that amended annual report filings may be required if action is taken to correct a Breach in accordance with submitting an SCC notice.

(5)
Not binding on others.
Compliance with the SCC does not affect the ability of any other government agency, or any other person, to enforce any rights or carry out any authority they may have regarding the Breach corrected under the SCC.

Example.
The plan sponsor withheld monies from employees' paychecks, which were to be contributed, in part, to both a 401(k) plan and an insured health benefit plan. The plan sponsor did not remit the funds to either plan until four months after the Date of Withholding or Receipt. The plan sponsor corrects both Breaches and pays the appropriate Lost Earnings amount to each of the plans. The plan sponsor properly completes and submits an SCC notice to EBSA identifying the transaction involving the 401(k) plan. Assuming all conditions of the SCC have been met, relief under the Program is provided to the plan sponsor as the self-corrector for the delinquent participant contributions to the 401(k) plan, but not for the delinquent participant contributions to the insured health benefit plan. However, the plan sponsor may submit an application to correct the Breach involving the insured health benefit plan contributions under section 7.1(c) of the Program.

(e)
Correction.
The correction criteria listed in the VFC Program represent EBSA enforcement policy with respect to both applications under the Program and use of the SC Component, and are provided for informational purposes to the public, but are not intended to confer enforceable rights on any person who purports to correct a Breach. Applicants and self-correctors are advised that the term “correction” as used in the VFC Program is not necessarily the same as “correction” pursuant to section 4975 of the Internal Revenue Code (Code).
61

Correction may not be achieved under the Program by engaging in a prohibited transaction that is not subject to a prohibited transaction administrative exemption.

61

See
section 4975(f)(5) of the Code; section 141.4975-13 of the temporary Treasury Regulations and section 53.4941(e)-1(c) of the Treasury Regulations. The federal tax treatment of a violation and correction under the VFC Program (including the federal income and employment tax consequences to participants, beneficiaries, and plan sponsors) are determined under the Code. The IRS has indicated that, unless and until the Department of the Treasury and the IRS issue further guidance, except in those instances where the fiduciary breach or its correction involve a tax abuse, a correction under the VFC Program for a breach that constitutes a prohibited transaction under section 4975 of the Code generally will be treated as correction for purposes of section 4975. Also, a correction under the VFC Program for a breach that also constitutes an operational plan qualification failure generally will be treated as correction for purposes of the IRS' EPCRS.

(f)
EBSA's authority to investigate.
EBSA reserves the right to conduct an investigation and take any other enforcement action relating to the transaction identified in a VFC Program application or SCC notice in certain circumstances, such as prejudice to the Department that may be caused by the expiration of the statute of limitations period, material misrepresentations or omissions, other abuses of the VFC Program, or significant harm to the plan or its participants that is not cured by the correction provided under the VFC Program. EBSA may also conduct a civil investigation and take any other enforcement action relating to matters not covered by the VFC Program application or SCC notice, or relating to other plans sponsored by the same plan sponsor, while a VFC Program application involving the plan or the plan sponsor is pending.

(g)
Confidentiality.
EBSA will maintain the confidentiality of any documents submitted under the VFC Program, to the extent permitted by law. However, as noted in paragraphs (c)(5) and (6) and (d)(3) and (4) of this section, EBSA has an obligation to make referrals to the IRS and to refer to other agencies evidence of criminality and other information for law enforcement purposes.

Section 3. Definitions

(a) The terms used in this document have the same meaning as provided in section 3 of ERISA, 29 U.S.C. 1002, unless separately defined herein.

(b) The following definitions apply for purposes of the VFC Program:

(1)
Breach.
The term “Breach” means any transaction that is or may be a violation of the fiduciary responsibility provisions contained in Part 4 of Title I of ERISA.

(2)
Plan Official.
The term “Plan Official” means a plan fiduciary, plan sponsor, party in interest with respect to a plan, or other person who is in a position to correct a Breach by filing an application or submitting a self-correction notice in accordance with the VFC Program's requirements.

(3)
Under Investigation.
For purposes of section 4(a), a plan, potential applicant or self-corrector shall be considered to be “Under Investigation” if any investigation, review or examination described in (i), (ii), (iii), (iv) or (v) of this section 3 exists, and the plan, a Plan Official, or any authorized plan representative has received a written or oral notice of the investigation, review or examination.

(i) EBSA is conducting an investigation or review of the plan;

(ii) EBSA is conducting an investigation of the potential applicant, self-corrector or plan sponsor in connection with an act or transaction directly related to the plan;

(iii) any governmental agency is conducting a criminal investigation of the plan, or of the potential applicant, self-corrector or plan sponsor in connection with an act or transaction directly related to the plan;

(iv) the IRS is conducting an Employee Plans examination of the plan; or

(v) Other than investigations identified in sections 3(b)(3)(i), (ii), (iii), or (iv), the Pension Benefit Guaranty Corporation (PBGC), any state attorney general, any federal governmental agency, or any state insurance commissioner is conducting an investigation or examination of the plan, or of the applicant, self-corrector or plan sponsor in connection with an act or transaction directly related to the plan, unless in the case of a VFC Program application, the applicant notifies EBSA, in writing, of such an investigation or examination at the time of the application.

An applicant notifying EBSA of an investigation or examination under section 3(b)(3)(v) must submit the name of the examining agency and a contact person at such agency. Upon receipt of an application including such information, EBSA will promptly notify the investigating agency in writing of the VFC Program application. EBSA's notice will afford the examining agency an opportunity to provide EBSA with information relevant to the investigation or examination. In response to the information received from the investigating agency, EBSA, in its sole discretion, may decline to issue a no action letter to the applicant. For purposes of section 4(a), a plan shall not be considered to be “Under Investigation” merely because EBSA staff has contacted the plan, the applicant, the self-corrector or the plan sponsor in connection with a participant complaint, unless the participant complaint concerns the transaction described in the application or identified in the SCC notice and the plan has not received the correction amount due under the Program as of the date EBSA staff contacted the plan, the applicant, the self-corrector or the plan sponsor. A plan also is not considered to be “Under Investigation” if the accountant of the plan is undergoing a work paper review based on such accountant's audit of the plan by EBSA's Office of the Chief Accountant under the authority of ERISA section 504(a).

Example 1.
On March 1, the plan sponsor of a multiple employer welfare arrangement (MEWA) received written notification from an agent of the state insurance commissioner's office that the MEWA has been scheduled for examination. The applicant does not notify EBSA of the examination. As of March 1, the plan is ineligible for participation in the VFC Program because the plan sponsor has received a notice from the state insurance commissioner's office concerning its intent to examine the plan, and the applicant did not provide EBSA written notice of the examination with the application.

Example 2.
Assume the same facts as in Example 1, except that the applicant chooses to notify EBSA in writing of the examination. The plan's eligibility to apply under the VFC Program would not be affected because the applicant provides written notice of the examination to EBSA with the application. EBSA will promptly notify the state insurance commissioner of the pending VFC Program application so that the state insurance commissioner's office has an opportunity to provide information about its examination to EBSA. EBSA will include the information received from the state insurance commissioner's office in its review of the VFC Program application.

Section 4. VFC Program Eligibility

Eligibility for the VFC Program is conditioned on the following:

(a) The plan, the applicant, or the self-corrector is not Under Investigation.

(b)(1)
In general.
The Program application contains no evidence of potential criminal violations as determined by EBSA.

(2)
Exception for VFC Program applications correcting transactions described in Section 7.1(a).
Participation in the VFC Program to correct delinquent participant contributions and loan repayments is permitted in cases where there is evidence of potential criminal violation by parties other than the plan administrator, the plan sponsor or the applicant provided:

(i) all funds have been repaid to the plan;

(ii) the appropriate law enforcement agency has been notified of the potential criminal violation; and

(iii) the applicant submits to the appropriate EBSA office a statement (A) providing contact information for the law enforcement agency that has been notified of the alleged criminal activity; (B) asserting that the applicant was not involved in the potential criminal violation; and (C) stating whether a claim relating to the criminal activity has been made under an ERISA section 412 fidelity bond.

Example.
The bookkeeper of the plan sponsor of a 401(k) plan allegedly embezzled funds from the plan sponsor, including amounts which had been withheld from employees' paychecks but not yet forwarded to the plan. As a result of the embezzlement, participant contributions were remitted to the plan two months later than the plan sponsor's usual practice. The owner of the company sponsoring the plan was not involved in the embezzlement and notified local law enforcement of the embezzlement. This owner is eligible to submit an application for relief under the VFC Program despite the potential criminal violation if the requirements under section 4(b)(2) are met. Note that the owner is not eligible for relief under the SCC because the exception under section 4(b)(2) is only available to applicants under the VFC Program and not the SC Component.

(c) EBSA has not conducted an investigation which resulted in written notice to a plan fiduciary that the transaction, for which the potential applicant or self-corrector could otherwise have sought relief under the Program, has been referred to the IRS. This condition applies only to those transactions specifically identified in

EBSA's written notice of referral to the IRS.

(d)
Exception for Bulk VFC Program Applicants.
An applicant is eligible to submit a bulk application under the VFC Program, even if one or more of the plans named in the application (“named plans”) is Under Investigation, and to receive a no action letter covering each of the named plans provided: (1) the applicant is a service provider that is seeking the relief afforded by the Program only on its own behalf; (2) the applicant was providing services to each of the named plans at the time of the transaction being corrected; (3) the application includes at least ten named plans; (4) all named plans participated in the transaction being corrected; and (5) the corrective action was not taken as a result of an investigation of any named plan. A determination by EBSA that the corrective action was taken as a result of an investigation of any named plan results in the no action letter specifically excluding such plan.

Example.
A bank provides investment management services to pension plans. As part of these services, it bought bonds on behalf of its plan clients directly from a broker dealer's inventory. The bank independently discovered that the broker dealer is an affiliate of the bank and consequently, a party in interest to the plans (PII). No available class exemption permitted these purchases. The bank's review showed it had bought bonds for thirty-three (33) of its plan clients from the PII broker dealer. The bank, as a service provider to the plans, may submit a bulk application correcting the transaction in compliance with section 7.4(a) of the Program provided the application names all 33 plans that participated in the transaction and the bank is seeking relief only on its own behalf under the Program. Assuming the applicant has complied with the terms of the VFC Program, EBSA will issue a no action letter to the service provider, which includes the name of each of the participating plans.

Section 5. General Rules for Acceptable Corrections

(a)
Fair Market Determinations.
Many corrections require that the current or fair market value (FMV) of an asset be determined as of a particular date, usually either the date the plan originally acquired the asset or the date of the correction, or both. In order to be acceptable as part of a VFC Program correction, the valuation must meet the conditions in (1) through (4) below. Other corrections require that a fair market interest rate be determined as of a particular date, usually the date the loan was made. In order to be acceptable as part of a VFC Program correction, this determination must be made by an independent commercial lender, which meets the conditions in (5) below:

(1) If there is a generally recognized market for the property (
e.g.,
the New York Stock Exchange), the FMV of the asset is the average value of the asset on such market on the applicable date, unless the plan document specifies another objectively determined value (
e.g.,
the closing price).

(2) If there is no generally recognized market for the asset, the FMV of that asset must be determined in accordance with generally accepted appraisal standards by a qualified, independent appraiser and reflected in a written appraisal report signed by the appraiser.

(3) An appraiser is “qualified” if the appraiser has met the education, experience, and licensing requirements that are generally recognized for appraisal of the type of asset being appraised.

(4) An appraiser is “independent” if the appraiser is not one of the following, does not own or control any of the following, and is not owned or controlled by, or affiliated with, any of the following:

(i) The prior owner of the asset, if the asset was purchased by the plan;

(ii) The purchaser of the asset, if the asset was, or is now being, sold by the plan;

(iii) Any other owner of the asset, if the plan is not the sole owner;

(iv) a fiduciary of the plan (except to the extent the appraiser becomes a fiduciary when retained to perform this appraisal for the plan);

(v) a party in interest with respect to the plan (except to the extent the appraiser becomes a party in interest when retained to perform this appraisal for the plan); or

(vi) the VFC Program applicant.

(5) a commercial lender is “independent” if it is not one of the following, does not own or control any of the following, and is not owned or controlled by, or affiliated with any of the following:

(i) a person or entity who was involved in securing or maintaining the loan, or in determining or modifying the terms of the loan at any time during the life of the loan;

(ii) a fiduciary of the plan (except to the extent the commercial lender becomes a fiduciary when retained to provide this service for the plan);

(iii) a party in interest with respect to the plan (except to the extent the commercial lender becomes a party in interest when retained to provide this service for the plan); or

(iv) the VFC Program applicant.

(b)
Correction Amount.
(1)
In general.
For purposes of the VFC Program, the correction amount is the amount that must be paid to the plan as a result of the Breach in order to make the plan whole. In most instances, the correction amount will be a combination of the Principal Amount involved in the transaction (
see
paragraph (b)(2) of this section), the Lost Earnings amount, which is earnings that would have been earned on the Principal Amount for the period of the transaction (
see
paragraph (b)(6) of this section, and
also see
paragraph (b)(3) of this section for a special rule for Loss Date under the SCC), and any interest on Lost Earnings. However, in circumstances when the Restoration of Profits amount (
see
paragraph (b)(7) of this section) exceeds the Lost Earnings amount and any interest on Lost Earnings, the correction amount will be a combination of the Principal Amount and the Restoration of Profits amount. The responsible fiduciary, plan sponsor or other Plan Official, must pay the correction amount and any costs of correction. No part of the correction amount or costs of correction can be paid from plan assets, including charges against participant accounts or plan forfeiture accounts.

(2)
Principal Amount.
“Principal Amount” is the amount that would have been available to the plan for investment or distribution on the date of the Breach, had the Breach not occurred. The Principal Amount, when applicable, must be determined for each transaction by reference to section 7 of the VFC Program. Generally, the Principal Amount is the base amount on which Lost Earnings and, if applicable, Restoration of Profits is calculated. The Principal Amount shall include any transaction costs associated with entering into the transaction that constitutes the Breach, which were paid by the plan.

(3)
Loss Date. (i) In general
“Loss Date” is the date that the plan lost the use of the Principal Amount.

(ii) Special rule under the SCC.
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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-24703. Public record. Not legal advice.