DOL Proposes Amendment to Voluntary Fiduciary Correction Program and Related Prohibited Transaction Exemption

On November 21, 2022, the Employee Benefits Security Administration (EBSA) of the DOL proposed changes to the Voluntary Fiduciary Correction Program (VFCP). The VFCP has been around since the early 2000s and allows plan sponsors to apply to the DOL to correct enumerated violations of ERISA. This allows the plan sponsor to avoid further enforcement by the DOL on the corrected issues. The proposed rule introduces a new self-correction feature and clarifies, expands and simplifies existing transactions.

The self-correction feature will allow plan officials to correct late participant contributions or loan repayments to the plan if lost earnings are no greater than $1,000 and they are remitted no later than 180 days from the date of the initial withholding. Self-correcting employers would be able to rely on the DOL’s online calculator to calculate lost earnings. Self-correction would be an option if the employer is not currently under investigation by the DOL. The employer would simply complete an online form to notify the DOL of their self-correction (versus an application that would’ve had to have been approved by the DOL under the existing VFCP), and the DOL would reply with an email acknowledging receipt.

Other minor changes to the VFCP are also proposed, including:

• Changing the sections on delinquent contributions and loans to reflect the existence of the self-correction program.
• Eliminating the requirement that an independent fiduciary validate the process used to determine the fair market interest rate determination for loans that are $10,000 or less.
• Allowing a cash settlement if an asset belonging to the plan has been sold and a plan official provides a statement that the sale was upon the advice of an independent fiduciary and not in anticipation of VFCP relief.
• Expanding the sale and leaseback of real property transactions to allow correction of leases to affiliates of the plan sponsor.
• Amending the definition of “principal amount” as it pertains to illiquid assets that are sold to parties in interest.
• Modifying the definition of “under investigation” to include a review by an EBSA benefits advisor.
• Changing a couple of the eligibility requirements, including deeming a plan sponsor ineligible when they are aware of criminal activity involving the corrected transactions.
• Making other miscellaneous modifications.

In addition to proposing the changes to the VFCP, the DOL also amended Prohibited Transaction Exemption (PTE) 2002-51. Specifically, the PTE was updated to allow for excise tax relief for transactions that are self-corrected under the new VFCP self-correction option. The exemption would apply if the employer received the DOL’s email acknowledging the self-correction. The DOL is also seeking to amend the PTE to allow employers to take advantage of the VFCP multiple times within a three-year period (which wasn’t allowed in the previous rules).

The DOL is accepting comments on the amended and restated VFCP program and the corresponding amendments to PTE 2002-51 until January 20, 2023. Employers should familiarize themselves with these changes if they need to avail themselves of the VFCP.

VFCP Proposed Rule »
PTE 2002-51 »