November 2022 Compliance

Changes Proposed to VFCP

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) has proposed changes to the Voluntary Fiduciary Correction Program (VFCP) and is seeking public comments. EBSA has also issued a proposal to revise the corresponding sections of the prohibited transaction exemption (PTE) to incorporate the proposed VFCP changes.

Background

The VFCP was originally introduced in 2002 with the intention of encouraging employers and plan fiduciaries to comply with ERISA by allowing them to self-correct certain fiduciary breaches if specific conditions are met. While the program has been popular, the EBSA has received feedback that the time and expense required to file a VFCP application for delinquent contributions can be a disincentive to correct small-dollar transactions.

VFCP Changes

Under the proposal, plan sponsors would have the option to notify the EBSA electronically that they have self-corrected certain failures related to late contributions and loan payments. Here is a partial list of the conditions required to do so:

Participant contributions or loan repayments must be made to the plan no more than 180 calendar days from the date they’re withheld or received.
Lost earnings must not exceed $1,000.
The plan or self-corrector must not be under investigation, as defined in the VFCP.
Self-correctors must use the VFCP online calculator to calculate lost earnings from the date of withholding or receipt and an online web tool to complete and file the self-correction component notice. They would also need to complete and keep a copy of the self-correction retention record checklist.

PTE Updates

Excise tax relief for six specific VFCP transactions is conditionally available under an associated PTE 2002-51, which the EBSA proposes to amend, as well. The proposed amendment includes:

Excise tax relief for the self-correction noted above.
Elimination of the 3-year limitation that may have prevented VFCP applicants from applying for more frequent relief.
No requirement for self-correctors to provide notice to interested persons. Instead, the self-corrector must contribute what would have been the excise tax back to the plan and allocate to participants and beneficiaries in the same manner as the plan allocates earnings.

Public Comments

Written comments for the VFCP proposal may be submitted on or before January 20, 2023, using the identifier RIN1210-AB64, to one of the following methods:

Federal eRulemaking Portal: at www.regulations.gov
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.

Written comments for the PTE proposal may be submitted on or before January 20, 2023, identified by Application No. D-11799 using the Federal eRulemaking Portal at www.regulations.gov at Docket ID number EBSA-2022-0024.

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