U.S. DOL Proposes Self-Correction of Delinquent Contributions and Loan Payments Under Qualified Retirement Plans

Background

The U.S. Department of Labor Employee Benefits Security Administration (EBSA) Voluntary Fiduciary Correction Program (VFCP) allows plan sponsors to avoid civil penalties and enforcement actions under the Employee Retirement Income Security Act of 1974 if they voluntarily correct certain prohibited transactions using the steps required by the VFCP. The existing VFCP requires the plan sponsor to file a paper application that must be approved by EBSA to obtain an action letter and does not allow for a more streamlined self-correction procedure. The existing VFCP excise tax relief is generally unavailable to applicants who have received relief under the VFCP within the prior three years. 

What You Need To Know

Recently proposed amendments make the following changes to the VFCP:

1. Self-Correction for Delinquent Participant Contributions and Loan Repayments. Self-corrections would be allowed for certain low-level delinquent participant contributions, which is significant since delinquent participant contributions are the most common problem corrected through the VFCP.
   1. The new streamlined self-correction procedure would be available when the amount of “Lost Earnings” (determined by using the VFCP online calculator) is $1,000 or less and the delinquent contributions or loan repayments are remitted within 180 days after they were received or withheld by the employer.
      
   2. The sponsor would submit an electronic notice form on the EBSA website, after which the self-corrector would automatically receive an emailed acknowledgment. The sponsor must complete a retention record checklist, including signing a penalty of perjury statement, preparing or collecting certain documents, and providing the checklist and required documentation to the plan administrator.
   3. To be eligible for self-correction under VFCP, the plan or sponsor must not be under DOL investigation as defined in the program.
      
   4. Late deposits that are self-corrected through the program will also qualify for excise tax relief via a corresponding change to Prohibited Transaction Exemption 2002-51.
      
2. Clarification, Expansion, and Simplification of Existing Transactions Eligible for VFCP: In addition to allowing for self-correction, the proposed amendments would clarify that certain transactions are eligible for correction under the VFCP, expand the scope of other transactions that are eligible for correction, and simplify certain administrative or procedural requirements for participation in and correction of prohibited transactions under the VFCP. Among other things, the proposed amendments would allow for VFCP excise tax relief even if the applicant had received relief under the VFCP within the prior three years.
   
3. Timing: The changes to the VFCP will become effective after receipt of public comments and approval by the Office of Management and Budget.

Knowledge Management Lawyer Katie Dean contributed to this Sidley Update.