BY JOHN IEKEL NOVEMBER 18, 2022
The Department of Labor’s Employee Benefits Security Administration (EBSA) on Nov. 18 proposed updates to the voluntary fiduciary correction program (VFCP), including a provision long-promoted by the American Retirement Association that should help plan sponsors and providers — more specifically, the addition of a self-correction component for employers that fail to send employee salary withholding contributions or participant loan repayments to retirement plans in a timely manner.
The VFCP allows plan officials to avoid civil enforcement actions and civil penalties under ERISA if they voluntarily correct eligible transactions in a manner that meets the program’s requirements. EBSA Chief Lisa M. Gomez, in a Nov. 18 press briefing, hailed the VFCP as a “really useful tool” that “has been quite successful over the years.” However, she said, “the fact that it’s successful doesn’t mean that it can’t be improved.”
EBSA last revised the VFCP in 2006. Based on a review of the current VFCP, EBSA concluded that certain revisions would facilitate more efficient and less costly corrections of fiduciary breaches, encourage greater participation, and respond to requests from stakeholders for adjustments
based on their experiences using the VFCP. Gomez said that EBSA is “more broadly asking for information” from plan sponsors and retirement professionals. “We work hard here” to think of things for which the program would be useful, she said, but they are looking for input from professionals in that regard as well.
Regarding the proposal to add a self-correction component, Kelsey Mayo, Director of Regulatory Affairs, American Retirement Association & Partner, Poyner Spruill LLP, said: “This is welcome news for plan sponsors and plan providers, and we look forward to reviewing and commenting on the proposal in the weeks ahead.”
Mayo also noted, “The ARA has been advocating for a self-correction component to the VFC program for well over 10 years.” In a Sept. 30, 2011 comment letter to EBSA, ASPPA said:
ASPPA recommends that the Program be improved by adding a formal self-correction component for the late deposit of deferrals. This component would allow employers to correct in accord
ance with the current VFCP methodology without having to file an application with the Department. Instead, the employer would report that it self-corrected under VFCP and provide information on the correction as an attachment to Schedule H or I for the Form 5500, Annual Return/Report of Employee Benefit Plan.
It continued,
The establishment of a recognized self-correction component to VFCP would allow correcting employers to benefit from the efficiencies and certainty of the VFCP correction methods. It would also allow the Department to quantify the many self correction transactions that are patterned upon and directly result from the current Program.
The comment l
etter is available here.
The Proposed VFCP Changes
The proposed changes to the VFCP would do the following:
Clarify some existing transactions that are eligible for correction under the program.
Expand the scope of other transactions currently eligible for correction and simplify administrative or procedural requirements under the program.
Amend the associated prohibited transaction class exemption, known as PTE 2002-51.
Self-Correction
The most significant change is a proposal to add a new self-correction feature for certain failures to timely transmit participant contributions (and participant loan repayments) to pension plans. This would help address the type of transaction most frequently corrected under the VFCP, according to EBSA — delinquent participant contributions.
This feature will enable employers and other plan officials to notify EBSA electronically that they have self-corrected certain failures to send participant contributions and loan repayments to pension plans on time. The proposed self-correction component can only be used if the following conditions are met:
Participant contributions or loan repayments to the plan must be remitted no more than 180 calendar days from the date of withholding or receipt.
Lost earnings must not exceed $1,000 calculated from date of withholding or receipt.
The plan or self-corrector must not be under investigation as defined in the program.
Self-correctors must use the program’s online calculator to calculate lost earnings and an online web tool to complete and file the self-correction component notice. Self-correctors must also complete and retain the self-correction retention record checklist.
Features of the proposed self-correction component include the following.
Availability of Relief. Relief would be available to any pension plan regardless of how many participants it has and the amount of its assets, but would be limited to corrections when the amount of lost earnings is $1,000 or less, excluding any excise tax paid to the plan under the associated class exemption, PTE 2002-51. 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.
Calculations and Repayments. Lost earnings would be paid from the “Date of Withholding or Receipt.” Use of the VFCP’s online calculator to determine the amount of the loss payable to the plan also would be required. EBSA notes that this 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. These, it says, are critical elements of the proposed self-correction component that would help ensure full correction without the need for the protections afforded by the VFCP’s application and approval process.
Checklist. Self-correctors must complete the SCC Retention Record Checklist in Appendix F of the proposed amendments to the VFCP regulations, prepare or collect the documents listed in that appendix, and provide copies of the completed checklist and required documentation to the plan administrator.
Penalty of Perjury Statement. The plan administrator must retain the following statement:
“Under penalties of perjury I certify that I am not Under Investigation (as defined in section 3(b)(3) of the VFC Program) and that I have reviewed the SCC notice acknowledgment and summary, the checklist, and all the required documentation, and to the best of my knowledge and belief the contents are true, correct, and complete.”
The statement must be signed and dated by a plan fiduciary with knowledge of the transaction that is the subject of the self-correction and the authorized representative of the plan sponsor, if any. In addition, each plan official who is seeking the relief afforded under the VFCP must sign and date the Penalty of Perjury Statement.
Submitting Self-Correction Notices. Self-correction notices:
Must be submitted by the self-corrector who is a plan official or an authorized representative (e.g., attorney, accountant, or other service provider). If a representative is submitting the notice, the plan administrator must retain a statement signed by the plan official that the representative is authorized to represent the Plan Official. Any fees paid to such a representative for services relating to the correction may not be paid from plan assets.
Would be submitted electronically to EBSA using a new online VFCP web tool to be located on EBSA’s website. Self-correctors using the web tool would receive an automatic EBSA email acknowledging the SCC notice submission.
Why Add a Self-Correction Feature?
EBSA said it had received input that the time and expense required to file a VFCP application discourages its use, especially when small dollar amounts are involved. EBSA says that it agrees that a self-correction feature for delinquent participant contributions to pension plans that includes appropriately designed safeguards would encourage more voluntary corrections. This, they say, would offer plan officials and other responsible fiduciaries a streamlined correction process, and also enable EBSA to better allocate resources currently dedicated to processing VFCP applications for these transactions.
“The nature of the streamlined program will be attractive to those who are not using the program,” said a senior department official in the Nov. 18 press briefing, adding that they expect that they may see an increase in its use after the changes are implemented. EBSA expects that a well-designed self-correction feature will spell (1) more voluntary corrections and (2) a higher number of participant accounts receiving more timely correction amounts.
Comments Welcome
EBSA will accept comments on the proposed changes for 60 days after they are published in the Federal Register, which is schedule to occur on Nov. 21, 2022.
Comments must be identified by RIN 1210-AB64 and sent to one of the following addresses:
Federal eRulemaking Portal at https://www.regulations.gov/
By mail to: 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.