By Jenny Kiffmeyer, J.D – The Retirement Learning Center

What to Correct under the Voluntary Fiduciary Correction Program

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in Illinois is representative of a common question on plan corrections. The advisor asked: “I’m unsure of when to suggest my client use the Department of Labor’s (DOL’s) Voluntary Fiduciary Correction Program (VFCP) to correct plan errors. Can you shed more light on the program?”

Highlights of the Discussion

The DOL’s VFC Program allows plan officials to voluntarily correct 19 specific transactions that are prohibited under the Employee Retirement Income Security Act of 1974 (ERISA). Corrective remedies are prescribed for the following fiduciary violations involving employee benefit plans:

1. Delinquent Participant Contributions and Participant Loan Repayments to Pension Plans
2. Delinquent Participant Contributions to Insured Welfare Plans
3. Delinquent Participant Contributions to Welfare Plan Trusts
4. Fair Market Interest Rate Loans to Parties in Interest
5. Below Market Interest Rate Loans to Parties in Interest
6. Below Market Interest Rate Loans to Non-Parties in Interest
7. Below Market Interest Rate Loans Due to Delay in Perfecting Security Interest
8. Participant Loans Failing to Comply with Plan Provisions for Amount, Duration, or Level Amortization
9. Defaulted Participant Loans
10. Purchase of Assets by Plans from Parties in Interest
11. Sale of Assets by Plans to Parties in Interest
12. Sale and Leaseback of Property to Sponsoring Employers
13. Purchase of Assets from Non-Parties in Interest at More Than Fair Market Value
14. Sale of Assets to Non-Parties in Interest at Less Than Fair Market Value
15. Holding of an Illiquid Asset Previously Purchased by Plan
16. Benefit Payments Based on Improper Valuation of Plan Assets
17. Payment of Duplicate, Excessive, or Unnecessary Compensation
18. Improper Payment of Expenses by Plan
19. Payment of Dual Compensation to Plan Fiduciaries

Through the VFCP, the DOL encourages the correction of ERISA violations by providing significant incentives for fiduciaries and others to self-correct. The VFCP allows plan officials who have identified certain ERISA violations to remedy the breaches and voluntarily report the violations without becoming the subject of an enforcement action. In FY 2023, the VFCP received 1,192 applications resulting in the recovery of nearly $84 million for plan participants.^[1] A successful application results in the receipt of a No Action Letter that states, in part, “Because you have taken the above-described corrective action that is consistent with the requirements of the VFCP, EBSA will take no civil enforcement action against you with respect to this breach.”

The DOL wants to help plan fiduciaries take advantage of the program and makes available helpful online information such as frequently asked questions, tools (including an online calculator and model application form) and checklist. There is even a Prohibited Transaction Exemption (PTE) 2002-51 that provides relief from the 15 percent IRS excise tax for six of the 19 transactions (in bold in the list). (See a related Case of the Week VFCP and PTE 2002-51).

Conclusion

The DOL encourages the correction of ERISA violations through the VFCP by providing significant incentives and help for fiduciaries and others to self-correct. The DOL’s VFCP allows plan officials to voluntarily correct 19 specific prohibited transactions. (PTE) 2002-51 provides relief from the IRS excise tax for six of the 19 transactions.

^{[1] DOL Fact Sheet, “EBSA Restores Over $1.4 Billion to Employee Benefit Plans, Participants,” 2024}