DOL Expands, Simplifies Voluntary Fiduciary Correction Plan

The Department of Labor (DOL) recently finalized and expanded revisions to the Voluntary Fiduciary Correction Program (VFCP). The VFCP is designed to encourage voluntary corrections of fiduciary violations of ERISA by describing how to apply for relief, listing the specific transactions covered, and providing acceptable methods for correcting violations.
To take advantage of the VFCP, an applicant cannot be under investigation by DOL or any federal agency in connection with a plan transaction. If an applicant is not under investigation, the applicant may apply for relief under the VFCP by identifying fiduciary violations and determining whether the violations fall within the transactions covered by the program.
Next, an applicant must follow the program’s procedures for correcting the violations. Generally, a VFCP applicant corrects a violation by: (1) conducting valuations of plan assets; (2) restoring the plan, its participants and its beneficiaries to the condition they would have been in if the breach had not occurred; (3) paying the expenses associated with correcting transactions; and (4) making supplemental distributions when appropriate to former employees, beneficiaries, or alternate payees. Finally, an applicant must file an application with the appropriate Employee Benefits Security Administration (EBSA) regional office.
An applicant that satisfies the criteria and complies with the procedures set forth in the VFCP receives a “no-action” letter from EBSA and is not subject to certain civil and monetary penalties. The VFCP also includes a prohibited transaction exemption (PTE) that provides relief from excise taxes imposed under the Internal Revenue Code for certain transactions covered by the VFCP.
In 2005, DOL proposed revisions to the VFCP that include, among other things, the adoption of a model application form, a reduction in the documentation required from an applicant, and simplification of the calculations needed to determine lost earnings or profits to be restored to a plan. The final 2006 revision adopts many of the 2005 proposed revisions and makes some notable changes. Among the changes are an expansion of the program to provide relief under ERISA Section 502(i) and (1) (which generally apply to welfare plans and nonqualified pension plans), the addition of a new covered transaction for expenses improperly paid by a plan because they were either “settlor” expenses or because a plan’s terms require the sponsor to pay the expenses out of its own funds, and a more narrow definition of when a plan is considered “under investigation.” In addition, DOL expanded the PTE that is part of the VFCP to include two additional covered transactions.
The 2006 revisions to the VFCP are effective May 19, 2006. Notice of the 2006 revisions to the VFCP Update can be found in the April 19, 2006 Federal Register