The Department of Labor (DOL) recently proposed changes to its Voluntary Fiduciary Correction Program (VFCP), which allows employers to avoid potential DOL civil enforcement actions and civil penalties under the Employee Retirement Income Security Act of 1974 if they voluntarily correct eligible transactions in a manner that meets the program’s requirements. Under the current VFCP, the eligible corrections require employers to submit an application to the DOL for review and approval.
The most significant proposed change is the addition of a self-correction component for employers who fail to send employee salary withholding contributions or participant loan repayments to retirement plans in a timely manner, which is the most common failure corrected under the current VFCP. This new component would allow employers to notify the DOL electronically that they have self-corrected certain failures to send participant contributions and loan repayments to retirement plans on time.
Notably, the proposed self-correction program can be used only if all the following conditions are met:
- The late participant contributions or loan repayments are remanded to the plan no more than 180 calendar days from the date of withholding or receipt
- The lost earnings from the delay do not exceed $1,000 calculated from the date of withholding or receipt to the date of remittance
- The plan is not under DOL investigation (as defined in the program)
- The employer uses the VFCP’s online calculator to calculate lost earnings and an online web tool to complete and file the self-correction notice
- The employer completes and retains a self-correction retention record checklist that is provided in the proposed new program
The proposed changes to the VFCP also would clarify some existing transactions that are eligible for correction under VFCP, expand the scope of other transactions currently eligible for correction and simplify administrative and procedural requirements under the program, and amend the associated prohibited transaction class exemption, known as PTE 2002-57, which provides excise tax relief for six specific VFCP transactions if certain conditions are satisfied.
The DOL has provided a 60-day period for public comments regarding the proposed changes and is expected to issue final changes at some point in the future after taking into account the comments it may receive. The existing VFCP and exemption will remain available until the proposed changes are finalized by the DOL.
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