Potential Enhancements Coming Soon to the Voluntary Fiduciary Correction Program
The Voluntary Fiduciary Correction Program (VFCP) allows plan sponsors and other responsible fiduciaries to voluntarily self-correct 19 specific prohibited transactions that violate the Employee Retirement Income Security Act (ERISA) without incurring a penalty.
- The 19 prohibited transactions are typically subject to an excise tax of 15%. The Prohibited Transaction Exemption (PTE) 2002-51 provides relief from the excise tax for 6 of 19 transactions. However, a business can only take advantage of this relief for a transaction once every three years.
- In November of 2022, the Department of Labor (DOL) proposed changes to simplify and expand its VFCP. In fiscal year 2022, the Employee Benefits Security Administration EBSA recovered over $1.4 billion for plans, participants, and beneficiaries through all its various programs that include the VFCP.
- Plan fiduciaries must submit a formal application to the DOL for permission to correct these issues.
The most significant proposed change is the addition of a self-correction component (SCC) for participant contributions and loan repayments that are not deposited as soon as administratively feasible into the plan (the most frequently corrected transaction under the program). Employers with plans under 100 participants are allowed a safe harbor window to make the deposit. Under the safe harbor rule, participant contributions and loan payments are considered to have been deposited timely if the deposit to the plan is made within 7 business days of the payroll date.
Under the revised program, plan sponsors would be able to notify EBSA electronically, through the new VFC program web tool. The self-corrector must then complete the SCC Retention Record Checklist and provide a copy of the completed checklist and required supporting documentation to obtain relief. These documents must also be retained by the plan administrator in case there is ever an audit.
Certain criteria will need to be met to use the self-correction feature. This includes:
- Delinquent participant contributions or loan repayments must have been remitted to the plan no more than 180 calendar days from the date of withholding or receipt.
- Total participant losses cannot exceed $1,000 calculated from the date of withholding or receipt (not including any excise taxes).
Other VFCP proposed amendments include:
- Clarifying existing transactions eligible for correction under the Program.
- Expanding the scope of certain transactions currently eligible for correction.
- Simplifying certain administrative or procedural requirements for participation in the VFCP and correction of transactions under the Program.
- Amending PTE 2002-51, the program’s associated prohibited transaction class exemption.