Blogging Employee Benefits

April 19, 2006

DOL’s Voluntary Fiduciary Correction Program Updated

Filed under: Compliance, DOL, Fiduciary — Fuguerre @ 7:05 am

The Department of Labor's Employee Benefits Security Administration has expanded and streamlined its Voluntary Fiduciary Correction Program. [News Release 06-689-NAT; 71 FR 20261] Concurrently, EBSA has revised and extended PTE 2002-51 relating to certain transactions identified in the VFC Program. [71 FR 20135]

Both the VFC Program changes and the PTE 2002-51 amendments are effective May 19, 2006. During the month prior to that effective date, relief remains available under the original VFC Program or the April 2005 VFC Program, both of which will be superseded by the final VFC Program when it takes effect. The final VFC Program will not foreclose resolution of fiduciary violation by other means, such as settlement agreements with the Department of Labor.

The final VFC Program will retain the fundamentals of the original program, as revised in April 2005. New changes include –

  • Covered Transactions –
    • Illiquid Assets – Divestment will be permitted in the case of acquisition of an asset from a party in interest to which a statutory or administrative exemption applied.
    • Participant Loans – Corrections can include transactions for violations involving level amortization or default loans. Correction under the VFC Program will only require correction under the IRS' forthcoming EPCRS (still pending), followed by submission to EBSA of the EPCRS compliance statement and proof of payment of any required payments.
    • Settlor Expenses – Violations involving use of plan assets to pay certain expenses that should have been paid by the plan sponsor may be corrected under the VFC Program. Correction requires restoration of the principal amount plus the greater of lost earnings or restoration of profits.
  • Program Calculations – Multiple Recovery Dates – Corrections involving multiple transactions with different time periods may be corrected by performing the necessary calculations in steps using different recovery dates, using either the Online Calculator or a manual calculation.
  • Correction Methodology – Cash Settlement – A plan will be permitted to retain an asset purchased from a party in interest, settling the correction amount in cash, provided an independent fiduciary determines that the plan will realize a greater benefit from the cash settlement than through resale of the asset.

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