Notice: Employee Benefit Plans Class Exemptions: Voluntary Fiduciary Correction Program

Wednesday,
April 19, 2006
Part III
Department of Labor
Employee Benefits Security
Administration
Voluntary Fiduciary Correction Program

Under the Employee Retirement Income
Security Act of 1974; Notice
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20262 Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices
DEPARTMENT OF LABOR original VFC Program).1 The VFC 2002–51 was not immediately available
Program is designed to encourage and could not be relied upon for relief
Employee Benefits Security employers and plan fiduciaries to during the interim period.
Administration voluntarily comply with ERISA and EBSA received six comment letters in
allows those potentially liable for response to the April 2005 VFC Program
RIN 1210–AB03 certain specified fiduciary violations and related class exemption. Copies of
under ERISA to voluntarily apply for
these comments are posted on EBSA’s
Voluntary Fiduciary Correction relief from enforcement actions and
Web site.6
Program Under the Employee certain penalties, provided they meet
Retirement Income Security Act of the VFC Program’s criteria and follow After careful consideration of the
1974 the procedures outlined in the VFC issues raised by the comment letters and
Program. Many workers have also input from EBSA Regional Office
AGENCY: Employee Benefits Security benefited from the VFC Program as a personnel charged with administering
Administration, DOL. result of the restoration of plan assets the Program, EBSA is adopting final
ACTION: Adoption of Updated Voluntary and payment of promised benefits. changes to the Program (the final VFC
Fiduciary Correction Program. The VFC Program describes how to Program) in this Notice. EBSA believes
apply for relief, the specific transactions these modifications will facilitate both
SUMMARY: This Notice includes an covered,2 acceptable methods for the correction of violations of ERISA’s
updated and streamlined version of the correcting violations, and examples of fiduciary responsibility and prohibited
Voluntary Fiduciary Correction Program potential violations and corrective transaction rules and the restoration of
(VFC Program or the Program) under the actions. Eligible applicants that satisfy losses to participants resulting from the
Employee Retirement Income Security the terms and conditions of the VFC Breaches (as defined in the VFC
Act. The VFC Program is designed to Program receive a ‘‘no-action letter’’ Program). The final VFC Program will
encourage the voluntary correction of from EBSA and are not subject to civil continue to be administered in EBSA
fiduciary violations by permitting monetary penalties. In 2002, the original
persons to avoid potential civil actions Regional Offices. In tandem with today’s
VFC Program was further expanded to publication of the final VFC Program,
and civil penalties if they take steps to include a class exemption (PTE 2002–
correct identified violations in a manner EBSA is publishing a final amendment
51) providing excise tax relief for four
consistent with the Program. The to PTE 2002–51 in response to
specific VFC Program transactions.3
Program included in this Notice reflects In April 2005, EBSA published comments received and to conform with
changes made in response to public revisions to the VFC Program (the April certain revisions in the final VFC
comments received on the VFC Program 2005 VFC Program) 4 containing, among Program. This amendment also appears
modifications implemented in April other amendments, several new covered in the Notice section of today’s Federal
2005. The final Program includes transactions, on which EBSA invited Register.
additional transactions, reduced public comment. EBSA believed that B. Overview of Changes in the Final
documentation requirements, a these revisions, designed to both VFC Program
simplified application form, a checklist, simplify and expand the original
and availability of an online calculator Program, were needed to further The final VFC Program retains the
for determining the amount to be encourage utilization of the Program. fundamentals of the original Program,
restored to plans. These changes serve EBSA made the April 2005 VFC adopted in 2002. The original Program
to both encourage and facilitate the use Program effective upon publication to was revised on April 6, 2005 (70 FR
of the Program as a means by which to permit use of the simplified processes 17516), and public comment was
correct covered fiduciary violations. and new covered transactions during solicited. The final VFC Program
DATES: The VFC Program contained in the interim period prior to the adoption contained in this Notice includes
this Notice is effective May 19, 2006. of final changes to the Program. additions to and modifications of the
Concurrently, EBSA proposed an April 2005 Program. Set forth below is
FOR FURTHER INFORMATION CONTACT:
amendment to the related class an overview of the changes to the April
For Questions Regarding the VFC
exemption, PTE 2002–51,5 to 2005 Program. To facilitate reference to
Program Amendments: Contact Kristen
L. Zarenko, Office of Regulations and accommodate a new transaction the Program, this Notice includes a
Interpretations, Employee Benefits contained in the April 2005 VFC restatement of the Program in its
Security Administration (EBSA), (202) Program. However, the excise tax relief entirety.
693–8510. afforded by the amendments to PTE
(1) Scope of Relief
For General Questions Regarding the 1 67 FR 15062 (March 28, 2002). Prior to adoption
VFC Program: Contact Caroline in March 2002, the VFC Program was made Unlike the earlier versions of the
Sullivan, Office of Enforcement, EBSA, available on an interim basis during which the Program, the final Program now affords
(202) 693–8463. (These are not toll-free Department invited and considered public relief from the imposition of potential
numbers.) comments on the Program. (See 65 FR 14164, March
15, 2000).
civil penalties under section 502(i) of
For Questions Regarding Specific 2 EBSA acknowledges, based on its experience, ERISA when correction is undertaken in
Applications Under the VFC Program: that certain transactions may fit within one or more accordance with the Program. This
Contact the appropriate EBSA Regional of the listed categories of transactions, even if not modification was made to provide more
Office listed in Appendix C. specifically named in the category, for example
certain transactions involving contributions in kind
thorough and complete relief under the
SUPPLEMENTARY INFORMATION: under section 7.4(a) of the Program. EBSA Program. In general, section 502(i)
encourages potential applicants to discuss permits the Secretary to assess a civil
A. Background eligibility and similar issues with the appropriate penalty on prohibited transactions with
The Voluntary Fiduciary Correction regional VFC Program coordinator.
3 PTE 2002–51 published at 67 FR 70623
respect to welfare plans and
Program was adopted by EBSA of the (November 25, 2002). nonqualified pension plans.
Department of Labor (Department) on a 4 70 FR 17516 (April 6, 2005).
permanent basis in March 2002 (the 5 70 FR 17476 (April 6, 2005). 6 http://www.dol.gov/ebsa/regs/cmt_vfcp.html.
Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices 20263
(2) Covered Transactions commenters asserted the necessity for the holding of real estate in violation of
coordination between EBSA and the IRS ERISA section 404(a)(1)(C) and the
(i) Illiquid Assets—Section 7.4(f)
and also requested assurance that the acquisition of plan assets in violation of
The April 2005 Program included a Program’s loan corrections would be ERISA section 404(a)(1)(D).
correction for a transaction that permits compatible with resolution of the In response to these comments, EBSA
a plan to divest, rather than continue to associated income tax issues under the has revised the transactions in section
hold in its portfolio, a previously Voluntary Correction Program of the 7.6 ‘‘Plan Expenses’’ to clarify that
purchased asset that is determined to be IRS’’ Employee Plans Compliance violations involving the use of plan
illiquid, within the meaning of the Resolution System (EPCRS) corrections. assets to pay expenses that should have
Program. The Program described three EBSA believes that the transactions been paid by the plan sponsor may be
scenarios for the plan’s acquisition of covered by the VFC Program should be corrected under the Program, as
the asset. Each acquisition eventually as congruent as possible with the described more fully below. The related
resulted in the plan holding an illiquid resolution of the related income tax class exemption has also been revised to
asset, for which the applicant must issues. EBSA also believes that provide excise tax relief for certain plan
determine that the correction is correction of participant loan issues expense violations corrected under the
determined to be necessary. One under the VFC Program should be Program.
commenter suggested that the compatible with coordinating changes Beyond this expansion, however,
description of this transaction be that EBSA understands will be made in EBSA believes that the addition of
expanded to include a fourth scenario a revision to the IRS’’ EPCRS, based on general categories of transactions, in
reflecting the acquisition of an asset informal discussions between EBSA and contrast with the precisely described
from a party in interest to which a the staffs of the Internal Revenue transactions currently included in the
statutory or administrative exemption Service and Treasury Department. Program, would raise questions about
applied. EBSA has decided to adopt this Accordingly, section 7.3(a) of the final the adequacy of the corrections.
suggestion and, accordingly, has Program has been modified to include a Program corrections depend on facts
modified the description of the category of participant loan transactions and circumstances and must be
transaction in section 7.4(f) of the final for Breaches involving level sufficiently uniform to obviate all need
Program. The related class exemption amortization in addition to the for negotiation and the consequent
has been similarly amended. transactions previously included for triggering of ERISA section 502(l)
amount and duration Breaches. Section penalties.
(ii) Participant Loans—Section 7.3
7.3(b) also has been revised to include The final Program includes a new
The April 2005 VFC Program added a category of transactions for default section 7.6(b) ‘‘Expenses Improperly
two new categories of transactions loans. The final Program’s description of Paid by a Plan.’’ The description of this
involving plan loans to participants in the loan transactions in section 7.3 is transaction posits that a plan used plan
section 7.C.1. These transactions applicable only to plan participants who assets to pay expenses, including
provided an approved correction are parties in interest with respect to the commissions or fees, which should have
method for situations where participant plan based solely on their employee been paid by the plan sponsor, to a
loans exceeded the Internal Revenue status with any employer whose service provider for (A) services
Code (Code) section 72(p) limitations on employees are covered by the plan. appropriately characterized as plan
amount or duration, which were To simplify and expedite the expenses, which involved the
incorporated into the plan. The correction process, the final VFC administration and maintenance of the
statutory exemption from the prohibited Program has been modified to require plan, in circumstances where a plan
transaction provisions for participant only that an applicant correct provision requires that such plan
loans provided by section 408(b)(1) of participant loan violations under the expenses be paid by the plan sponsor,
ERISA requires that participant loans coordinating IRS’’ EPCRS correction, or (B) services appropriately
are made in accordance with plan terms when published, and then submit a characterized as settlor expenses, which
regarding such loans. A violation would copy of the resulting EPCRS compliance relate to the activities of the plan
therefore occur when the section 72(p) statement, along with proof of payment sponsor in its capacity as settlor. The
loan limitations were exceeded. of any required amounts, to EBSA. correction requires that the applicant
Several comment letters on the April Applicants are not required to submit restore the Principal Amount plus the
2005 Program urged expansion of the any other documentation under the greater of Lost Earnings or Restoration of
categories of participant loan Program. Profits. For purposes of this transaction,
transactions. One commenter suggested the Principal Amount is defined as the
including loans violating plan terms (iii) Settlor Expenses—Section 7.6 entire amount improperly paid by the
that imposed more stringent amount The preamble to the April 2005 plan to the service provider for expenses
and duration limitations than Code Program specifically requested public that should have been paid by the plan
section 72(p) restrictions. One comment input on viable additional transactions sponsor.
letter requested including loans that and reasonable methods of correction Section 7.6(a) also has been revised
were granted with inappropriate interest for such additional transactions. One and the definition of the Principal
rates. Another commenter suggested commenter suggested the future Amount for each of the described
including situations when loan development of transactions if and variations of the transaction has been
repayments are not properly withheld when additional fiduciary errors were clarified. A new example has also been
from participants’ wages (‘‘default identified. A second commenter added to illustrate a situation where the
loans’’), but instead are paid to the recommended the addition of categories use of plan assets to pay compensation
participant. This commenter observed of transactions that might violate was a Breach because the compensation
that such withholding failures are specific sections of ERISA under was for services that were simply
administrative errors that frequently 404(a)(1) and 406(b). The recommended unnecessary, in that they were not
occur because of a change in service categories included the payment of helpful or appropriate in carrying out
provider, for example, following a expenses with plan assets in violation of the purposes for which the plan is
merger or acquisition. Several ERISA section 404(a)(1)(A), (B) and (D), maintained. Section 7.6(c) ‘‘Payment of
Dual Compensation to a Plan Fiduciary’’ If EBSA has completed an 7.4(b) is also being revised under the
has not been substantively altered in the investigation resulting in a referral of final Program. Although this correction
final Program. transactions to the IRS, eligibility to already permitted both a cash settlement
participate in the VFC Program to and the reversal of the transaction by
(3) Definitions
correct such transactions is limited. the plan’s repurchase of the asset from
(i) Under Investigation Section 4(c) has been revised to clarify the party in interest, it is being modified
that potential applicants continue to be to require a determination by an
Several commenters suggested eligible except with regard to the independent fiduciary only in the
clarifying the changes made to the April specific transactions identified by EBSA limited circumstances where the plan
2005 Program’s definition of ‘‘Under in a written notice to a plan fiduciary settles the transaction in cash. The
Investigation.’’ One commenter concerning the referral to the IRS. related class exemption is being
expressed concern that the current amended for consistency with these
definition, which bars applicants if (ii) Plan Official
changes.
EBSA or any other federal agency is One commenter suggested that the
conducting an investigation in definition of ‘‘Plan Official’’ be revised (ii) Credit for Voluntary Contributions
connection with a plan transaction, to provide that in cases of One commenter requested that the
might prevent Program applications multiemployer plans or multiple correction for delinquent participant
where an investigation has only an employer plans, an application could be contributions under section 7.1(a) be
indirect impact on the plan, such as an made only by the ‘‘plan administrator,’’ modified to permit an employer, which
employment tax audit resulting in rather than by any contributing or failed to timely remit withheld
misclassified employees. Another adopting employer. EBSA has decided participant contributions to a
commenter suggested that the definition to retain the existing definition of ‘‘Plan contributory defined benefit plan, to
be modified to permit applications by Official,’’ because the current definition credit any employer contribution in
financial institutions subject to ongoing provides maximum flexibility as to who excess of amounts legally required by
investigations that are not plan specific, may apply under the Program to correct the minimum funding standard or
but might arguably ‘‘involve’’ the plan, violations involving multiemployer bargaining agreements against the
such as annual examinations by the plans or multiple employer plans. The Program’s required Lost Earnings or
Federal Reserve. Program, of course, allows the plan Restoration of Profits for that same plan
EBSA has decided to amend the administrator of such a plan to apply on year. EBSA has decided to retain the
definition to more narrowly focus on behalf of the entire plan; any existing correction because it adequately
situations when an investigation, either participating employer may apply on its addresses the Breach. EBSA believes
ongoing or for which notice has been own behalf. that the proposed modification would
given, involves the plan or an act or create uncertainty and contravene
(4) Correction Methodology
transaction involving the plan. For sound funding policy.
example, a plan would be ‘‘Under (i) Cash Settlement
(iii) Transaction Costs
Investigation’’ if undergoing an One commenter requested that the
Employee Plans examination by the Tax correction for a plan’s purchase of an In the interest of accurate applications
Exempt and Government Entities asset from a party in interest under and the desire to provide timely review
Division of the IRS. For non-criminal section 7.4(a) be amended to allow the by EBSA staff, EBSA wishes to
investigations and examinations of a plan to retain the asset and settle the emphasize that the general rule for
plan, or of the applicant or plan sponsor correction amount in cash if doing so is determining the Principal Amount
in connection with an act or transaction determined to be in the best interest of under section 5(b)(2) requires, where
directly related to the plan, by the participants and beneficiaries. The April appropriate, the inclusion of any
Pension Benefit Guaranty Corporation 2005 Program required that a plan’s transaction costs associated with
(PBGC) or certain state agency officials, purchase of an asset from a party in entering into the transaction that
EBSA is instituting an optional interest be corrected by selling the asset constitutes the Breach in the
disclosure provision. Potential back to the party in interest, or to a non- determination of the Principal Amount.
applicants who choose to disclose such party in interest. EBSA has decided to (5) Program Calculations
an investigation may apply under the modify the correction under the final
final Program, while potential Program to permit the suggested (i) Multiple Recovery Dates
applicants who opt for nondisclosure alternative correction. A plan will be One commenter asked for clarification
cannot apply because they are permitted to retain an asset purchased regarding Program transactions that
considered ‘‘Under Investigation.’’ from a party in interest by settling the involve more than one correction period
If an applicant discloses the existence correction amount in cash, provided an and result in separate calculations and
of an investigation to EBSA in writing independent fiduciary determines that multiple Recovery Dates. This
when submitting an application, EBSA the plan will realize a greater benefit commenter offered as examples: A
will promptly notify the investigating from this correction than it would from plan’s purchase of securities in a
agency of such application. EBSA’s the resale of the asset. An independent prohibited transaction where such
written notice is designed to afford the fiduciary is not required if the plan sells securities are sold over time in more
investigating agency an opportunity to the asset back to the party in interest, than one transaction, and the repayment
provide EBSA with information relevant because this correction is in essence a of debt securities over time in
to the investigation or examination. reversal of the original sale. EBSA installments of principal and interest.
EBSA will take suitable action in believes that the determination to resell Corrections under the Program, which
response to information received from the asset to the party in interest may be may involve multiple transactions with
the investigating agency and as a result, properly determined by a plan different time periods, may be corrected
in appropriate circumstances, may fiduciary. by performing the calculations in steps
decline to issue a no action letter to the The correction for a plan’s sale of an using different Recovery Dates. The
applicant. asset to a party in interest under section Online Calculator is generally available
to perform such calculations; however, Specifically, with regard to the calculations only need to submit a copy
if the factual circumstances surrounding correction of delinquent participant of the final page(s) that results from
the correction cannot be accommodated contributions to insured welfare plans using the ‘‘Print Viewable Results’’
by the Online Calculator’s functions, a under section 7.1(b) and to welfare plan function. This function is used after
manual calculation may be submitted. trusts under section 7.1(c), the final VFC inputting all data elements and
Program permits the use of simplified completing all calculations using the
(ii) Lost Earnings Formulation documentation requirements for Online Calculator.
One commenter observed that certain applicants correcting Breaches that
involved (A) amounts below $50,000 or (7) EBSA Procedures
language in the original Program’s
formulation of Lost Earnings, which (B) amounts greater than $50,000 that (i) Investigations
allowed applicants in appropriate were remitted within 180 calendar days One commenter inquired whether
circumstances to subtract ‘‘actual net after receipt by the employer. EBSA EBSA would commence investigations
earnings or realized net appreciation’’ or believes that extending the summary related to already filed Program
to add ‘‘net loss to the plan as a result documentation requirements to these applications if the statute of limitations
of the transaction,’’ was not included in additional transactions not only for the transaction described in the
the April 2005 Program. EBSA minimizes the paperwork burden on application was close to expiring. As
deliberately eliminated such language applicants making smaller corrections, stated in the preamble to the original
from the April 2005 Program in an effort but provides consistency among all Program, EBSA generally does not
to provide more straightforward three transactions in section 7.1 of the
anticipate taking enforcement action in
calculations. The April 2005 Program final Program.
response to an application, except
Applicants who fail to meet the
was designed to provide simplicity and where EBSA becomes aware of possible
$50,000 and 180 day standards may still
uniformity in correction amount criminal behavior, material
be eligible to correct transactions
calculations; EBSA eliminated misrepresentations or omissions, or
involving the delinquent remittance of
complicated requirements for the other abuses of the Program. In rare and
participant funds under the Program,
computation of actual plan earnings, as but are simply precluded from appropriate circumstances, EBSA will
well as the associated additions and submitting summary documentation to consider entering into tolling
subtractions for net gains and losses. substantiate their applications. It should agreements with applicants, but EBSA is
Instead, the April 2005 Program focused also be noted that the 180 day standard not amending the VFC Program to
on the IRC section 6621 rate in its Lost for summary documentation is separate require tolling agreements as a matter of
Earnings calculation. The final Program and distinct from the 180 day standard course.
retains this approach. for excise tax relief under the related (ii) Timing
(iii) Corporate Transactions class exemption for delinquent
One commenter inquired whether
participant contributions or loan
One commenter asked whether the relief under the Program remains
repayments to pension plans; for
Online Calculator can accommodate available for transactions covered by a
purposes of the exemption, the 180 day
corporate transactions such as stock filed application if an investigation were
standard applies regardless of the
splits, tenders, and mergers, or if such to begin after the application is filed,
amount involved.
transactions had to be accounted for but before a no action letter is issued.
manually. EBSA believes that is the (ii) Bonding Relief under the Program is available for
responsibility of applicants to take into In the April 2005 VFC Program, covered transactions if, at the time the
account any adjustments necessary section 6 was modified to eliminate the application is filed, the plan or
because of corporate transactions before requirement that applicants provide applicant is not considered to be
entering data into the Online Calculator certain information relating to the plan’s ‘‘Under Investigation’’ as defined in
in order to ensure that the results are fidelity bond. This modification was not section 3(b)(3) and meets the conditions
current and correct. In the event the changed in the final VFC Program, but under section 4 ‘‘VFC Program
factual circumstances surrounding the this decision should not be Eligibility.’’
correction cannot be accommodated by misconstrued as eliminating the (iii) Self Correction Component
the Online Calculator, applicants may bonding requirement itself. This change
One commenter requested that EBSA
submit a manual calculation. focuses merely on streamlining the
expand the VFC Program to include a
application process to eliminate
(6) Documentation Requirements voluntary self correction component
documentation of the bond, and not on
within the Program. EBSA has decided
(i) Summary Documentation compliance with the substantive
not to include a formal self correction
bonding requirements of ERISA.
With regard to the correction of component. EBSA continues to believe
delinquent participant contributions or (iii) Online Calculator that an important result under the
loan repayments to pension plans, the One commenter observed that the Program is the certainty that applicants
April 2005 Program under section 7.A.1. provisions requiring the submission of have complied with the terms of the
permitted applicants correcting documents and information in support Program and have revealed the details of
Breaches that involved (A) amounts of calculations in circumstances where the transaction and the correction under
below $50,000 or (B) amounts greater the Online Calculator is used to perform penalty of perjury in their applications.
than $50,000 that were remitted within Program calculations were unclear. In (8) Miscellaneous
180 calendar days after receipt by the response to this comment, EBSA has
employer to provide summary modified section 6(d), ‘‘Detailed (i) Reporting
documentation. EBSA has decided to Narrative,’’ which lists documents and One commenter requested that EBSA
expand the summary documentation information that must be submitted with implement a de minimis filing rule
requirements to two additional an application. Subparagraph (ii) of under the Program so that applicants
transactions involving the delinquent section 6(d)(6) clarifies that applicants would be required to correct previously
remittance of participant funds. using the Online Calculator for Program filed Forms 5500 only in circumstances
where the Breach involved a reasonable thirty days following publication of the published in April, 2005, the
and defined threshold of the plan’s final Program in the Federal Register. Department believes that the benefits of
assets. EBSA has declined to adopt this EBSA believes that any further delay for the VFC Program justify its costs. The
suggestion. EBSA believes that when a potential applicants in the availability Program is designed to provide an
plan has engaged in a prohibited of the provisions of the final Program efficient, cost-effective method for
transaction or plan assets have been would serve no useful purpose. During correcting a variety of fiduciary
improperly valued, previously filed the thirty day period following Breaches and prohibited transactions
Forms 5500 must be amended to reflect publication of the final Program, and receiving Departmental recognition
these important reporting items. applicants may continue to pursue relief of the correction. The methods of
Applicants are directed to the by filing applications under either the correction set out in the Program
instructions for the Form 5500 to original VFC Program or the April 2005 provide the required conditions for
determine their reporting obligations. VFC Program. These applications will correction, which are adequate and
be processed under the provisions of the protective of the rights of participants
(ii) Application of Program to Other
applicable Program. However, upon and beneficiaries. Participation in the
Plans
expiration of the 30 day period Program is voluntary. The Department
One commenter requested that EBSA following publication of the final believes that the costs to a plan and its
provide relief under the Program and Program in the Federal Register, both fiduciaries of correcting a potential
the related class exemption for breaches the April 2005 VFC Program and fiduciary Breach through voluntary
involving plans that currently are not original VFC Program will be participation in the VFC Program are
eligible to participate in the Program.7 superseded by the final VFC Program. lower than if correction were imposed
The commenter suggested that it would The Department notes that in connection with a civil action;
be administratively convenient if a implementation of the final Program further, correction of potential fiduciary
Program applicant, who had caused a does not foreclose resolution of Breaches and prohibited transactions
number of plans, including plans fiduciary breaches by other means, through the Program satisfactorily
subject only to provisions in the Code, including entering into settlement protects the assets of the participating
to engage in a violation subject to agreements with the Department. plans.
correction under the Program, could The VFC Program imposes costs only
correct and receive a no action letter E. Impact of Program Amendments when Plan Officials choose to use the
with respect to all of the plans. The Executive Order 12866 Statement Program to correct a potential fiduciary
Department has determined that it Breach. Such costs to Plan Officials
cannot expand the Program as requested Under Executive Order 12866, the generally include payment of the
by the commenter, as it lacks Department must determine whether a correction amount required by the
jurisdiction to issue a no action letter regulatory action is ‘‘significant’’ and Program and preparation and
under the Program with respect to therefore subject to the requirements of submission of the application to the
violations of the Code. the Executive Order and subject to Department. Benefits for Plan Officials
review by the Office of Management and who apply for relief under the Program
C. De Minimis Excise Tax Budget (OMB). Under section 3(f) of the include elimination of risks arising from
The IRS requested a modification to Executive Order, a ‘‘significant an otherwise uncorrected fiduciary
the requirement in the related class regulatory action’’ is an action that is Breach, as well as savings of resources
exemption that employers notify likely to result in a rule (1) having an that otherwise might have been needed
interested persons in writing of annual effect on the economy of $100 to defend against a civil action based on
transactions corrected under the VFC million or more, or adversely and the Breach.
Program. Specifically, the IRS requested materially affecting a sector of the An additional and significant benefit
that the notice requirement not apply in economy, productivity, competition, of the VFC Program accrues to
those instances when the excise tax jobs, the environment, public health or participants and beneficiaries through
otherwise due under section 4975 of the safety, or State, local or tribal the correction of fiduciary violations
Code would be less than or equal to governments or communities (also and the restoration to the plan of
$100.00. The IRS requested that the referred to as ‘‘economically amounts representing losses or
amount of the excise tax otherwise due significant’’); (2) creating serious improperly generated profits arising
be contributed to the plan, and that the inconsistency or otherwise interfering from impermissible transactions,
contribution be allocated to the plan’s with an action taken or planned by resulting in greater security of plan
participants and beneficiaries in a another agency; (3) materially altering assets and future benefits.
manner consistent with the plan’s the budgetary impacts of entitlement The Department expects that the
provisions for allocating earnings. The grants, user fees, or loan programs or the improvements to the final VFC Program
Department has adopted this request, rights and obligations of recipients published today will increase efficiency
which is discussed further in the thereof; or (4) raising novel legal or and accessibility for potential
preamble to the amendment to PTE policy issues arising out of legal applicants. These improvements,
2002–51 published simultaneously with mandates, the President’s priorities, or described above, include: Extending to
this Notice. the principles set forth in the Executive welfare plans the summary
Order. OMB has determined that this documentation requirements permitted
D. Effective Date
action is significant under section 3(f)(4) for certain delinquent participant
The Department has determined that because it raises novel legal or policy contributions to pension plans;
the relief afforded to applicants under issues arising from the President’s clarifying the availability of a correction
the final VFC Program will be available priorities. Accordingly, the Department for the improper use of plan assets to
has assessed the costs and benefits of pay expenses that should have been
7 Certain individual retirement accounts and
the regulation. OMB has reviewed this paid by a plan sponsor based on a plan
other types of plans are regulated solely under the
provisions of the Code. Compliance with and regulatory action. provision or that are properly
enforcement of those provisions are not within the As stated in its previous analysis in characterized as settlor expenses;
jurisdiction of the Department of Labor. the preamble to the April 2005 Program expanding the correctable categories of
defective participant plan loans and described above, will cause adjustment improperly purchased asset, such as real
simplifying the loan documentation of the prior ICR and the estimates of estate. Plans that pursue this type of
requirements; and permitting the use of burden. These adjustments and their correction must hire an independent
a cash settlement as a correction effect on the estimates of the overall fiduciary to determine that the plan will
methodology when a plan decides to paperwork burden imposed by the final realize a greater benefit from this
retain an improperly purchased asset Program are discussed below. correction than a reversal of the original
and an independent fiduciary approves The final VFC Program extensively transaction. If a plan chooses this
such decision. simplifies the documentation method of correction, its application to
The Department has determined that requirements for correction of certain the VFC Program must include a report
the particular changes made to the final participant loan and welfare plan of the independent fiduciary’s
Program will reduce costs by reducing contribution violations. In the final VFC determination explaining the basis for
the number of hours required to make Program, the Department requires his or her conclusion that the plan will
corrections and file applications. The voluntary correction of certain receive a greater benefit than if the plan
Department has also estimated that participant loans to employees under had reversed the purchase by reselling
participation in the Program will the IRS’’ Employee Plans Compliance the asset in accordance with Program
continue to rise in the future due to a Resolution System (EPCRS) as a requirements.
combination of factors, including prerequisite to application for relief The overall paperwork burden of the
increases in the number and types of under the Program. Following final VFC Program and the amended
correctable transactions and increased correction under the EPCRS, applicants PTE 2002–51 is estimated as follows.
public familiarity. Although the must only provide the Department with The Department projects an increase in
Department is unable to estimate a copy of the compliance statement the number of respondents from 985 in
accurately the extent to which the received from the IRS and proof of fiscal year 2005 to 1,250 annually. For
particular changes made in the final payment of any required correction the final VFC Program alone, Plan
Program will contribute to this projected amounts. No additional documentation Officials will have to devote 3.5 hours
increase in participation in the Program, is required. The Department also to each application; they will spend an
the Department is projecting that simplified the documentation additional 1 hour on recordkeeping.
participation in the Program will requirements for applicants correcting Therefore, total burden hours for Plan
increase from 985 in fiscal year 2005 to delinquent participant contributions to Officials will equal 5,625 hours (4.5 hrs.
an annual application level of 1,250. See insured welfare plans and welfare plan × 1,250).
discussion below under Paperwork trusts. The April 2005 Program Service providers will need about 2
Reduction Act. The Department will permitted summary documentation, hours (at $34.50 per hour) for their work
continue to actively monitor the use of rather than detailed payroll and preparing plans’ applications. The total
the Program in order to better evaluate accounting records, in support of burden cost for service providers
its strengths and weaknesses. applications for delinquent participant equates to $86,250 ($34.50 × 2 hrs. ×
contributions or loan repayments to 1,250). Factoring in mailing costs of $8
Paperwork Reduction Act per application ($10,000), the complete
pension plans; the Department decided
The Information Collection Request to extend these reduced requirements burden costs for applicants will be
(ICR) included in the 2002 edition of the for Breaches involving delinquent $96,250 ($86,250 + $10,000).
Program and PTE 2002–51 was participant contributions to welfare In addition to the Program, the
originally approved by the Office of plans that are within certain amount Department is publishing an
Management and Budget (OMB) under and duration thresholds. Finally, the amendment to the class exemption PTE
control number 1210–0118. In Department clarified that applicants 2002–51, which applies only to
accordance with the Paperwork using the Online Calculator to perform qualifying applicants participating in
Reduction Act of 1995 (44 U.S.C. 3501– required calculations are not required to the final VFC Program. A detailed
3520) (PRA 95), the Department submit detailed documentation in discussion of the economic impact
submitted the revision to the existing support of the calculations; rather, they under Executive Order 12866 and the
ICR attributable to changes made to are simply asked to provide a copy of paperwork burdens under the
section 7.A.1(c) of the April 2005 the final page(s) that results from using Paperwork Reduction Act for the
Program to OMB for review and the ‘‘Print Viewable Results’’ feature of exemption, together with a table
clearance at the time the April 2005 the Online Calculator. summarizing the relevant numbers, can
VFC Program was published in the The ‘‘Fees and Expenses’’ category of be found in the preamble to the
Federal Register (April 6, 2005). At that transactions in the final VFC Program amendment to PTE 2002–51 published
time, the Department solicited public has been restructured to clarify that simultaneously with this Notice in
comment on the revision to the ICR. No applicants may correct Breaches today’s Federal Register. In brief, the
comments were received on the involving the improper use of plan Department calculates that 250 of the
information collection provisions assets to pay plan expenses that should applicants to the final VFC Program will
contained in the revision to the ICR. have been paid by the plan sponsor be covered by the class exemption. The
OMB approved the revision on based on a plan provision or that are Department has determined that service
September 26, 2005, under the same properly characterized as settlor providers will prepare the requisite
control number, 1210–0118. A copy of expenses. Applicants must provide documentation, which will require
the ICR, with applicable supporting copies of the plan’s accounting records approximately one hour for completion
documentation, may be obtained by showing the date and amount of the and delivery. The paperwork burden
contacting the Department of Labor, improperly paid expenses in addition to cost of the exemption therefore equals
Departmental Clearance Office, Ira the supporting documentation generally $8,625 ($34.50 × 1 hr. × 250). Total
Mills, at (202) 693–4122. (This is not a required by the Program. mailing costs for the paperwork under
toll-free number.) Certain of the As a further change, the final VFC the exemption will be $4,427. The
additional changes being made in the Program permits plans to utilize a cash Department assumes, however, that all
final VFC Program as a result of public settlement as a correction methodology applicants who send interested party
comment on the April 2005 Program, as when a plan decides to retain an notices will send the Department its
copy of the notice by mail, using it is not likely to result in (1) an annual Section 2. Effect of the VFC Program
certified or overnight delivery services effect on the economy of $100 million Section 3. Definitions
and that this copy will be included in or more; (2) a major increase in costs or Section 4. VFC Program Eligibility
Section 5. General Rules for Acceptable
the application package described above prices for consumers, individual
Corrections
under costs for the VFC Program. The industries, or Federal, state, or local (a) Fair Market Value Determinations
annual mailing costs for notices to government agencies, or geographic (b) Correction Amount
interested persons and the Department regions; or (3) significant adverse effects (c) Costs of Correction
is therefore estimated at $4,427. In total, on competition, employment, (d) Distributions
the paperwork burden costs entailed by investment, productivity, innovation, or (e) De Minimis Exception
PTE 2002–51, as amended, is $13,052 on the ability of United States-based Section 6. Application Procedures
($8,625 + $4,427). enterprises to compete with foreign- Section 7. Description of Eligible
In summary, the categories in the Transactions and Corrections Under the
based enterprises in domestic or export
VFC Program
table below encompass the numbers for markets. 7.1 Delinquent Remittance of Participant
both the final VFC Program and the Funds
Unfunded Mandates Reform Act
amended class exemption: (a) Delinquent Participant Contributions
Type of Review: Revision of currently Pursuant to provisions of the and Participant Loan Repayments to
approved collection of information. Unfunded Mandates Reform Act of 1995 Pension Plans
Agency: Department of Labor, (Pub. L. 104–4), this regulatory action (b) Delinquent Participant Contributions to
Employee Benefits Security does not include any Federal mandate Insured Welfare Plans
Administration. that may result in annual expenditures (c) Delinquent Participant Contributions to
Title: Voluntary Fiduciary Correction by State, local, or tribal governments, or Welfare Plan Trusts
Program. 7.2 Loans
the private sector, of $100 million or (a) Loan at Fair Market Interest Rate to a
OMB Number: 1210–0118. more. Party in Interest With Respect to the Plan
Affected Public: Individuals or (b) Loan at Below-Market Interest Rate to
households; Business or other for-profit; F. Federalism Statement
a Party in Interest With Respect to the
Not-for-profit institutions. Executive Order 13132 (August 4, Plan
Respondents: 1,250. 1999) outlines fundamental principles (c) Loan at Below-Market Interest Rate to
Frequency of Response: On occasion. of federalism and requires the a Person Who is Not a Party in Interest
Responses: 11,790. adherence to specific criteria by Federal With Respect to the Plan
Estimated Total Burden Hours: 5,625. agencies in the process of their (d) Loan at Below-Market Interest Rate
Total Annual Cost (Operating and formulation and implementation of Solely Due to a Delay in Perfecting the
Maintenance): $109,302. Plan’s Security Interest
policies that have substantial direct 7.3 Participant Loans
Persons are not required to respond to effects on the States, the relationship
the revised information collection (a) Loans Failing to Comply With Plan
between the national government and Provisions for Amount, Duration, or
unless it displays a currently valid OMB the States, or on the distribution of Level Amortization
control number. power and responsibilities among the (b) Default Loans
Regulatory Flexibility Act various levels of government. This 7.4 Purchases, Sales and Exchanges
Program would not have federalism (a) Purchase of an Asset (Including Real
This document describes an Property) by a Plan From a Party in
implications because it has no
enforcement policy of the Department, Interest
substantial direct effect on the States, on
and is not being issued as a general (b) Sale of an Asset (Including Real
the relationship between the national Property) by a Plan to a Party in Interest
notice of proposed rulemaking.
government and the States, or on the (c) Sale and Leaseback of Real Property to
Therefore, the Regulatory Flexibility Act
distribution of power and Employer
(5 U.S.C. 601 et seq.) (RFA) does not
responsibilities among the various (d) Purchase of an Asset (Including Real
apply and the Department is not
levels of government. Section 514 of Property) by a Plan From a Person Who
required to either certify that the rule is Not a Party in Interest With Respect
ERISA provides, with certain exceptions
will not have a significant economic to the Plan at a Price More Than Fair
specifically enumerated that are not
impact on a substantial number of small Market Value
pertinent here, that the provisions of
entities, or conduct a regulatory (e) Sale of an Asset (Including Real
Titles I and IV of ERISA supersede any
flexibility analysis. However, EBSA Property) by a Plan to a Person Who Is
and all laws of the States as they relate Not a Party in Interest With Respect to
considered the potential costs and
to any employee benefit plan covered the Plan at a Price Less Than Fair Market
benefits of this action for small plans
under ERISA. The requirements Value
and the Plan Officials in developing the
implemented in this Program do not (f) Holding of an Illiquid Asset Previously
final Program, and believes that its
alter the fundamental provisions of the Purchased by a Plan
greater simplicity and accessibility will 7.5 Benefits
statute with respect to employee benefit
make the Program more useful to small (a) Payment of Benefits Without Properly
plans, and as such would have no
employers who wish to avail themselves Valuing Plan Assets on Which Payment
implications for the States or the
of the relief offered. is Based
relationship or distribution of power
7.6 Plan Expenses
Congressional Review Act between the national government and (a) Duplicative, Excessive, or Unnecessary
The VFC Program is subject to the the States. Compensation Paid by a Plan
Congressional Review Act provisions of Authority: Secretary of Labor’s Order 1– (b) Expenses Improperly Paid by a Plan
the Small Business Regulatory 2003, 68 FR 5374 (February 3, 2003). ERISA (c) Payment of Dual Compensation to a
Enforcement Fairness Act of 1996 (5 Sec. 502(a)(2) and (a)(5) also issued under 29 Plan Fiduciary
U.S.C. 1132(a)(2) and (a)(5), ERISA Sec. Appendix A. Sample VFC Program No
U.S.C. 801 et seq.) and will be Action Letter
506(b) also issued under 29 U.S.C. 1136(b).
transmitted to the Congress and the Appendix B. VFC Program Checklist
Comptroller General for review. The Voluntary Fiduciary Correction Program (Required)
Program is not a ‘‘major rule’’ as that Section 1. Purpose and Overview of the VFC Appendix C. List of EBSA Regional Offices
term is defined in 5 U.S.C. 804 because Program Appendix D. Lost Earnings Example
Appendix E. Model Application Form letter issued under the VFC Program is (6) Other actions not precluded.
(Optional) limited to the breach and applicants Compliance with the terms of the VFC
Section 1. Purpose and Overview of the identified therein. Moreover, the Program will not preclude EBSA from
VFC Program method of calculating the correction taking any of the following actions:
amount described in this Program is (i) Seeking removal from positions of
The purpose of the Voluntary only intended to correct the specific responsibility with respect to a plan or
Fiduciary Correction Program (VFC breach described in the application. other non-monetary injunctive relief
Program or Program) is to protect the Methods of calculating losses other against any person responsible for the
financial security of workers by than, or in addition to, those set forth in transaction at issue;
encouraging identification and the Program may be more appropriate, (ii) Referring information regarding
correction of transactions that violate depending on the facts and the transaction to the Internal Revenue
Part 4 of Title I of the Employee circumstances, if the transaction Service (IRS) as required by section
Retirement Income Security Act of 1974, violates provisions of ERISA other than 3003(c) of ERISA; 10 or
as amended (ERISA). Part 4 of Title I of those that can be corrected under the (iii) Imposing civil penalties under
ERISA sets out the responsibilities of Program. If a transaction gave rise to section 502(c)(2) of ERISA based on the
employee benefit plan fiduciaries. violations not specifically described in failure or refusal to file a timely,
Section 409 of ERISA provides that a the Program, the relief afforded by the complete and accurate annual report
fiduciary who breaches any of these Program would not extend to such Form 5500. Applicants should be aware
responsibilities shall be personally additional violations. that amended annual report filings may
liable to make good to the plan any (2) No implied approval of other be required if possible breaches of
losses to the plan resulting from each matters. A no action letter does not ERISA have been identified, or if action
breach and to restore to the plan any imply Departmental approval of matters is taken to correct possible breaches in
profits the fiduciary made through the not included therein, including steps accordance with the VFC Program.
use of the plan’s assets. Section 405 of that the fiduciaries take to prevent (7) Not binding on others. The
ERISA provides that a fiduciary may be recurrence of the breach described in issuance of a no action letter does not
liable, under certain circumstances, for the application and to ensure the plan’s affect the ability of any other
a co-fiduciary’s breach of his or her future compliance with Title I of ERISA. government agency, or any other person,
fiduciary responsibilities. In addition, (3) Material misrepresentation. Any to enforce any rights or carry out any
under certain circumstances, there may no action letter issued under the VFC authority they may have, with respect to
be liability for knowing participation in Program is conditioned on the matters described in the no action letter.
a fiduciary breach. In order to assist all truthfulness, completeness and accuracy (8) Example. A plan fiduciary causes
affected persons in understanding the of the statements made in the the plan to purchase real estate from the
requirements of ERISA and meeting application and of any subsequent oral plan sponsor under circumstances to
their legal responsibilities, the and written statements or submissions. which no prohibited transaction
Employee Benefits Security Any material misrepresentations or exemption applies. In connection with
Administration (EBSA) is providing omissions will void the no action letter, this transaction, the purchase causes the
guidance on what constitutes adequate retroactive to the date that the letter was plan assets to be no longer diversified,
correction under Title I of ERISA for the issued by EBSA, with respect to the in violation of ERISA section
breaches described in this Program. transaction that was materially 404(a)(1)(C). If the application reflects
misrepresented. full compliance with the requirements
Section 2. Effect of the VFC Program of the Program, the Department’s no
(4) Applicant fails to satisfy terms of
(a) In general. EBSA generally will the VFC Program. If an application fails action letter would apply to the
issue to the applicant a no action letter 8 to satisfy the terms of the VFC Program, violation of ERISA section 406(a)(1)(A),
with respect to a breach identified in the as determined by EBSA, EBSA reserves but would not apply to the violation of
application if the eligibility the right to investigate and take any section 404(a)(1)(C).
requirements of section 4 are satisfied other action with respect to the (d) Correction. The correction criteria
and a Plan Official corrects a breach, as transaction and/or plan that is the listed in the VFC Program represent
defined in section 3, in accordance with subject of the application, including EBSA enforcement policy with respect
the requirements of sections 5, 6 and 7. refusing to issue a no action letter. to applications under the Program and
Pursuant to the no action letter it issues, (5) Criminal investigations not are provided for informational purposes
EBSA will not initiate a civil precluded. Participation in the VFC to the public, but are not intended to
investigation under Title I of ERISA Program will not preclude: confer enforceable rights on any person
regarding the applicant’s responsibility (i) EBSA or any other governmental who purports to correct a violation.
for any transaction described in the no agency from conducting a criminal Applicants are advised that the term
action letter, or assess civil penalties investigation of the transaction ‘‘correction’’ as used in the VFC
under either section 502(l) or 502(i) of identified in the application; Program is not necessarily the same as
ERISA on the correction amount paid to (ii) EBSA’s assistance to such other ‘‘correction’’ pursuant to section 4975 of
the plan or its participants. agency; or the Internal Revenue Code (Code).11
(b) Verification. EBSA reserves the (iii) EBSA making the appropriate
right to conduct an investigation at any referrals of criminal violations as
10 Section 3003(c) provides that, whenever the
time to determine (1) the truthfulness Secretary of Labor obtains information indicating
required by section 506(b) of ERISA.9 that a party in interest or disqualified person is
and completeness of the factual violating section 406 of ERISA, she shall transmit
statements set forth in the application 9 Section 506(b) provides that the Secretary of such information to the Secretary of the Treasury.
and (2) that the corrective action was, in
Labor shall have the responsibility and authority to 11 See section 4975(f)(5) of the Code; section
fact, taken. detect and investigate and refer, where appropriate, 141.4975–13 of the temporary Treasury Regulations
(c) Limits on the effect of the VFC civil and criminal violations related to the and section 53.4941(e)–1(c) of the Treasury
provisions of Title I of ERISA and other related Regulations. The IRS has indicated that the federal
Program. (1) In general. Any no action Federal laws, including the detection, investigation, tax treatment of a breach and correction under the
and appropriate referrals of related violations of VFC Program (including the Federal income and
8 See Appendix A. Title 18 of the United States Code. Continued
Correction may not be achieved under applicant shall be considered to be by EBSA’s Office of the Chief
the Program by engaging in a prohibited ‘‘Under Investigation’’ if: Accountant under the authority of
transaction that is not subject to a (i) EBSA is conducting an ERISA section 504(a).
prohibited transaction administrative investigation of the plan; Example 1. On March 1 the plan sponsor
exemption. (ii) EBSA is conducting an of a multiple employer welfare arrangement
(e) EBSA’s authority to investigate. investigation of the potential applicant (MEWA) received written notification from
EBSA reserves the right to conduct an or plan sponsor in connection with an an agent of the state insurance
investigation and take any other act or transaction directly related to the commissioner’s office that the MEWA has
enforcement action relating to the plan; been scheduled for examination. The
transaction identified in a VFC Program applicant does not notify EBSA of the
(iii) Any governmental agency is examination. As of March 1, the plan is
application in certain circumstances, conducting a criminal investigation of ineligible for participation in the VFC
such as prejudice to the Department that the plan, or of the potential applicant or Program because the plan sponsor has
may be caused by the expiration of the plan sponsor in connection with an act received a notice from the state insurance
statute of limitations period, material or transaction directly related to the commissioner’s office concerning its intent to
misrepresentations or omissions, other plan; examine the plan, and the applicant did not
abuses of the VFC Program, or (iv) The Tax Exempt and Government provide EBSA written notice of the
significant harm to the plan or its Entities Division of the IRS is examination with the application.
participants that is not cured by the Example 2. Assume the same facts as in
conducting an Employee Plans Example 1, except that the applicant chooses
correction provided under the VFC examination of the plan; or to notify EBSA in writing of the examination.
Program. EBSA may also conduct a civil (v) The Pension Benefit Guaranty The plan’s eligibility to apply under the VFC
investigation and take any other Corporation (PBGC), any state attorney Program would not be affected because the
enforcement action relating to matters general, or any state insurance applicant provides written notice of the
not covered by the VFC Program commissioner is conducting an examination to EBSA with the application.
application or relating to other plans investigation or examination of the plan, EBSA will promptly notify the state
sponsored by the same plan sponsor, or of the applicant or plan sponsor in insurance commissioner of the pending VFC
while a VFC Program application Program application so that the state
connection with an act or transaction
involving the plan or the plan sponsor insurance commissioner’s office has an
directly related to the plan, unless the opportunity to provide information about its
is pending. applicant notifies EBSA, in writing, of
(f) Confidentiality. EBSA will examination to EBSA. EBSA will include the
such an investigation or examination at information received from the state insurance
maintain the confidentiality of any the time of the application; commissioner’s office in its review of the
documents submitted under the VFC VFC Program application.
Program, to the extent permitted by law. and the plan, a Plan Official, or any
However, as noted in (c)(5) and (6) of authorized plan representative has Section 4. VFC Program Eligibility
this section, EBSA has an obligation to received a written or oral notice of an
Eligibility for the VFC Program is
make referrals to the IRS and to refer to investigation or examination described
conditioned on the following:
other agencies evidence of criminality in (i), (ii), (iii), (iv), or (v). (a) Neither the plan nor the applicant
and other information for law An applicant notifying EBSA of an is Under Investigation.
enforcement purposes. investigation or examination under (b) The application contains no
section 3(b)(3)(v) must submit the name evidence of potential criminal violations
Section 3. Definitions of the examining agency and a contact as determined by EBSA.
(a) The terms used in this document person at such agency. Upon receipt of (c) EBSA has not conducted an
have the same meaning as provided in an application including such investigation which resulted in written
section 3 of ERISA, 29 U.S.C. 1002, information, EBSA will promptly notify notice to a plan fiduciary that the
unless separately defined herein. the investigating agency in writing of transaction, for which the potential
(b) The following definitions apply for the VFC Program application. EBSA’s applicant could otherwise have sought
purposes of the VFC Program: notice will afford the examining agency relief under the Program, has been
(1) Breach. The term ‘‘Breach’’ means an opportunity to provide EBSA with referred to the IRS. This condition
any transaction that is or may be a information relevant to the investigation applies only to those transactions
breach of the fiduciary responsibilities or examination. In response to the specifically identified in EBSA’s written
contained in Part 4 of Title I of ERISA. information received from the notice of referral to the IRS.
(2) Plan Official. The term ‘‘Plan investigating agency, EBSA, in its sole
Official’’ means a plan fiduciary, plan discretion, may decline to issue a no Section 5. General Rules for Acceptable
sponsor, party in interest with respect to action letter to the applicant. Corrections
a plan, or other person who is in a For purposes of section 4(a), a plan (a) Fair Market Value Determinations.
position to correct a Breach. shall not be considered to be ‘‘Under Many corrections require that the
(3) Under Investigation. For purposes Investigation’’ merely because EBSA current or fair market value (FMV) of an
of section 4(a), a plan or potential staff has contacted the plan, the asset be determined as of a particular
applicant, or the plan sponsor in date, usually either the date the plan
employment tax consequences to participants,
beneficiaries, and plan sponsors) are determined
connection with a participant originally acquired the asset or the date
under the Code and that, based on its review of the complaint, unless the participant of the correction, or both. In order to be
Program, except in those instances where the complaint concerns the transaction acceptable as part of a VFC Program
fiduciary breach or its correction involve a tax described in the application and the correction, the valuation must meet the
abuse, a correction under the VFC Program for a
breach that constitutes a prohibited transaction
plan has not received the correction following conditions:
amount due under the Program as of the (1) If there is a generally recognized
under section 4975 of the Code generally will

constitute correction for purposes of section 4975 date EBSA staff contacted the plan, the market for the property (e.g., the New
and a correction under the VFC Program for a applicant, or the plan sponsor. A plan York Stock Exchange), the FMV of the
breach that also constitutes an operational plan
qualification failure generally will constitute
also is not considered to be ‘‘Under asset is the average value of the asset on
correction for purposes of the IRS’ Employee Plans Investigation’’ if the accountant of the such market on the applicable date,
Compliance Resolution System (EPCRS). plan is undergoing a work paper review unless the plan document specifies
another objectively determined value transaction costs associated with date the Lost Earnings are paid to the
(e.g., the closing price). entering into the transaction that plan.
(2) If there is no generally recognized constitutes the Breach. (iv) Special Rule for Transactions
market for the asset, the FMV of that (3) Loss Date. ‘‘Loss Date’’ is the date Causing Large Losses. If the amount of
asset must be determined in accordance that the plan lost the use of the Lost Earnings (determined in
with generally accepted appraisal Principal Amount. accordance with paragraph (b)(5)(ii)
standards by a qualified, independent (4) Recovery Date. ‘‘Recovery Date’’ is above) and any interest added to such
appraiser and reflected in a written the date that the Principal Amount is Lost Earnings (determined in
appraisal report signed by the appraiser. restored to the plan. accordance with paragraph (b)(5)(iii)
(3) An appraiser is ‘‘qualified’’ if he or (5) Lost Earnings. (i) General. ‘‘Lost above), exceed $100,000, the amount of
she has met the education, experience, Earnings’’ is intended to approximate Lost Earnings and interest, if any, to be
and licensing requirements that are the amount that would have been paid to the plan shall be determined in
generally recognized for appraisal of the earned by the plan on the Principal accordance with paragraphs (b)(5)(ii)
type of asset being appraised. Amount, but for the Breach. For and (iii) above, substituting the
(4) An appraiser is ‘‘independent’’ if applicable underpayment rates under
purposes of this Program, Lost Earnings
he or she is not one of the following, section 6621(c)(1) of the Code 14 in lieu
shall be calculated in accordance with
does not own or control any of the of the rates under section 6621(a)(2).
this paragraph.
following, and is not owned or (v) Method of Calculation. For
controlled by, or affiliated with, any of (ii) Initial Calculation. Lost earnings
purposes of calculating Lost Earnings
the following: shall be calculated by: (A) Determining
and interest, if any, a Plan Official may
(i) The prior owner of the asset, if the the applicable corporate underpayment
either (A) use the Online Calculator
asset was purchased by the plan; rate(s) established under section
described in paragraph (b)(7) below, or
(ii) The purchaser of the asset, if the 6621(a)(2) of the Code 12 for each quarter
(B) perform a manual calculation in
asset was, or is now being, sold by the (or portion thereof) for the period
accordance with subparagraphs (i)
plan; beginning with the Loss Date and
through (iv) of this paragraph (b)(5). A
(iii) Any other owner of the asset, if ending with the Recovery Date; (B)
Plan Official using the Online
the plan is not the sole owner; determining, by reference to IRS
Calculator or performing a manual
(iv) A fiduciary of the plan; Revenue Procedure 95–17,13 the
calculation shall include as part of the
(v) A party in interest with respect to applicable factor(s) for such quarterly
VFC Program application sufficient
the plan (except to the extent the underpayment rate(s) for each quarter
information to verify the correctness of
appraiser becomes a party in interest (or portion thereof) of the period
the amounts to be paid to the plan.
when retained to perform this appraisal beginning with the Loss Date and
(6) Restoration of Profits. (i) General.
for the plan); or ending with the Recovery Date; and (C)
If the Principal Amount was used for a
(vi) The VFC Program applicant. multiplying the Principal Amount by
specific purpose such that a profit on
(b) Correction Amount. (1) In general. the first applicable factor to determine
the use of the Principal Amount is
For purposes of the VFC Program, the the amount of earnings for the first
determinable, the Plan Official must
correction amount is the amount that quarter (or portion thereof). If the Loss
calculate the Restoration of Profits
must be paid to the plan as a result of Date and Recovery Date are within the
amount and compare it to the Lost
the Breach in order to make the plan same quarter, the initial calculation is
Earnings amount to determine the
whole. In most instances, the correction complete. If the Recovery Date is not in
correction amount (see paragraph (b)(1)
amount will be a combination of the the same quarter as the Loss Date, the
of this section). ‘‘Restoration of Profits’’
Principal Amount involved in the applicable factor for each subsequent
is a combination of two amounts: (A)
transaction (see paragraph (b)(2) of this quarter (or portion thereof) must be
The amount of profit made on the use
section), the Lost Earnings amount, applied to the sum of the Principal
of the Principal Amount by the
which is earnings that would have been Amount and all earnings as of the end
fiduciary or party in interest who
earned on the Principal Amount for the of the immediately preceding quarter (or
engaged in the Breach, or by a person
period of the transaction (see paragraph portion thereof), until Lost Earnings
who knowingly participated in the
(b)(5) of this section), and any interest have been calculated for the entire
Breach, and (B) if the profit is returned
on Lost Earnings. However, in period, ending with the Recovery Date.
to the plan on a date later than the date
circumstances when the Restoration of (iii) Payment of Lost Earnings after on which the profit was realized (i.e.,
Profits amount (see paragraph (b)(6) of Recovery Date. If Lost Earnings are not received or determined), the amount of
this section) exceeds the Lost Earnings paid to the plan on the Recovery Date interest earned on such profit from the
amount and any interest on Lost along with the Principal Amount, date the profit was realized to the date
Earnings, the correction amount will be payment of Lost Earnings shall include on which the profit is paid to the plan.
a combination of the Principal Amount interest on the amount of Lost Earnings The amount of such interest shall be
and the Restoration of Profits amount. determined in accordance with
(2) Principal Amount. ‘‘Principal determined in accordance with
paragraph (b)(5)(ii) above. Such interest paragraph (b)(6)(ii) below.
Amount’’ is the amount that would have shall be calculated in the same manner If the Restoration of Profits amount
been available to the plan for as Lost Earnings described in paragraph exceeds Lost Earnings and interest, if
investment or distribution on the date of (b)(5)(ii) above, for the period beginning any, the Restoration of Profits amount
the Breach, had the Breach not on the Recovery Date and ending on the must be paid to the plan instead of Lost
occurred. The Principal Amount, when
Earnings.
applicable, must be determined for each 12 These underpayment rates are displayed on
(ii) Calculation of Interest. Interest
transaction by reference to section 7 of
EBSA’s Web site and will be updated when

shall be calculated by: (A) Determining
the VFC Program. Generally, the necessary.
13 Rev. Proc. 95–17, 1995–1 C.B. 556 (Feb. 8, the applicable corporate underpayment
Principal Amount is the base amount on
1995). These factors, which are displayed on
which Lost Earnings and, if applicable, EBSA’s Web site in a tabular format, incorporate 14 These underpayment rates are displayed on
Restoration of Profits is calculated. The daily compounding of an interest rate over a set EBSA’s Web site and will be updated when
Principal Amount shall include any period of time. necessary.
rate(s) established under section EBSA’s Web site that permits applicants associated with recalculating participant
6621(a)(2) of the Code for each quarter to calculate the amount of Lost account balances to take into account the
(or portion thereof) for the period Earnings, any interest on Lost Earnings, new valuation. There would be no need for
these additional calculations or any
beginning with the date the profit was and the interest amount for Restoration increased appraisal cost if the plan’s assets
realized (i.e. received or determined) of Profits, if applicable, for certain had been valued properly at the time of the
and ending with the date on which the transactions. The Online Calculator will purchase. Therefore, the cost of recalculating
profit is paid to the plan; (B) be updated as necessary. the plan participants’ account balances is not
determining, by reference to IRS (i) Lost Earnings and Interest. To a reasonable plan expense, but is part of the
Revenue Procedure 95–17, the calculate Lost Earnings, applicants must costs of correction.
applicable factor(s) for such quarterly input the (A) Principal Amount, (B) (d) Distributions. Plans will have to
underpayment rate(s) for each quarter Loss Date, (C) Recovery Date, and, if the make supplemental distributions to
(or portion thereof) of the period final payment will occur after the former employees, beneficiaries
beginning with the date the profit was Recovery Date, (D) the date of such final receiving benefits, or alternate payees, if
realized and ending with the date on payment. The Online Calculator selects the original distributions were too low
which the profit is paid to the plan; and the applicable factors under Revenue because of the Breach. In these
(C) multiplying the first applicable Procedure 95–17 after referencing the situations, the Plan Official or plan
factor by the profit on the Principal underpayment rates over the relevant administrator must determine who
Amount, referred to in paragraph time period. The Online Calculator then received distributions from the plan
(b)(6)(i)(A) above, to determine the automatically applies the factors to during the time period affected by the
amount of interest for the first quarter provide applicants with the amount of Breach, recalculate the account
(or portion thereof). If the date the profit Lost Earnings and interest, if any, that balances, and determine the amount of
was realized and the date the profit is must be paid to the plan. the underpayment to each affected
paid to the plan are within the same (ii) Interest Amount for Restoration of individual. The applicant must
quarter, the initial calculation is Profits. To calculate the interest amount demonstrate proof of payment to
complete. If the date the profit was on the profit, applicants must input (A) participants and beneficiaries whose
realized is not in the same quarter as the the amount of profit, (B) the date the current location is known to the plan
date the profit was paid to the plan, the amount of profit was realized (i.e. and/or applicant. For individuals whose
applicable factor for each subsequent received or determined), and (C) the location is unknown, applicants must
quarter (or portion thereof) must be date of payment of the Restoration of demonstrate that they have segregated
applied to the sum of the profit on the Profits amount. The Online Calculator adequate funds to pay the missing
Principal Amount, referred to in selects the applicable factors under individuals and that the applicant has
paragraph (b)(6)(i)(A) above, and all Revenue Procedure 95–17 after commenced the process of locating the
interest as of the end of the immediately referencing the underpayment rates over missing individuals using either the IRS
preceding quarter (or portion thereof), the relevant time period. The Online and Social Security Administration
until interest has been calculated for the Calculator then automatically applies locator services, or other comparable
entire period, ending with the date the the factors to provide applicants with means. The costs of such efforts are part
profit is paid to the plan. the interest amount on the profit that of the costs of correction.
(iii) Special Rule for Transactions must be paid to the plan. (e) De Minimis Exception. Where
Resulting in Large Restorations. If the (8) The principles of paragraph (b) of correction under the Program requires
amount of Restoration of Profits this Section are illustrated by example distributions in amounts less than $20
(determined in accordance with in Appendix D. to former employees, their beneficiaries
paragraph (b)(6)(i) above) exceeds (c) Costs of Correction. (1) The and alternate payees, who neither have
$100,000, the amount of any interest on fiduciary, plan sponsor or other Plan account balances with, nor have a right
the Restoration of Profits to be paid to Official, shall pay the costs of to future benefits from the plan, and the
the plan shall be determined in correction, which may not be paid from applicant demonstrates in its
accordance with paragraph (b)(6)(ii), plan assets. submission that the cost of making the
above, substituting the applicable (2) The costs of correction include, distribution to each such individual
underpayment rates under section where appropriate, such expenses as exceeds the amount of the payment to
6621(c)(1) of the Code in lieu of the closing costs, prepayment penalties, or
rates under section 6621(a)(2). which such individual is entitled in
sale or purchase costs associated with connection with the correction of the
(iv) Method of Calculation. For correcting the transaction.
purposes of calculating the interest transaction that is the subject of the
(3) The principle of paragraph (c)(1) of
amount for Restoration of Profits, application, the applicant need not
this Section is illustrated in the
pursuant to paragraphs (b)(6)(ii) and (iii) make distributions to such individuals
following example and in paragraph (d)
above, a Plan Official may either (A) use who would receive less than $20 each
below:
the Online Calculator described in as part of the correction. However, the
Example: The plan fiduciaries did not applicant must pay to the plan as a
paragraph (b)(7) below, or (B) perform a obtain a required independent appraisal in
manual calculation in accordance with whole the total of such de minimis
connection with a transaction described in
subparagraphs (ii) and (iii) of this section 7. In connection with correcting the
amounts not distributed to such
paragraph (b)(6). A Plan Official using transaction, the plan fiduciaries now propose individuals.
the Online Calculator or performing a to have the appraisal performed as of the date Example. Employer X sponsors Plan Y.
manual calculation shall include as part of purchase. The plan document permits the Employer X submits an application under the
of the VFC Program application plan to pay reasonable and necessary VFC Program to correct a failure to timely
expenses; the fiduciaries have objectively forward participant contributions to Plan Y.
sufficient information to verify the
determined that the cost of the proposed Employer X had paid the delinquent
correctness of the amounts to be paid to appraisal is reasonable and is not more contributions six months late, but had not
the plan. expensive than the cost of an appraisal paid lost earnings on the delinquency. The
(7) Online Calculator. ‘‘Online contemporaneous with the purchase. The correction under the VFC Program, therefore,
Calculator’’ is an Internet based plan may therefore pay for this appraisal. required only payment of Lost Earnings for
compliance assistance tool provided on However, the plan may not pay any costs the six-month delinquency. During the six-
month period 25 employees separated from and Lost Earnings or, if applicable, signed, dated receipt from the recipient
service and rolled over their plan accounts to Restoration of Profits were computed; of funds transferred to the plan (such as
individual retirement accounts. The amount (ii) If the applicant uses the Online a financial institution), and bank
of lost earnings due to 20 of those former Calculator in accordance with (b)(7) of statements for the plan’s account.
employees is less than $20, and Employer X (g) Penalty of Perjury Statement. Each
demonstrates that the cost of making the
section 5, the data elements required to
distribution to those former employees is $27 be input into the Online Calculator application must include the following
per individual. Employer X need not make under paragraphs (b)(7)(i) and/or (ii) of statement: ‘‘Under penalties of perjury I
distributions to those 20 former employees. section 5, as applicable (to satisfy this certify that I am not Under Investigation
However, the total amount of distributions requirement, applicants may submit a (as defined in section 3(b)(3)) and that
that would have been due to those former copy of the page(s) that results from the I have reviewed this application,
employees must be paid to Plan Y. The ‘‘View Printable Results’’ function used including all supporting documentation,
payment to Plan Y may be used for any after inputting data elements and and to the best of my knowledge and
purpose that payments or credits, which are completing use of the Online belief the contents are true, correct, and
not allocated directly to participant accounts, complete.’’ The statement must be
are used. Employer X must make
Calculator); and
(iii) An explanation of why payment signed and dated by a plan fiduciary
distributions to the five former employees
who are entitled to receive distributions of of Lost Earnings or Restoration of Profits with knowledge of the transaction that
more than $20. was chosen to correct the Breach. is the subject of the application and the
(e) Supporting documentation. The authorized representative of the
Section 6. Application Procedures applicant must also include: applicant, if any. In addition, each Plan
(1) Copies of the relevant portions of Official applying under the VFC
(a) In general. Each application must Program must sign and date the Penalty
the plan document and any other
adhere to the requirements set forth of Perjury statement. The statement
pertinent documents (such as the
below. Failure to do so may render the must accompany the application and
adoption agreement, trust agreement, or
application invalid. any subsequent additions to the
(b) Preparer. The application must be insurance contract); 15
(2) Documentation that supports the application. Use of the Penalty of
prepared by a Plan Official or his or her Perjury Statement included with the
authorized representative (e.g., attorney, narrative description of the transaction
and its correction; Model Application Form in Appendix E
accountant, or other service provider). If will satisfy the requirements of
a representative of the Plan Official is (3) Documentation establishing the
Lost Earnings amount; paragraph (g) of this section.
submitting the application, the (h) Checklist. The checklist in
(4) Documentation establishing the
application must include a statement Appendix B must be completed, signed,
amount of Restoration of Profits, if
signed by the Plan Official that the and submitted with the application. Use
applicable;
representative is authorized to represent of the checklist included with the
(5) All documents described in
the Plan Official. Any fees paid to such Model Application Form in Appendix E
section 7 with respect to the transaction
representative for services relating to the also will satisfy the requirements of
involved; and
preparation and submission of the paragraph (h) of this section.
(6) Proof of payment of Principal
application may not be paid from plan (i) Where to apply. The application
Amount and Lost Earnings or
assets. shall be mailed to the appropriate EBSA
Restoration of Profits.
(c) Contact person. Each application Regional Office listed in Appendix C.
Applicants using the Online
must include the name, address and (j) Submission of Additional
Calculator may satisfy the requirements
telephone number of a contact person. Documentation. If EBSA determines
of paragraph (e)(3) above, with respect
The contact person must be familiar that required information is missing
to Lost Earnings, and paragraph (e)(4)
with the contents of the application, and from the application or that additional
above, as to the amount of interest, if
have authority to respond to inquiries documentation is needed to complete
any, payable with respect to the profit
from EBSA. EBSA’s review, EBSA will request such
(d) Detailed narrative. The applicant amount, by complying with the
requirements of paragraph (d)(6)(ii) of documentation in writing from the
must provide to EBSA a detailed applicant or authorized representative.
narrative describing the Breach and the this section. Except for proof of
payment, as described in paragraph If EBSA does not receive the requested
corrective action. The narrative must documentation within a time period
include: (e)(6) above, applicants correcting
participant loan transactions in section specified in writing by the EBSA
(1) A list of all persons materially reviewer, EBSA may suspend its review
involved in the Breach and its 7.3 are not required to submit the other
documentation described above. of the application and consider
correction (e.g., fiduciaries, service appropriate action. EBSA will notify the
providers, borrowers); (f) Examples of supporting
documentation. (1) Examples of applicant or authorized representative
(2) The employer identification in writing regarding such suspension.
number (EIN), plan number, and documentation supporting the
(k) Recordkeeping. The applicant
address of the plan sponsor and description of the transaction and
must maintain copies of the application
administrator; correction are leases, appraisals, notes
and any subsequent correspondence
(3) The date the plan’s most recent and loan documents, service provider
with EBSA for the period required by
Form 5500 was filed; contracts, invoices, settlement
section 107 of ERISA.
(4) An explanation of the Breach, documents, deeds, perfected security
including the date it occurred; interests, and amended annual reports. Section 7. Description of Eligible
(5) An explanation of how the Breach (2) Examples of acceptable proof of Transactions and Corrections Under
was corrected, by whom and when; and payment include copies of canceled the VFC Program
(6)(i) If the applicant performs a checks, executed wire transfers, a EBSA has identified certain Breaches
manual calculation in accordance with 15 Applicants must supply complete copies of the
and methods of correction that are
paragraphs (b)(5)(i) through (iv) of plan documents and other pertinent documents if
suitable for the VFC Program. Any Plan
section 5, specific calculations requested by EBSA during its review of the Official may correct a Breach listed in
demonstrating how Principal Amount application. this section in accordance with section
5 and the applicable correction method. by the employer and not from and after the period of unpaid or late
The correction methods set forth are participant loan repayments. contributions and/or repayments;
strictly construed and are the only (ii) Late Contributions or Participant (B) For participant contributions and/
acceptable correction methods under Loan Repayments. If participant or repayments received from
the VFC Program for the transactions contributions or loan repayments were participants, a copy of the accounting
described in this section. EBSA will remitted to the plan outside of the time records which identify the date and
only accept applications concerning periods described above, the only amount of each contribution received;
correction of Breaches described in this correction required is to pay to the plan and
section. the greater of (A) Lost Earnings or (B) (C) For participant contributions and/
Restoration of Profits resulting from the or repayments withheld from
7.1 Delinquent Remittance of employees’ paychecks, a copy of the
employer’s use of the Principal Amount
Participant Funds payroll documents showing the date
as described in section 5(b). Any
(a) Delinquent Participant Contributions penalties, late fees or other charges shall and amount of each withholding.
and Participant Loan Repayments to be paid by the employer and not from (b) Delinquent Participant Contributions
Pension Plans participant loan repayments. to Insured Welfare Plans
(1) Description of Transaction. An (iii) For this transaction, the Principal
Amount is the amount of delinquent (1) Description of Transaction.
employer receives directly from Benefits are provided exclusively
participants, or withholds from participant contributions or loan
repayments retained by the employer. through insurance contracts issued by
employees’ paychecks, certain amounts an insurance company or similar
for either contribution to a pension plan (iv) Example. The principles of
paragraph (a)(2) of this section are organization qualified to do business in
or for repayment of participants’ plan any state or through a health
loans. Instead of forwarding participant illustrated by example in Appendix D.
(3) Documentation. In addition to the maintenance organization (HMO)
contributions for investment in defined in section 1310(c) of the Public
accordance with the provisions of the documentation required by section 6,
submit the following documents: Health Service Act, 42 U.S.C. 300e–9(c).
plan and by reference to the principles An employer receives directly from
(i) A statement from a Plan Official
of the Department’s regulation at 29 CFR participants or withholds from
identifying the earliest date on which
2510.3–102, the employer retains such
the participant contributions and/or employees’ paychecks certain amounts
contributions for a longer period of
repayments reasonably could have been that the employer forwards to an
time. Similarly, in the case of
segregated from the employer’s general insurance provider for the purpose of
participant loan repayments, instead of
assets, along with the supporting providing group health or other welfare
applying such repayments to
documentation on which the Plan benefits. The employer fails to forward
outstanding loan balances within a
Official relied in reaching this such amounts in accordance with the
reasonable period of time determined by
conclusion; terms of the plan (including the
reference to the guiding principles of 29
(ii) If restored participant provisions of any insurance contract) or
CFR 2510.3–102 and in accordance with
contributions and/or repayments the requirements of the Department’s
the provisions of the plan, the employer
retains such repayments for a longer (exclusive of Lost Earnings) (A) total regulation at 29 CFR 2510.3–102. There
period of time. $50,000 or less; or (B) exceed $50,000 are no instances in which claims have
(2) Correction of Transaction. (i) and were remitted to the plan within been denied under the plan, nor has
Unpaid Contributions or Participant 180 calendar days from the date such there been any lapse in coverage, due to
Loan Repayments. Pay to the plan the amounts were received by the employer, the failure to transmit participant
Principal Amount plus the greater of (A) or the date such amounts otherwise contributions on a timely basis.
Lost Earnings on the Principal Amount would have been payable to the (2) Correction of Transaction. (i) Pay
or (B) Restoration of Profits resulting participants in cash (regarding amounts to the insurance provider or HMO the
from the employer’s use of the Principal withheld by an employer from Principal Amount, as well as any
Amount, as described in section 5(b). employees’ paychecks), submit: penalties, late fees or other charges
The Loss Date for such contributions is (1) A narrative describing the necessary to prevent a lapse in coverage
the date on which each contribution applicant’s contribution and/or due to such failure. Any penalties, late
reasonably could have been segregated repayment remittance practices before fees or other such charges shall be paid
from the employer’s general assets. In and after the period of unpaid or late by the employer and not from
no event shall the Loss Date for such contributions and/or repayments; and participant contributions.
contributions be later than the (2) Summary documents (ii) For this transaction, the Principal
applicable maximum time period demonstrating the amount of unpaid or Amount is the amount of delinquent
described in 29 CFR 2510.3–102. The late contributions and/or repayments; participant contributions retained by the
Loss Date for such repayments is the and employer.
date on which each repayment (iii) If restored participant (3) Documentation. In addition to the
reasonably could have been segregated contributions and/or repayments documentation required by section 6,
from the employer’s general assets (exclusive of Lost Earnings) exceed submit the following documents:
$50,000 and were remitted more than (i) A statement from a Plan Official:
consistent with the guiding principles of
180 calendar days after the date such (A) Identifying the earliest date on
29 CFR 2510.3–102.16 Any penalties,
amounts were received by the employer, which the participant contributions
late fees or other charges shall be paid
or the date such amounts otherwise reasonably could have been segregated
16 Although the maximum time periods described would have been payable to the from the employer’s general assets,
participants in cash (regarding amounts along with the supporting
in 29 CFR 2510.3–102 are not directly applicable to

participant loan repayments, retaining repayments withheld by an employer from documentation on which the Plan
beyond such periods raises a question as to whether employees’ paychecks), submit: Official relied in reaching this
the employer forwarded repayments to the plan as
soon as they could reasonably be segregated from
(A) A narrative describing the conclusion; (B) attesting that there are
the employer’s general assets. See Advisory applicant’s contribution and/or no instances in which claims have been
Opinion 2002–02A (May 17, 2002). repayment remittance practices before denied under the plan for nonpayment,
nor has there been any lapse in the failure to transmit participant (2) Summary documents
coverage; and (C) attesting that any contributions on a timely basis. demonstrating the amount of unpaid or
penalties, late fees or other such charges (2) Correction of Transaction. (i) late contributions; and
have been paid by the employer and not Unpaid Contributions. Pay to the trust (iii) If restored participant
from participant contributions; (A) the Principal Amount, and, where contributions (exclusive of Lost
(ii) Copies of the insurance contract or applicable, any penalties, late fees or Earnings) exceed $50,000 and were
contracts for the group health or other other charges necessary to prevent a remitted more than 180 calendar days
welfare benefits for the plan; and lapse in coverage due to the failure to after the date such amounts were
(iii) If restored participant make timely payments, and (B) the received by the employer, or the date
contributions (A) total $50,000 or less, greater of (1) Lost Earnings on the such amounts otherwise would have
or (B) exceed $50,000 and were remitted Principal Amount or (2) Restoration of been payable to the participants in cash
to the plan within 180 calendar days Profits resulting from the employer’s use (regarding amounts withheld by an
from the date such amounts were of the Principal Amount as described in employer from employees’ paychecks),
received by the employer, or the date section 5(b). The Loss Date for such submit:
such amounts otherwise would have contributions is the date on which each (A) A narrative describing the
been payable to the participants in cash contribution would become plan assets applicant’s contribution remittance
(regarding amounts withheld by an under 29 CFR 2510.3–102. Any practices before and after the period of
employer from employees’ paychecks), penalties, late fees or other charges shall unpaid or late contributions,
submit: be paid by the employer and not from (B) For participant contributions
(1) A narrative describing the participant contributions. received directly from participants, a
applicant’s contribution practices before (ii) Late Contributions. If participant copy of the accounting records which
and after the period of unpaid or late contributions were remitted to the trust identify the date and amount of each
contributions, and outside of the time period required by contribution received, and
(2) Summary documents the regulation, the only correction (C) For participant contributions
demonstrating the amount of unpaid or required is to pay to the trust the greater withheld from employees’ paychecks, a
late contributions; and of (A) Lost Earnings or (B) Restoration copy of the payroll documents showing
(iv) If restored participant of Profits resulting from the employer’s the date and amount of each
contributions exceed $50,000 and were use of the Principal Amount as withholding.
remitted more than 180 calendar days described in section 5(b). Any penalties, 7.2 Loans
after the date such amounts were late fees or other such charges shall be
received by the employer, or the date paid by the employer and not from (a) Loan at Fair Market Interest Rate to
such amounts otherwise would have participant contributions. a Party in Interest With Respect to the
been payable to the participants in cash Plan
(iii) For this transaction, the Principal
(regarding amounts withheld by an Amount is the amount of delinquent (1) Description of Transaction. A plan
employer from employees’ paychecks), participant contributions retained by the made a loan to a party in interest at an
submit: employer. interest rate no less than that for loans
(A) A narrative describing the with similar terms (for example, the
(3) Documentation. In addition to the
applicant’s contribution remittance amount of the loan, amount and type of
documentation required by Section 6,
practices before and after the period of security, repayment schedule, and
submit the following documents:
unpaid or late contributions, duration of loan) to a borrower of
(B) For participant contributions (i) A statement from a Plan Official:
similar creditworthiness. The loan was
received directly from participants, a (A) Identifying the earliest date on
not exempt from the prohibited
copy of the accounting records which which the participant contributions
transaction provisions of Title I of
identify the date and amount of each reasonably could have been segregated
ERISA.
contribution received, and from the employer’s general assets,
(2) Correction of Transaction. Pay off
(C) For participant contributions along with the supporting
the loan in full, including any
withheld from employees’ paychecks, a documentation on which the Plan
prepayment penalties. An independent
copy of the payroll documents showing Official relied in reaching this
commercial lender must also confirm in
the date and amount of each conclusion, and (B) attesting that there
writing that the loan was made at a fair
withholding. are no instances in which claims have
market interest rate for a loan with
been denied under the plan for
similar terms to a borrower of similar
(c) Delinquent Participant Contributions nonpayment, nor has there been any
creditworthiness.
to Welfare Plan Trusts lapse in coverage; (3) Documentation. In addition to the
(1) Description of Transaction. An (ii) If restored participant documentation required by section 6,
employer receives directly from contributions (exclusive of Lost submit a narrative describing the
participants or withholds from Earnings) (A) total $50,000 or less, or (B) process used to determine the fair
employees’ paychecks certain amounts exceed $50,000 and were remitted to the market interest rate at the time the loan
that the employer forwards to a trust plan within 180 calendar days from the was made, validated in writing by an
maintained to provide, through date such amounts were received by the independent commercial lender.
insurance or otherwise, group health or employer, or the date such amounts
other welfare benefits. The employer otherwise would have been payable to (b) Loan at Below-Market Interest Rate
fails to forward such amounts in the participants in cash (regarding to a Party in Interest With Respect to the
accordance with the terms of the plan or amounts withheld by an employer from Plan
the requirements of the Department’s employees’ paychecks), submit: (1) Description of Transaction. A plan
regulation at 29 CFR 2510.3–102. There (1) A narrative describing the made a loan to a party in interest with
are no instances in which claims have applicant’s contribution practices before respect to the plan at an interest rate
been denied under the plan, nor has and after the period of unpaid or late which, at the time the loan was made,
there been any lapse in coverage, due to contributions, and was less than the fair market interest
rate for loans with similar terms (for of loan, amount and type of security, (d) Loan at Below-Market Interest Rate
example, the amount of loan, amount repayment schedule, and duration of the Solely Due to a Delay in Perfecting the
and type of security, repayment loan) to a borrower of similar Plan’s Security Interest
schedule, and duration of the loan) to a creditworthiness. (1) Description of Transaction. For
borrower of similar creditworthiness. (2) Correction of Transaction. (i) Pay purposes of the VFC Program, if a plan
The loan was not exempt from the to the plan the Principal Amount, plus made a purportedly secured loan to a
prohibited transaction provisions of Lost Earnings through the Recovery person who is not a party in interest
Title I of ERISA. Date, as described in section 5(b). with respect to the plan, but there was
(2) Correction of Transaction. (i) Pay (ii) For purposes of this transaction, a delay in recording or otherwise
off the loan in full, including any each loan payment has a Principal perfecting the plan’s interest in the loan
prepayment penalties. Pay to the plan Amount equal to the excess of the loan collateral, the loan will be treated as an
the Principal Amount, plus the greater payment that would have been received unsecured loan until the plan’s security
of (A) the Lost Earnings as described in if the loan had been made at the fair interest is perfected.
section 5(b), or (B) the Restoration of market interest rate (from the beginning (2) Correction of Transaction. (i) Pay
Profits, if any, as described in section of the loan until the Recovery Date) over to the plan the Principal Amount, plus
5(b). the loan payment actually received Lost Earnings as described in section
(ii) For purposes of this transaction, 5(b), through the date the loan became
under the loan terms during such
each loan payment has a Principal fully secured.
period. Under the VFC Program, the fair
Amount equal to the excess of the loan (ii) For purposes of this transaction,
market interest rate must be determined
payment that would have been received each loan payment has a Principal
by an independent commercial lender.
if the loan had been made at the fair Amount equal to the excess of the loan
market interest rate (from the beginning (iii) From the inception of the loan to
the Recovery Date, the amount to be payment that would have been received
of the loan until the Recovery Date) over if the loan had been made at the fair
the loan payment actually received paid to the plan is the Lost Earnings on
the series of Principal Amounts, market interest rate for an unsecured
under the loan terms during such loan (from the beginning of the loan
period. Under the VFC Program, the fair calculated in accordance with section
5(b). until the Recovery Date) over the loan
market interest rate must be determined payment actually received under the
by an independent commercial lender. (iv) From the Recovery Date to the
loan terms during such period. Under
maturity date of the loan, the amount to
Example: The plan made to a party in the VFC Program, the fair market
interest a $150,000 mortgage loan, secured by be paid to the plan is the present value
interest rate must be determined by an
a first Deed of Trust, at a fixed interest rate of the remaining Principal Amounts, as
independent commercial lender.
of 4% per annum. The loan was to be fully determined by an independent (iii) In addition, if the delay in
amortized over 30 years. The fair market commercial lender. Instead of perfecting the loan’s security caused a
interest rate for comparable loans, at the time calculating the present value, it is
this loan was made, was 7% per annum. The permanent change in the risk
acceptable for administrative characteristics of the loan, the fair
party in interest or Plan Official must repay convenience to pay the sum of the
the loan in full plus any applicable market interest rate for the remaining
prepayment penalties. The party in interest
remaining Principal Amounts. term of the loan must be determined by
or Plan Official also must pay the difference (v) The principles of paragraph (c)(2) an independent commercial lender. In
between what the plan would have received of this section are illustrated in the that case, the correction amount
through the Recovery Date had the loan been following example: includes an additional payment to the
made at 7% and what, in fact, the plan did plan. The amount to be paid to the plan
Example: The plan made a $150,000
receive from the commencement of the loan
to the Recovery Date, plus Lost Earnings on mortgage loan, secured by a first Deed of is the present value of the remaining
that amount as described in section 5(b). Trust, at a fixed interest rate of 4% per Principal Amounts from the date the
annum. The loan was to be fully amortized loan is fully secured to the maturity date
(3) Documentation. In addition to the over 30 years. The fair market interest rate for of the loan. Instead of calculating the
documentation required by section 6, comparable loans, at the time this loan was
present value, it is acceptable for
submit the following documents: made, was 7% per annum. The borrower or
the Plan Official must pay the excess of what administrative convenience to pay the
(i) A narrative describing the process
the plan would have received through the sum of the remaining Principal
used to determine the fair market
Recovery Date had the loan been made at 7% Amounts.
interest rate at the time the loan was (iv) The principles of paragraph (d)(2)
over what, in fact, the plan did receive from
made; of this section are illustrated in the
the commencement of the loan to the
(ii) A copy of the independent
Recovery Date, plus Lost Earnings on that following examples:
commercial lender’s fair market interest amount as described in section 5(b). The Plan
rate determination(s); and Example 1: The plan made a mortgage
Official must also pay on the Recovery Date
(iii) A copy of the independent loan, which was supposed to be secured by
the difference in the value of the remaining a Deed of Trust. The plan’s Deed was not
fiduciary’s dated, written approval of payments on the loan between the 7% and recorded for six months, but, when it was
the fair market interest rate the 4% for the duration of the time the plan recorded, the Deed was in first position. The
determination(s). is owed repayments on the loan. interest rate on the loan was the fair market
(c) Loan at Below-Market Interest Rate (3) Documentation. In addition to the interest rate for a mortgage loan secured by
a first-position Deed of Trust. The loan is
to a Person Who Is Not a Party in documentation required by section 6, treated as an unsecured, below-market loan
Interest With Respect to the Plan submit the following documents: for the six months prior to the recording of
(1) Description of Transaction. A plan (i) A narrative describing the process the Deed of Trust.
made a loan to a person who is not a used to determine the fair market Example 2: Assume the same facts as in
party in interest with respect to the plan interest rate at the time the loan was Example 1, except that, as a result of the
made; and delay in recording the Deed, the plan ended
at an interest rate which, at the time the up in second position behind another lender.
loan was made, was less than the fair (ii) A copy of the independent The risk to the plan is higher and the interest
market interest rate for loans with commercial lender’s fair market interest rate on the note is no longer commensurate
similar terms (for example, the amount rate determination(s). with that risk. The loan is treated as a below-
market loan (based on the lack of security) for requirements of section 72(p) of the receive (A) the greater of (1) Lost
the six months prior to the recording of the Code. During the loan repayment Earnings or (2) the Restoration of Profits,
Deed of Trust and as a below-market loan period, the Plan Official responsible for if any, as described in section 5(b), on
(based on secondary status security) from the
time the Deed is recorded until the end of the
loan administration failed to properly the Principal Amount, but only to the
loan. withhold a number of loan repayments extent that such Lost Earnings or
from the participant’s wages and Restoration of Profits exceeds the
(3) Documentation. In addition to the included the amount of such difference between the FMV of the asset
documentation required by section 6, repayments in the participant’s wages as of the Recovery Date and the original
submit the following documents: based on administrative or systems purchase price; and (B) the amount by
(i) A narrative describing the process processing errors. The failure to which the Principal Amount exceeded
used to determine the fair market withhold is a Breach causing the loan to the FMV of the asset (at the time of the
interest rate for the period that the loan become non-compliant with applicable original purchase), plus the greater of (1)
was unsecured and, if applicable, for the plan provisions, which incorporated the Lost Earnings or (2) Restoration of
remaining term of the loan; and requirements of section 72(p) of the Profits, if any, as described in section
(ii) A copy of the independent
Code. 5(b), on such excess; provided an
commercial lender’s fair market interest (2) Correction of Transaction. Plan independent fiduciary determines that
rate determination(s). Officials must make a voluntary the plan will realize a greater benefit
7.3 Participant Loans correction of the loan with IRS approval from this correction than it would from
under the Voluntary Correction Program the resale of the asset described in
(a) Loans Failing to Comply With Plan
of the IRS’ EPCRS. paragraph (a)(2)(i) above.
Provisions for Amount, Duration or (3) Documentation. The applicant is (iii) For this transaction, the Principal
Level Amortization not required to submit any of the Amount is the plan’s original purchase
(1) Description of Transaction. A plan supporting documentation listed in price.
extended a loan to a plan participant section 6(e), except that the applicant (iv) The principles of paragraph (a)(2)
who is a party in interest with respect must provide (i) proof of payment, as of this section are illustrated in the
to the plan based solely on his or her described in paragraph (e)(6) of section following examples:
status as an employee of any employer 6, and (ii) a copy of the IRS compliance Example 1: A plan purchased a parcel of
whose employees are covered by the statement. real property from the plan sponsor. The plan
plan, as defined in section 3(14)(H) of does not lease the property to any person.
ERISA. The loan was a prohibited 7.4 Purchases, Sales and Exchanges Instead, the plan uses the property as an
transaction that failed to qualify for (a) Purchase of an Asset (Including Real office. The plan paid $120,000 for the
ERISA’s statutory exemption for plan Property) by a Plan From a Party in property and $5,000 in transaction costs. As
loan programs because the loan terms Interest part of the correction, the Plan Official
obtains two appraisals from a qualified,
did not comply with applicable plan (1) Description of Transaction. A plan independent appraiser in order to determine
provisions, which incorporated the purchased an asset with cash from a the FMV of the property at the time of the
requirements of section 72(p) of the party in interest with respect to the purchase and at the time of the correction
Code concerning: plan, in a transaction to which no (the ‘‘Recovery Date’’). The FMV of the
(i) The amount of the loan, property at the time of purchase was
(ii) The duration of the loan, or prohibited transaction exemption
$100,000 ($20,000 less than the plan paid for
(iii) The level amortization of the loan applies. the property). As of the Recovery Date, the
repayment. (2) Correction of Transaction. (i) The appraiser values the property at $110,000. To
(2) Correction of Transaction. Plan plan may sell the asset back to the party correct the transaction, the plan sponsor
Officials must make a voluntary in interest who originally sold the asset repurchases the property for $120,000 with
correction of the loan with IRS approval to the plan 17 or to a person who is not no reduction for the costs of sale and
a party in interest. Whether the asset is reimburses the plan for the $5,000 in initial
under the Voluntary Correction Program
sold to a person who is not a party in costs of sale. The plan sponsor also must pay
of the IRS’ Employee Plans Compliance the plan the greater of the plan’s Lost
Resolution System (EPCRS). interest with respect to the plan or is
Earnings or the sponsor’s investment return
(3) Documentation. The applicant is sold back to the original seller, the plan
on these amounts. The determination of an
not required to submit any of the must receive the higher of (A) the fair independent fiduciary is not required
supporting documentation listed in market value (FMV) of the asset at the because the applicant is correcting the
section 6(e), except that the applicant time of resale, without a reduction for transaction by selling the asset back to the
must provide (i) proof of payment, as the costs of sale, plus restoration to the party in interest pursuant to paragraph
described in paragraph (e)(6) of section plan of the party in interest’s investment (a)(2)(i) of this Section.
return from the proceeds of the sale, to Example 2: On February 1, 2002, a plan
6, and (ii) a copy of the IRS compliance purchased from a party in interest a parcel
statement. the extent they exceed the plan’s net
profits from owning the property; or (B) of commercial real estate for $120,000, and
(b) Default Loans incurred $5,000 in costs of sale. The plan
the Principal Amount, plus the greater initially uses the property as an office. At the
(1) Description of Transaction. A plan of (1) Lost Earnings on the Principal same time it is discovered that the original
extended a loan to a plan participant Amount as described in section 5(b), or purchase was a prohibited transaction, the
who is a party in interest with respect (2) the Restoration of Profits, if any, as plan enters into a lucrative lease with an
to the plan based solely on his or her described in section 5(b). unrelated party for use of the property to
status as an employee of any employer (ii) As an alternative to the correction begin January 1 of the following year. Due to
whose employees are covered by the described in paragraph (a)(2)(i) above, commercial developments in adjacent
plan, as defined in section 3(14)(H) of the plan may retain the asset and properties, the Plan Official believes that the
property will increase in value and that the

ERISA. At origination, the loan qualified plan would be able to obtain substantially
17 The resale of the same property to the party in
for ERISA’s statutory exemption for plan increasing rental payments for the use of the
interest from whom the asset was purchased is a
loan programs because the loan reversal of the original prohibited transaction. The property. As part of the correction, the Plan
complied with applicable plan resale is not a new prohibited transaction and Official obtains two appraisals from a
provisions, which incorporated the therefore does not require an exemption. qualified, independent appraiser in order to
determine the FMV of the asset at the time price for which it originally sold the section, rather than by repurchasing the
of the purchase and at the time of the property or (B) the FMV of the property asset.
correction (the ‘‘Recovery Date’’). The FMV as of the Recovery Date plus restoration (3) Documentation. In addition to the
of the property at the time of purchase was to the plan of the party in interest’s net
$120,000 (the same as the original purchase documentation required by section 6,
price). As of the Recovery Date, the property
profits from owning the property, to the submit the following documents:
is valued at $150,000. Lost Earnings are extent they exceed the plan’s (i) Documentation of the plan’s sale of
calculated through September 30, 2005, the investment return from the proceeds of the asset, including the date of the sale,
anticipated Recovery Date. The Online the sale. the sales price, and the identity of the
Calculator determined that Lost Earnings is (ii) As an alternative to the correction original purchaser;
$26,098.23 on the Principal Amount of described in paragraph (b)(2)(i) above, (ii) A narrative describing the
$125,000 (purchase price plus transaction the plan may receive the Principal relationship of the purchaser to the asset
costs). There were no determinable profits. Amount plus the greater of (A) Lost and the relationship of the purchaser to
The increase in the FMV, $30,000, is greater Earnings as described in section 5(b) or the plan;
than Lost Earnings or Restoration of Profits.
(B) the Restoration of Profits, if any, as (iii) The qualified, independent
Because the property is rapidly appreciating
in value, and because the Plan Official described in section 5(b), provided an appraiser’s report addressing the FMV
expects to realize significant rental income independent fiduciary determines that of the property at the time of the sale
from the property, the Plan Official would the plan will realize a greater benefit from the plan and as of the Recovery
like to correct by retaining the property from this correction than it would from Date; and
pursuant to paragraph (a)(2)(ii) of this the repurchase of the asset described in (iv) If applicable, a report of the
Section rather than selling the asset back to paragraph (b)(2)(i). independent fiduciary’s determination
the party in interest pursuant to paragraph (iii) For this transaction, the Principal that the plan will realize a greater
(a)(2)(i) of this Section. The Plan Official Amount is the amount by which the benefit by receiving the correction
must obtain a determination by an FMV of the asset (at the time of the amount described in paragraph (b)(2)(ii)
independent fiduciary that the plan will
original sale) exceeds the original sale of this section than by repurchasing the
realize a greater benefit by retaining the asset
than by selling the asset back to the party in price. asset pursuant to paragraph (b)(2)(i) of
interest. Because the original purchase price (iv) The principles of paragraph (b)(2) this section.
was the same as the FMV, and the increase of this section are illustrated in the
following examples: (c) Sale and Leaseback of Real Property
in the FMV is greater than any earnings or
investment return on the original purchase to Employer
Example 1: A plan sold a parcel of
price, the only cash payment to the plan unimproved real property to the plan (1) Description of Transaction. The
involved in this correction is the $5,000 in sponsor. The sponsor did not make any profit plan sponsor sold a parcel of real
costs of sale, plus Lost Earnings. on the use of the property. As part of the property to the plan, which then was
(3) Documentation. In addition to the correction, the Plan Official obtains an leased back to the sponsor, in a
documentation required by section 6, appraisal of the property reflecting the FMV transaction that is not otherwise
of the property as of the date of sale from a
submit the following documents: exempt.
qualified, independent appraiser. The
(i) Documentation of the plan’s appraiser values the property at $130,000,
(2) Correction of Transaction. (i) The
purchase of the asset, including the date although the plan sold the property to the transaction must be corrected by the
of the purchase, the plan’s purchase plan sponsor for $120,000. The plan did not sale of the parcel of real property back
price, and the identity of the seller; incur any transaction costs during the to the plan sponsor or to a person who
(ii) A narrative describing the original sale. As of the Recovery Date, the is not a party in interest with respect to
relationship between the original seller appraiser values the property at $140,000. the plan.19 The plan must receive the
of the asset and the plan; The plan corrects the transaction by higher of (A) FMV of the asset at the
(iii) The qualified, independent repurchasing the property at the original sale time of resale, without a reduction for
price of $120,000, with the party in interest
appraiser’s report addressing the FMV the costs of sale; or (B) the Principal
assuming the costs of the reversal of the sale
of the asset purchased by the plan, both transaction. The determination of an Amount, plus the greater of (1) Lost
at the time of the original purchase and independent fiduciary is not required Earnings on the Principal Amount as
at the recovery date; and because the applicant is correcting the described in section 5(b), or (2) the
(iv) If applicable, a report of the transaction by repurchasing the property Restoration of Profits, if any, as
independent fiduciary’s determination from the party in interest pursuant to described in section 5(b).
that the plan will realize a greater paragraph (b)(2)(i) of this section. (ii) For purposes of this transaction,
benefit by receiving the correction Example 2: Assume the same facts as in the Principal Amount is the plan’s
amount described in paragraph (a)(2)(ii) Example 1, except that the appraiser values
original purchase price.
the property as of the Recovery Date at
of this section than by reselling the asset $100,000, and the plan fiduciaries believe (iii) If the plan has not been receiving
pursuant to paragraph (a)(2)(i) of this that the property will continue to decrease in rent at FMV, as determined by a
section. value based on environmental studies qualified, independent appraisal, the
conducted in adjacent areas. Based on the sale price of the real property should
(b) Sale of an Asset (Including Real
determination of an independent fiduciary not be based on the historic below-
Property) by a Plan to a Party in Interest that the plan will realize a greater benefit by market rent that was paid to the plan.
(1) Description of Transaction. A plan receiving the Principal Amount (FMV of the (iv) In addition to the correction
sold an asset for cash to a party in asset at the time of the original sale less the amount in subparagraph (1), if the plan
interest with respect to the plan, in a original sales price equals $10,000) plus the was not receiving rent at FMV, as
transaction to which no prohibited greater of Lost Earnings or Restoration of
Profits, as described in section 5(b), the
transaction exemption applies. transaction is corrected by cash settlement
19 If the plan purchased the property from the
(2) Correction of Transaction. (i) The pursuant to paragraph (b)(2)(ii) of this

plan sponsor, the sale of the same property back to
plan may repurchase the asset from the the plan sponsor is a reversal of the prohibited
transaction. The sale is not a new prohibited
party in interest 18 at the lower of (A) the reversal of the original prohibited transaction. The transaction and therefore does not require an
repurchase is not a new prohibited transaction and individual prohibited transaction exemption, as
18 The repurchase of the same property from the therefore does not require an individual prohibited long as the plan did not make improvements while
party in interest to whom the asset was sold is a transaction exemption. it owned the property.
determined by a qualified, independent (2) Correction of Transaction. The (ii) A narrative describing the
appraiser, the Principal Amount also Principal Amount is the difference relationship of the buyer to the plan;
includes the difference between the rent between the actual purchase price and and
actually paid and the rent that should the asset’s FMV at the time of purchase. (iii) A copy of the qualified,
have been paid at FMV. The plan The plan must receive the Principal independent appraiser’s report
sponsor must pay to the plan this Amount plus the Lost Earnings, as addressing the FMV at the time of the
additional Principal Amount, plus the described in Section 5(b). plan’s sale.
greater of (A) Lost Earnings or (B) (i) The principles of paragraph (d)(2) (f) Holding of an Illiquid Asset
Restoration of Profits resulting from the of this Section are illustrated in the Previously Purchased by a Plan
plan sponsor’s use of the Principal following example:
Amount, as described in section 5(b). (1) Description of Transaction. A plan
Example: A plan bought unimproved land is holding an asset previously
(v) The principles of paragraph (c)(2) without obtaining a qualified, independent
of this section are illustrated in the purchased from (i) a party in interest
appraisal. Upon discovering that the
following example: purchase price was $10,000 more than the with respect to the plan in an
appraised FMV, the Plan Official pays the acquisition for which relief was
Example: The plan purchased at FMV from
the plan sponsor an office building that plan the Principal Amount of $10,000, plus available under a statutory or
served as the sponsor’s primary business site. Lost Earnings as described in section 5(b). administrative prohibited transaction
Simultaneously, the plan sponsor leased the exemption, (ii) a party in interest with
(3) Documentation. In addition to the
building from the plan at below the market respect to the plan at no greater than
rental rate. The Plan Official obtains from a documentation required by section 6, FMV at that time in an acquisition to
qualified, independent appraiser an appraisal submit the following documents: which no prohibited transaction
of the property reflecting the FMV of the (i) Documentation of the plan’s exemption applied, (iii) a person who
property and rent. To correct the transaction, original purchase of the asset, including was not a party in interest with respect
the plan sponsor purchases the property from the date of the purchase, the purchase
the plan at the higher of the appraised value to the plan in an acquisition in which
price, and the identity of the seller; a plan fiduciary failed to appropriately
at the time of the resale or the original sales (ii) A narrative describing the
price and also pays the Lost Earnings. discharge his or her fiduciary duties, or
Because the rent paid to the plan was below relationship of the seller to the plan; (iv) a person who was not a party in
the market rate, the sponsor must also make and interest with respect to the plan in an
up the difference between the rent paid (iii) A copy of the qualified, acquisition in which a plan fiduciary
under the terms of the lease and the amount independent appraiser’s report appropriately discharged his or her
that should have been paid, plus Lost addressing the FMV at the time of the fiduciary duties. Currently, a plan
Earnings on this amount, as described in plan’s purchase.
section 5(b). fiduciary determines that such asset is
(e) Sale of an Asset (Including Real an illiquid asset because: (A) The asset
(3) Documentation. In addition to the failed to appreciate, failed to provide a
Property) By a Plan to a Person Who Is
documentation required by Section 6, reasonable rate of return, or caused a
Not a Party in Interest With Respect to
submit the following documents: loss to the plan; (B) the sale of the asset
(i) Documentation of the plan’s the Plan at a Price Less Than Fair
Market Value is in the best interest of the plan; and
purchase of the real property, including (C) following reasonable efforts to sell
the date of the purchase, the plan’s (1) Description of Transaction. A plan the asset to a person who is not a party
purchase price, and the identity of the sold an asset to a person who is not a in interest with respect to the plan, the
original seller; party in interest with respect to the asset cannot immediately be sold for its
(ii) Documentation of the plan’s sale plan, without determining the asset’s original purchase price, or its current
of the asset, including the date of sale, FMV. As a result, the plan received less FMV, if greater. Examples of assets that
the sales price, and the identity of the than it should have from the sale. may meet this definition include, but
purchaser; (2) Correction of Transaction. The
(iii) A narrative describing the are not limited to, restricted and thinly
Principal Amount is the amount by traded stock, limited partnership
relationship of the original seller to the which the FMV of the asset as of the
plan and the relationship of the interests, real estate and collectibles.
Recovery Date exceeds the price at (2) Correction of Transaction. (i) The
purchaser to the plan; which the plan sold the property. The
(iv) A copy of the lease; transaction may be corrected by the sale
plan must receive the Principal Amount of the asset to a party in interest,
(v) Documentation of the date and
plus Lost Earnings as described in provided the plan receives the higher of
amount of each lease payment received
section 5(b). (A) the FMV of the asset at the time of
by the plan; and
(vi) The qualified, independent (i) The principles of paragraph (e)(2) resale, without a reduction for the costs
appraiser’s report addressing both the of this section are illustrated in the of sale; or (B) the Principal Amount,
FMV of the property at the time of the following example: plus Lost Earnings as described in
original sale and at the Recovery Date, Example: A plan sold unimproved land section 5(b). The Plan Official may
and the FMV of the lease payments. without taking steps to ensure that the plan cause the plan to sell the asset to a party
received FMV. Upon discovering that the sale in interest. This correction provides
(d) Purchase of an Asset (Including Real price was $10,000 less than the FMV, the relief for both the original purchase of
Property) by a Plan From a Person Who Plan Official pays the plan the Principal the asset, if required, and the sale of the
Is Not a Party in Interest With Respect Amount of $10,000 plus Lost Earnings as illiquid asset by the plan to a party in
to the Plan at a Price More Than Fair described in section 5(b).
interest; relief from the prohibited
Market Value (3) Documentation. In addition to the transaction excise tax also is provided if
(1) Description of Transaction. A plan documentation required by section 6, the Plan Official satisfies the applicable
acquired an asset from a person who is submit the following documents: conditions of the VFC Program class
not a party in interest with respect to (i) Documentation of the plan’s exemption.
the plan, without determining the original sale of the asset, including the (ii) For this transaction, the Principal
asset’s FMV. As a result, the plan paid date of the sale, the sale price, and the Amount is the plan’s original purchase
more than it should have for the asset. identity of the buyer; price.
(iii) The principles of paragraph (f)(2) 7.5 Benefits Example 1. On December 31, 1995, a profit
of this section are illustrated in the sharing plan purchased a 20-acre parcel of
(a) Payment of Benefits Without real property for $500,000, which
following examples:
Properly Valuing Plan Assets on Which represented a portion of the plan’s assets.
Example 1. A plan purchases undeveloped Payment is Based The plan has carried the property on its
real property from a party in interest with books at cost, rather than at FMV. One
respect to the plan for $60,000 in June 1999. (1) Description of Transaction. A participant left the company on January 1,
In April 2004, Plan Officials determine that defined contribution pension plan pays 1997, and received a distribution, which
the property is an illiquid asset. A qualified, benefits based on the value of the plan’s included her portion of the value of the
independent appraiser appraises the property assets. If one or more of the plan’s assets property. The separated participant’s account
at a current FMV of $20,000. The plan are not valued at current value, the balance represented 2% of the plan’s assets.
sponsor pays the plan the Principal Amount benefit payments are not correct. If the As part of the correction for the VFC
of $60,000 plus Lost Earnings as described in Program, a qualified, independent appraiser
plan’s assets are overvalued, the current
section 5(b), and Plan Officials transfer the has determined the FMV of the property for
property from the plan to the plan sponsor. benefit payments will be too high. If the
1996, 1997, and 1998. The FMV as of
The Plan Officials also comply with the plan’s assets are undervalued, the
December 31, 1996, was $400,000. Therefore,
applicable terms of the related exemption. current benefit payments will be too this participant was overpaid by $2,000
Example 2. A plan purchases a limited low. (($500,000 ¥ $400,000) multiplied by 2%).
partnership interest for $60,000 in June 1999 (2) Correction of Transaction. (i) The Plan Officials corrected the transaction
from an unrelated party after plan fiduciaries Establish the correct value of the by paying to the plan the $2,000 Principal
properly fulfill their fiduciary duties with improperly valued asset for each plan Amount plus Lost Earnings as described in
respect to the purchase. In April 2004, Plan year, starting with the first plan year in section 5(b).
Officials determine that the interest is an The plan administrator also filed an
illiquid asset because the interest has failed
which the asset was improperly valued.
Restore to the plan for distribution to amended Form 5500 for plan years 1996 and
to generate a reasonable rate of return. A 1997, to reflect the proper values. The plan
qualified, independent appraiser appraises the affected plan participants, or restore administrator will include the correct asset
the interest at a current FMV of $80,000. The directly to the plan participants, the valuation in the 1998 Form 5500 when that
plan sponsor pays the plan the FMV of amount by which all affected form is filed.
$80,000 without a reduction for the costs of participants were underpaid Example 2. Assume the same facts as in
the sale, which is greater than the Principal distributions to which they were Example 1, except that the property had
Amount plus Lost Earnings, and Plan entitled under the terms of the plan, appreciated in value to $600,000 as of
Officials transfer the interest from the plan to plus Lost Earnings as described in December 31, 1996. The separated
the plan sponsor. The Plan Officials also participant would have been underpaid by
comply with the applicable terms of the
section 5(b) on the underpaid
distributions. File amended Annual $2,000. The correction consists of locating
related exemption. the participant and distributing to her the
Report Forms 5500, as detailed below. $2,000 Principal Amount plus Lost Earnings
(3) Documentation. In addition to the (ii) To correct the valuation defect, a as described in section 5(b), as well as filing
documentation required by section 6, Plan Official must determine the FMV the amended Forms 5500.
submit the following documents: of the improperly valued asset per
(i) Documentation of the plan’s section 5(a) for each year in which the (3) Documentation. In addition to the
original purchase of the asset, including asset was valued improperly. documentation required by section 6,
the date of the purchase, the plan’s (iii) Once the FMV has been submit the following documents:
purchase price, the identity of the determined, the participant account (i) A copy of the qualified,
original seller, and a description of the balances for each year must be adjusted independent appraiser’s report for each
relationship, if any, between the original accordingly. plan year in which the asset was
seller and the plan; revalued;
(iv) The Annual Report Forms 5500
(ii) The qualified, independent must be amended and refiled for (A) the (ii) A written statement confirming
appraiser’s report addressing the FMV last three plan years or (B) all plan years the date that amended Annual Report
of the asset purchased by the plan at the in which the value of the asset was Forms 5500 with correct valuation data
recovery date; reported improperly, whichever is less. were filed;
(iii) A narrative describing the plan’s (v) The Plan Official or plan (iii) If losses are restored to the plan,
efforts to sell the asset to persons who administrator must determine who proof of payment to the plan and copies
are not parties in interest with respect received distributions from the plan of the adjusted participant account
to the plan and any documentation of during the time the asset was valued balances; and
such efforts to sell the asset; improperly. For distributions that were (iv) If supplemental distributions are
(iv) A statement from a Plan Official too low, the amount of the made, proof of payment to the
attesting that: (A) The asset failed to underpayment is treated as a Principal individuals entitled to receive the
appreciate, failed to provide a Amount for each individual who supplemental distributions.
reasonable rate of return, or caused a received a distribution. The Principal 7.6 Plan Expenses
loss to the plan; (B) the sale of the asset Amount and Lost Earnings must be paid
is in the best interest of the plan; (C) the to the affected individuals. For (a) Duplicative, Excessive, or
asset is an illiquid asset; and (D) the distributions that were too high, the Unnecessary Compensation Paid by a
plan made reasonable efforts to sell the total of the overpayments constitutes the Plan
asset to persons who are not parties in Principal Amount for the plan. The (1) Description of Transaction. A plan
interest with respect to the plan without Principal Amount plus the Lost used plan assets to pay compensation,
success; and Earnings, as described in section 5(b), including commissions or fees, to a
(v) In the case of an illiquid asset that must be restored to the plan or to any service provider (such as an attorney,
is a parcel of real estate, a statement participants who received distributions accountant, recordkeeper, actuary,
from a Plan Official attesting that no that were too low. financial advisor, or insurance agent),
party in interest owns real estate that is (vi) The principles of paragraph (a)(2) and the compensation was:
contiguous to the plan’s parcel of real of this section are illustrated in the (i) Excessive in amount for the
estate on the Recovery Date. following examples: services provided to the plan;
(ii) Duplicative, in that a plan paid (i) For the transactions described in the transaction, the plan must be paid the
two or more providers for the same paragraph (a)(1)(i) above, a written Principal Amount ($10,000), plus Lost
service; or estimate of the reasonable market value Earnings or Restoration of Profits, as
(iii) Unnecessary for the operation of described in section 5(b).
of the services and the estimator’s
the plan, in that the services were not qualifications; and (3) Documentation. In addition to the
helpful and appropriate in carrying out (ii) The cost of the services at issue documentation required by Section 6,
the purposes for which the plan is during the period that such services submit copies of the plan’s accounting
maintained. were provided to the plan. records which show the date and
(2) Correction of Transaction. (i) amount of expenses paid by the plan to
Restore to the plan the Principal (b) Expenses Improperly Paid by a Plan
the service provider.
Amount, plus the greater of (A) Lost (1) Description of Transaction. A plan
used plan assets to pay expenses, (c) Payment of Dual Compensation to a
Earnings or (B) Restoration of Profits
including commissions or fees, which Plan Fiduciary
resulting from the use of the Principal
Amount, as described in section 5(b). should have been paid by the plan (1) Description of Transaction. A plan
(ii) (A) For the transactions described sponsor, to a service provider (such as used plan assets to pay compensation to
in paragraph (a)(1)(i) above, the an attorney, accountant, recordkeeper, a fiduciary for services rendered to the
Principal Amount is the difference actuary, financial advisor, or insurance plan when the fiduciary already
between (1) the amount of agent) for: receives full-time pay from an employer
compensation paid by the plan to the (i) Services provided in connection or an association of employers, whose
service provider and (2) the reasonable with the administration and employees are participants in the plan,
market value of such services. maintenance of the plan (‘‘plan or from an employee organization
(B) For the transactions described in expenses’’ 20) in circumstances where a whose members are participants in the
paragraph (a)(1)(ii) above, the Principal plan provision requires that such plan plan. The plan’s payments to the plan
Amount is the difference between (1) expenses be paid by the plan sponsor, fiduciary are not reimbursements of
the total amount of compensation paid or expenses properly and actually incurred
to the service providers and (2) the least (ii) Services provided in connection by the fiduciary in the performance of
amount of compensation paid to one of with the establishment, design, or his or her fiduciary duties.
the service providers for the duplicative termination of the plan (‘‘settlor (2) Correction of Transaction. (i)
services. expenses’’ 21), which relate to the Restore to the plan the Principal
(C) For the transactions described in activities of the plan sponsor in its Amount, plus the greater of (A) Lost
paragraph (a)(1)(iii) above, the Principal capacity as settlor. Earnings or (B) Restoration of Profits
Amount is the amount of compensation (2) Correction of Transaction. (i) resulting from the fiduciary’s use of the
paid by the plan to the service provider Restore to the plan the Principal Principal Amount, as described in
for the unnecessary services. Amount, plus the greater of (A) Lost section 5(b).
(iii) The principles of paragraph (a)(2) Earnings or (B) Restoration of Profits (ii) The Principal Amount is the
of this section are illustrated in the resulting from the use of the Principal amount of compensation paid to the
following examples: Amount, as described in section 5(b). fiduciary by the plan.
(ii) The Principal Amount is the entire (iii) The principles of paragraph (c)(2)
Example 1. Excessive compensation. A
plan hired an investment advisor who amount improperly paid by the plan to of this section are illustrated in the
advised the plan’s trustees about how to the service provider for expenses that following example:
invest the plan’s entire portfolio. In should have been paid by the plan Example. A union sponsored a health plan
accordance with the plan document, the sponsor. funded through contributions by employers.
trustees instructed the advisor to limit the (iii) The principles of paragraph (b)(2) The union president receives $50,000 per
plan’s investments to equities and bonds. In of this section are illustrated in the year from the union in compensation for his
exchange for his services, the plan paid the following example: services as union president. He is appointed
investment advisor 3% of the value of the as a trustee of the health plan while retaining
portfolio’s assets. If the trustees had inquired, Example. Employer X, the plan sponsor of
his position as union president. In exchange
they would have learned that comparable Plan Y, is considering amending its defined
for acting as plan trustee, the union president
investment advisors charged 1% of the value contribution plan to add a 5% matching
is paid a salary of $200 per week by the plan
of the assets for the type of portfolio that the contribution. Employer X operates in a
while still receiving the $50,000 salary from
plan maintained. To correct the transaction, competitive industry, and a human resources
the union. Since $50,000 is full-time pay, the
the plan must be paid the Principal Amount consultant has recommended, among other plan’s weekly salary payments are improper.
of 2% of the value of the plan’s assets, plus improvements, that Employer X provide a To correct the transaction, the plan must be
the higher Lost Earnings or Restoration of competitive matching contribution to help paid the Principal Amount, which is the
Profits, as described in section 5(b). attract and retain a highly qualified $200 weekly salary amount for each week
Example 2. Unnecessary Compensation. A workforce. Employer X hired an actuary to that the salary was paid, plus the higher of
plan paid a travel agent to arrange a fishing estimate the cost of providing this matching Lost Earnings or Restoration of Profits, as
trip for the plan’s investment advisor as a contribution over the next ten years. In described in section 5(b).
way of rewarding the advisor because the exchange for these services, the plan paid the
actuary $10,000. Several months after the (3) Documentation. In addition to the
plan’s investment return for the year
exceeded the plan’s investment goals by actuary’s bill has been paid, a Plan Official documentation required by section 6,
10%. An internal auditor discovered the realizes that one of Employer X’s employees submit copies of the plan’s accounting
charge on the plan’s record books. To correct erroneously paid the bill from the defined records which show the date and
the transaction, the plan must be paid the contribution plan’s assets. The bill should amount of compensation paid by the
Principal Amount, which is the total amount have been paid by Employer X, because the plan to the identified fiduciary.
paid to the travel agent, plus the higher of bill related to settlor expenses incurred by
Lost Earnings or Restoration of Profits as Employer X in analyzing whether to add a Appendix A—Sample VFC Program No
described in section 5(b). matching contribution to the plan. To correct Action Letter
(3) Documentation. In addition to the 20 See Advisory Opinion 2001–01A (Jan. 18, Applicant (Plan Official)
documentation required by section 6, 2001). Address
submit the following documents: 21 See id. Dear Applicant (Plan Official):
Re: VFC Program Application No. xx– Appendix B—VFC Program Checklist ll10. If you are an eligible applicant and
xxxxxx (Required) wish to avail yourself of excise tax relief
The Department of Labor, Employee under the VFC Program Class Exemption:
Benefits Security Administration (EBSA), has
Use this checklist to ensure that you are lla. Have you made proper arrangements
submitting a complete application. The to provide within 60 calendar days after
responsibility for administration and
applicant must sign and date the checklist submission of this application a copy of the
enforcement of Title I of the Employee and include it with the application. Indicate Class Exemption notice to all interested
Retirement Income Security Act of 1974, as ‘‘Yes’’, ‘‘No’’ or ‘‘N/A’’ next to each item. A persons and to the EBSA Regional Office to
amended (ERISA). EBSA has established a ‘‘No’’ answer or the failure to include a which the application is filed; or
Voluntary Fiduciary Correction (VFC) completed checklist will delay review of the llb. If you are relying on the exception
Program to encourage the correction of application until all required items are to the notice requirement in section IV.C. of
breaches of fiduciary responsibility and the received. the Class Exemption because the amount of
restoration of losses to the plan participants the excise tax otherwise due would be less
ll1. Have you reviewed the eligibility,
and beneficiaries. than or equal to $100.00, have you provided
definitions, transaction and correction, and
In accordance with the requirements of the to the appropriate EBSA Regional Office a
documentation sections of the VFC Program?
VFC Program, you have identified the copy of a completed IRS Form 5330 or other
ll2. Have you included the name,
following transactions as breaches, or written documentation containing the
address and telephone number of a contact
potential breaches, of Part 4 of Title I of information required by IRS Form 5330 and
person familiar with the contents of the
ERISA, and you have submitted proof of payment?
application?
documentation to EBSA that demonstrates
ll3. Have you provided the EIN, Plan ll11. In calculating Lost Earnings, have
that you have taken the corrective action you elected to use:
Number, and address of the plan sponsor and
indicated.
plan administrator? lla. The Online Calculator; or
[Briefly recap the violation and correction. llb. A manual calculation performed in
ll4. Have you provided the date that the
Example: Failure to deposit participant accordance with Section 5(b)?
most recent Form 5500 was filed by the plan?
contributions to the XYZ Corp. 401(k) plan ll12. Where applicable, have you
ll5. Have you enclosed a signed and
within the time frames required by ERISA, enclosed a description demonstrating proof
dated certification under penalty of perjury
from lll(date) to lll(date). All of payment to participants and beneficiaries
for the plan fiduciary with knowledge of the whose current location is known to the plan
participant contributions were deposited by transactions and for each applicant and the
lll(date) and lost earnings on the and/or applicant, and for individuals who
applicant’s representative, if any? need to be located, have you demonstrated
delinquent contributions were deposited and ll6. Have you enclosed relevant portions how adequate funds have been segregated to
allocated to participants’ plan accounts on of the plan document and any other pertinent pay missing individuals and commenced the
lll(date).] documents (such as the adoption agreement, process of locating the missing individuals
Because you have taken the above- trust agreement, or insurance contract) with using either the IRS and SSA locator services,
described corrective action that is consistent the relevant sections identified? or other comparable means?
with the requirements of the VFC Program, ll7. If applicable, have you provided ll13. For purposes of the three
EBSA will take no civil enforcement action written notification to EBSA of any current transactions covered under Section 7.1, has
against you with respect to this breach. investigation or examination of the plan, or the plan implemented measures to ensure
Specifically, EBSA will not recommend that of the applicant or plan sponsor in that such transactions do not recur?
the Solicitor of Labor initiate legal action connection with an act or transaction directly
related to the plan by the PBGC, any state Signature of Applicant and Date Signed:
against you, and EBSA will not impose the
penalties in section 502(l) or section 502(i) of attorney general, or any state insurance llllllllllllllllllll
ERISA on the amount you have repaid to the commissioner? Name of Applicant: lllllllllll
plan. ll8. Where applicable, have you Title/Relationship to the Plan: llllll
EBSA’s decision to take no further action enclosed a copy of an appraiser’s report? Name of Plan, EIN and Plan Number:
is conditioned on the completeness and ll9. Have you enclosed supporting
documentation, including: lllllllllllllllllllll
accuracy of the representations made in your Paperwork Reduction Act Notice
application. You should note that this lla. A detailed narrative of the Breach,
decision will not preclude EBSA from including the date it occurred; The information identified on this form is
conducting an investigation of any potential llb. Documentation that supports the required for a valid application for the
narrative description of the transaction; Voluntary Fiduciary Correction Program of
violations of criminal law in connection with
llc. An explanation of how the Breach the U.S. Department of Labor’s Employee
the transaction identified in the application
was corrected, by whom and when, with Benefits Security Administration (EBSA).
or investigating the transaction identified in
supporting documentation; You must complete this form and submit it
the application with a view toward seeking
lld. A list of all persons materially as part of the application in order to receive
appropriate relief from any other person.
involved in the Breach and its correction the relief offered under the Program with
[If the transaction is a prohibited transaction respect to a breach of fiduciary responsibility
(e.g., fiduciaries, service providers,
for which no exemptive relief is available, under Part 4 of Title I of ERISA. EBSA will
borrowers, lenders);
add the following language: Please also be lle. Specific calculations demonstrating use this information to determine that you
advised that pursuant to section 3003(c) of how Principal Amount and Lost Earnings or have satisfied the requirements of the
ERISA, 29 U.S.C. section 1203(c), the Restoration of Profits were computed, or, if Program. EBSA estimates that completing
Secretary of Labor is required to transmit to the Online Calculator was used, a copy of the and submitting this form will require an
the Secretary of the Treasury information ‘‘Print Viewable Results’’ page(s) after average of 2 to 4 minutes. This collection of
indicating that a prohibited transaction has completing use of the Online Calculator; information is currently approved under
occurred. Accordingly, this matter will be llf. Proof of payment of Principal OMB Control Number 1210–0118. You are
referred to the Internal Revenue Service.] Amount and Lost Earnings or Restoration of not required to respond to a collection of
In addition, you are cautioned that EBSA’s Profits; and information unless it displays a currently
decision to take no further action is binding llg. If application concerns delinquent valid OMB Control Number.
on EBSA only. Any other governmental employee contributions or loan repayments, Appendix C—EBSA Regional Offices
agency, and participants and beneficiaries, a statement from a Plan Official identifying
remain free to take whatever action they the earliest date on which participant Submit your VFC Program application to
deem necessary. contributions/loan repayments reasonably the appropriate EBSA Regional Office:
If you have any questions about this letter, could have been segregated from the Atlanta Regional Office, 61 Forsyth Street,
you may contact the Regional VFC Program employer’s general assets and supporting SW, Suite 7B54, Atlanta, GA 30303,
Coordinator at applicable address and documentation on which the Plan Official telephone (404) 562–2156, fax (404) 562–
telephone number. relied? 2168; jurisdiction: Alabama, Florida,
Georgia, Mississippi, North Carolina, telephone (212) 607–8600, fax (212) 607– Based on the above facts:
South Carolina, Tennessee, Puerto Rico. 8681; jurisdiction: southeastern New • Principal Amount is $10,000.
Boston Regional Office, J.F.K. Building, York, northern New Jersey. • Loss Date is March 16, 2001.
Room 575, Boston, MA 02203, telephone Philadelphia Regional Office, The Curtis • Recovery Date is April 13, 2001.
(617) 565–9600, fax: (617) 565–9666; Center, 170 S. Independence Mall West, • Number of Days Late is 28 (Recovery
jurisdiction: Connecticut, Maine, Suite 870 West, Philadelphia, PA 19106– Date less Loss Date).
Massachusetts, New Hampshire, central 3317, telephone (215) 861–5300, fax The basic formula for computing earnings
and western New York, Rhode Island, (215) 861–5347; jurisdiction: Delaware, using the applicable factors under IRS
Vermont. Maryland, southern New Jersey, Revenue Procedure 95–17 is: Dollar Amount
Chicago Regional Office, 200 West Adams Pennsylvania, Virginia, Washington, DC, * IRS factor
Street, Suite 1600, Chicago, IL 60606, West Virginia. Step 1. The Plan Official must calculate
telephone (312) 353–0900, fax (312) 353– San Francisco Regional Office, 71 Stevenson Lost Earnings, based on the Principal
1023; jurisdiction: northern Illinois, St., Suite 915, San Francisco, CA 94105, Amount, that should have been paid on the
northern Indiana, Wisconsin. telephone (415) 975–4600, fax (415) 975– Recovery Date.
Cincinnati Regional Office, 1885 Dixie 4589; jurisdiction: Alaska, 48 northern The first period of time is from March 16,
Highway, Suite 210, Ft. Wright, KY counties of California, Idaho, Nevada, 2001 to March 31, 2001 (15 days). The Code
41011–2664, telephone (859) 578–4680, Oregon, Utah, Washington. underpayment rate is 9%. Using Revenue
fax (859) 578–4688; jurisdiction: Please verify current telephone numbers Procedure 95–17, the factor for 15 days at 9%
southern Indiana, Kentucky, Michigan, and addresses on EBSA’s Web site, http:// is 0.003705021 from table 23.
Ohio. www.dol.gov/ebsa/. $10,000 * 0.003705021 = $37.05
Dallas Regional Office, 525 Griffin Street,
The plan is due $10,037.05 as of March 31,
Rm. 900, Dallas, TX 75202–5025, Appendix D—Lost Earnings Example
2001. The second period of time is April 1,
telephone (214) 767–6831, fax (214) 767– (Manual Calculation) 2001 through April 13, 2001 (13 days). The
1055; jurisdiction: Arkansas, Louisiana,
Delinquent Participant Contributions Code underpayment rate is 8%. Using
New Mexico, Oklahoma, Texas.
Revenue Procedure 95–17, the factor for 13
Kansas City Regional Office, 1100 Main Company A’s pay periods end every other
days at 8% is 0.002853065 from table 21.
Street, Suite 1200, Kansas City, MO Friday. Each pay period, participant
64105, telephone (816) 426–5131, fax contributions total $10,000, which $10,037.05 * 0.002853065 = $28.64
(816) 426–5511; jurisdiction: Colorado, reasonably can be segregated from Company Therefore, Lost Earnings of $65.69 ($37.05
southern Illinois, Iowa, Kansas, A’s general assets by ten business days plus $28.64) must be paid to the plan.
Minnesota, Missouri, Montana, following the end of each pay period. Step 2. If Lost Earnings are paid to the plan
Nebraska, North Dakota, South Dakota, Company A should have remitted participant after the Recovery Date, the Plan Official
Wyoming. contributions for the pay period ending must calculate the amount of interest on the
Los Angeles Regional Office, 1055 E. March 2, 2001 to the plan by March 16, 2001, Lost Earnings (determined in Step 1) that
Colorado Boulevard, Suite 200, the Loss Date, but actually remitted them on must also be paid to the plan. This
Pasadena, CA 91106–2341, telephone April 13, 2001, the Recovery Date. In early calculation is shown by the following chart:
(626) 229–1000, fax (626) 229–1097; 2004, a Plan Official discovers that (The ‘‘Interest’’ column is the previous time
jurisdiction: 10 southern counties of participant contributions for this pay period period’s ‘‘Amnt. Due’’ multiplied by the
California, Arizona, Hawaii, American were not remitted on a timely basis. To Factor. ‘‘Amnt. Due’’ is the previous ‘‘Amnt.
Samoa, Guam, Wake Island. comply with the Program, the Plan Official Due’’ plus ‘‘Interest’’. The calculation in the
New York Regional Office, 33 Whitehall determined that she would repay all Lost first row is based on the $65.69 Lost
Street, Suite 1200, New York, NY 10004, Earnings on January 30, 2004. Earnings.)
Underpmnt. Rev. proc.

1st day To Days rate Factor Interest Amnt. due
table
(percent)
14/14/01 ............................................ 6/30/01 78 8 21 .017240956 1.132558 66.82256

7/1/01 ................................................ 9/30/01 92 7 19 .017798686 1.189354 68.01191
10/1/01 .............................................. 12/31/01 92 7 19 .017798686 1.210523 69.22243
1/1/02 ................................................ 3/31/02 90 6 17 .014903267 1.031640 70.25408
4/1/02 ................................................ 6/30/02 91 6 17 .015070101 1.058736 71.31281
7/1/02 ................................................ 9/30/02 92 6 17 .015236961 1.086591 72.39940
10/1/02 .............................................. 12/31/02 92 6 17 .015236961 1.103147 73.50255
1/1/03 ................................................ 3/31/02 90 5 15 .012404225 0.911742 74.41429
4/1/03 ................................................ 6/30/03 91 5 15 .012542910 0.933372 75.34766
7/1/03 ................................................ 9/30/03 92 5 15 .012681615 0.955530 76.30319
10/1/03 .............................................. 12/31/03 92 4 13 .010132630 0.773152 77.07634
1/1/04 ................................................ 1/30/04 30 4 61 .003283890 0.253110 77.32945
Total Interest .............................. .................... ................ .................. .................... ........................ 11.64 ........................
Note that the last factor comes from the Revenue Procedure 95–17 tables for leap years.
The plan is also owed $11.64. This is the March 2, 2001, in addition to the Principal application. Please make sure you have
amount of interest on $65.69 (Lost Earnings Amount ($10,000) that was paid on April 13, attached all documents identified on the VFC
on the Principal Amount) accrued between 2001. This total corresponds with the final Program Checklist (for example, proof of
April 13, 2001, the Recovery Date, when the Total Due in the above chart (emphasized). payment). Submit your application to the
Principal Amount $10,000 was paid to the Appendix E—Model Application Form appropriate EBSA field office. For full
plan, and January 30, 2004, the date chosen (Optional) application procedures, consult
to repay Lost Earnings. www.dol.gov/ebsa/.
Therefore, the Plan Official must pay Voluntary Fiduciary Correction Program
Application Form Applicant Name(s) and Address(es)
$77.33 to the plan on January 30, 2004, as
Lost Earnings ($65.69) plus interest on Lost This application form provides a List separately: lllllllllllll
Earnings ($11.64) for the pay period ending recommended format for your VFC Program lllllllllllllllllllll
List Transaction(s) Corrected lllllllllllllllllllll requirement contained in section IV.C. of

Check which transaction(s) listed in the (4) For correction of Delinquent Remittance PTE 2002–51, provide a copy of a completed
VFC Program you have corrected: of Participant Funds, provide a statement IRS Form 5330 or other written
from a Plan Official identifying the earliest documentation and proof of payment.
llDelinquent Participant Contributions
date on which participant contributions/loan llNo
and Participant Loan Repayments to Pension
repayments reasonably could have been (8) Proof of Payment
Plans
segregated from the employer’s general assets llCanceled check
(attach supporting documentation on which llExecuted wire transfer
to Insured Welfare Plans
Plan Official relied): llSigned, dated receipt from the
Number of days used to determine the date recipient of funds transferred to the plan
to Welfare Plan Trusts
llLoan at Fair Market Interest Rate to a on which participant contributions/loan (such as a financial institution)
Party in Interest repayments withheld from employees’ pay llBank statements for the plan’s account
llLoan at Below-Market Interest Rate to could reasonably have been segregated from llOther:
a Party in Interest the employer’s general assets: ll lllllllllllllllllllll
llLoan at Below-Market Interest Rate to (9) Disclosure of a current investigation or
Description of how this was determined:
a Non-Party in Interest examination of the plan by an agency, to
lllllllllllllllllllll comply with Section 3(b)(3)(v):
llLoan at Below-Market Interest Rate
Due to Delay in Perfecting Plan’s Security
(5) For correction of Delinquent Remittance llPBGC
Interest
of Participant Funds, provide a narrative llAny state attorney general
llLoans Failing to Comply with Plan describing the applicant’s contribution and/ State:
Provisions for Amount, Duration or Level or repayment remittance practices before and lllllllllllllllllllll
Amortization after the period of unpaid or late Any state insurance commissioner
llDefault Loans contributions and/or repayments: (attach State:
llPurchase of an Asset by a Plan from a separate sheets if necessary) lllllllllllllllllllll
Party in Interest lllllllllllllllllllll Contact person for the agency identified:
llSale of an Asset by a Plan to a Party lllllllllllllllllllll lllllllllllllllllllll
in Interest lllllllllllllllllllll (10) In order to help us improve our
llSale and Leaseback of Real Property to lllllllllllllllllllll service, please indicate how you learned
Employer about the VFC Program:
(6) Specific calculations demonstrating lllllllllllllllllllll
llPurchase of Asset by a Plan from a
how Principal Amount and Lost Earnings or
Non-Party in Interest at More Than Fair Authorization of Preparer
Restoration of Profits were calculated (attach
Market Value
separate sheets if necessary): If the Online I have authorized (insert name of
llSale of an Asset by a Plan to a Non-
Calculator was used, you only need to authorized representative) to represent me
Party in Interest at Less Than Fair Market
indicate this and attach a copy of the concerning this VFC Program application.
Value
‘‘Printable Results’’ page.
llHolding of an Illiquid Asset Previously Name of Plan Official
Purchased by a Plan ll Online Calculator—‘‘Printable
lllllllllllllllllllll
llPayment of Benefits Without Properly Results’’ page attached
ll Manual calculation—see attached Signature of Plan Official
Valuing Plan Assets on Which Payment is
Based calculations lllllllllllllllllllll
llDuplicative, Excessive, or Unnecessary Supplemental Information
Compensation Paid by a Plan Penalty of Perjury Statement
llExpenses Improperly Paid by a Plan (1) Plan Sponsor Name: The following statement must be signed
llPayment of Dual Compensation to a lllllllllllllllllllll and dated by a plan fiduciary with
Plan Fiduciary EIN: llllllllllllllllll knowledge of the transaction that is the
Address: llllllllllllllll subject of the application and by the
Correction Amount
authorized representative, if any. Each Plan
Principal Amount: $ lllll (2) Plan Name:
Official applying under the VFC Program
Date Paid ll /ll /ll lllllllllllllllllllll must also sign and date the statement, which
Lost Earnings/Restoration of Profit: $ Plan Number: llllllllllllll must accompany any subsequent additions to
lllll (3) Plan Administrator Name: the application.
Date Paid ll/ll /ll lllllllllllllllllllll ‘‘Under penalties of perjury I certify that I
Narrative and Calculations EIN: llllllllllllllllll am not Under Investigation (as defined in
VFC Program Section 3(b)(3)) and that I have
List: Address: llllllllllllllll reviewed this application, including all
(1) All persons materially involved in the (4) Name of Authorized Representative: supporting documentation, and to the best of
Breach and its correction (e.g., fiduciaries, (Submit written authorization signed by the my knowledge and belief the contents are
service providers): Plan Official.) true, correct, and complete.’’
lllllllllllllllllllll lllllllllllllllllllll lllllllllllllllllllll
lllllllllllllllllllll Address: llllllllllllllll Name and Title
lllllllllllllllllllll Telephone: lllllllllllllll Signature
(2) An explanation of the Breach, including (5) Name of Contact Person: lllllllllllllllllllll
the date(s) it occurred (attach separate sheets Address: llllllllllllllll
if necessary): Date llllllllllllllllll
Telephone: lllllllllllllll
lllllllllllllllllllll llllllllllllllllllll
(6) Date of Most Recent Annual Report
lllllllllllllllllllll Form 5500 Filing: l/l/ l for Plan Year Name and Title lllllllllllll
lllllllllllllllllllll Ending: l/l /l Signature
(3) An explanation of how the Breach was (7) Is Applicant Seeking Relief Under PTE lllllllllllllllllllll
corrected, by whom, and when (attach 2002–51? Date llllllllllllllllll
separate sheets if necessary): llYes—Either:

llSubmit a copy of the notice to Paperwork Reduction Act Notice
lllllllllllllllllllll
interested parties within 60 calendar days of The information identified on this form is
lllllllllllllllllllll this application and indicate date of the required for a valid application for the
lllllllllllllllllllll notice if not on the notice itself; or lIf you Voluntary Fiduciary Correction Program of
lllllllllllllllllllll are relying on the exception to the notice the U.S. Department of Labor’s Employee
Benefits Security Administration (EBSA). ll7. If applicable, have you provided llb. If you are relying on the exception
You are not required to use this form; written notification to EBSA of any current to the notice requirement in section IV.C. of
however, you must supply the information investigation or examination of the plan, or the Class Exemption because the amount of
identified in order to receive the relief of the applicant or plan sponsor in the excise tax otherwise due would be less
offered under the Program with respect to a connection with an act or transaction directly than or equal to $100.00, have you provided
breach of fiduciary responsibility under Part related to the plan by the PBGC, any state to the appropriate EBSA Regional Office a
4 of Title I of ERISA. EBSA will use this attorney general, or any state insurance
information to determine whether you have copy of a completed IRS Form 5330 or other
commissioner?
satisfied the requirements of the Program. ll8. Where applicable, have you written documentation containing the
EBSA estimates that assembling and enclosed a copy of an appraiser’s report? information required by IRS Form 5330 and
submitting this information will require an ll9. Have you enclosed supporting proof of payment?
average of 6 to 8 hours. This collection of documentation, including: ll11. In calculating Lost Earnings, have
information is currently approved under lla. A detailed narrative of the Breach, you elected to use:
OMB Control Number 1210–0118. You are including the date it occurred; lla. The Online Calculator; or
not required to respond to a collection of llb. Documentation that supports the llb. A manual calculation performed in
information unless it displays a currently narrative description of the transaction; accordance with Section 5(b)?
valid OMB Control Number. llc. An explanation of how the Breach ll12. Where applicable, have you
was corrected, by whom and when, with enclosed a description demonstrating proof
VFC Program Checklist supporting documentation;
of payment to participants and beneficiaries
Use this checklist to ensure that you are lld. A list of all persons materially
submitting a complete application. The involved in the Breach and its correction whose current location is known to the plan
applicant must sign and date the checklist (e.g., fiduciaries, service providers, and/or applicant, and for individuals who
and include it with the application. Indicate borrowers, lenders); need to be located, have you demonstrated
‘‘Yes’’, ‘‘No’’ or ‘‘N/A’’ next to each item. A lle. Specific calculations demonstrating how adequate funds have been segregated to
‘‘No’’ answer or the failure to include a how Principal Amount and Lost Earnings or pay missing individuals and commenced the
completed checklist will delay review of the Restoration of Profits were computed, or, if process of locating the missing individuals
application until all required items are the Online Calculator was used, a copy of the using either the IRS and SSA locator services,
received. ‘‘Print Viewable Results’’ page(s) after or other comparable means?
ll1. Have you reviewed the eligibility, completing use of the Online Calculator; ll13. For purposes of the three
definitions, transaction and correction, and llf. Proof of payment of Principal transactions covered under Section 7.1 has
documentation sections of the VFC Program? Amount and Lost Earnings or Restoration of
the plan implemented measures to ensure
ll2. Have you included the name, Profits; and
llg. If application concerns delinquent that such transactions do not recur?
address and telephone number of a contact
person familiar with the contents of the employee contributions or loan repayments, Signature of Applicant and Date Signed:
application? a statement from a Plan Official identifying lllllllllllllllllllll
ll3. Have you provided the EIN, Plan the earliest date on which participant Name of Applicant: lllllllllll
Number, and address of the plan sponsor and contributions/loan repayments reasonably
plan administrator? could have been segregated from the Title/Relationship to the Plan: llllll
ll4. Have you provided the date that the employer’s general assets and supporting Name of Plan, EIN and Plan Number:
most recent Form 5500 was filed by the plan? documentation on which the Plan Official lllllllllllllllllllll
ll5. Have you enclosed a signed and relied?
Signed at Washington, DC, this 12th day of
dated certification under penalty of perjury ll10. If you are an eligible applicant and
for the plan fiduciary with knowledge of the wish to avail yourself of excise tax relief April, 2006.
transactions and for each applicant and the under the VFC Program Class Exemption: Ann L. Combs,
applicant’s representative, if any? lla. Have you made proper arrangements Assistant Secretary for Employee Benefits
ll6. Have you enclosed relevant portions to provide within 60 calendar days after Security Administration, U.S. Department of
of the plan document and any other pertinent submission of this application a copy of the Labor.
documents (such as the adoption agreement, Class Exemption notice to all interested
trust agreement, or insurance contract) with persons and to the EBSA Regional Office to [FR Doc. 06–3674 Filed 4–18–06; 8:45 am]
the relevant sections identified? which the application is filed; or BILLING CODE 4510–29–P

Notice: Employee Benefit Plans Class Exemptions: Voluntary Fiduciary Correction Program

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Notice: Employee Benefit Plans Class Exemptions: Voluntary Fiduciary Correction Program

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Wednesday,

April 19, 2006

Voluntary Fiduciary Correction Program

under section 4975 of the Code generally will

EBSA’s Web site and will be updated when

in 29 CFR 2510.3–102 are not directly applicable to

property will increase in value and that the

(2) Correction of Transaction. (i) The pursuant to paragraph (b)(2)(ii) of this

Underpmnt. Rev. proc.

14/14/01 ............................................ 6/30/01 78 8 21 .017240956 1.132558 66.82256

List Transaction(s) Corrected lllllllllllllllllllll requirement contained in section IV.C. of

separate sheets if necessary): llYes—Either:

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