[Federal Register Volume 87, Number 223 (Monday, November 21, 2022)]
[Proposed Rules]
[Pages 71164-71197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24703]



[[Page 71163]]

Vol. 87

Monday,

No. 223

November 21, 2022

Part IV





Department of Labor





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Employee Benefits Security Administration





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29 CFR Parts 2560 and 2570





Voluntary Fiduciary Correction Program; Proposed Rule

  Federal Register / Vol. 87, No. 223 / Monday, November 21, 2022 / 
Proposed Rules  

[[Page 71164]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Parts 2560 and 2570

RIN 1210-AB64


Voluntary Fiduciary Correction Program

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Proposed program amendments; request for comment.

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SUMMARY: This document contains an amended and restated Voluntary 
Fiduciary Correction Program (VFC Program or Program) under Title I of 
the Employee Retirement Income Security Act of 1974, as amended (ERISA) 
and a request for comment. The VFC Program is designed to encourage 
correction of fiduciary breaches by permitting persons to avoid 
potential Department of Labor (Department) civil enforcement actions 
and civil penalties if they voluntarily correct eligible transactions 
in a manner that meets the requirements of the Program. Based on its 
experience since the last revision of the Program in 2006, the Employee 
Benefits Security Administration (EBSA) has identified certain changes 
that will both simplify and expand the original VFC Program, thereby 
making the Program easier for, and more useful to, employers and others 
who wish to avail themselves of the relief provided by the Program. 
Specifically, the Program amendments add a self-correction feature, 
clarify some existing transactions eligible for correction under the 
Program, expand the scope of other transactions currently eligible for 
correction, and simplify certain administrative or procedural 
requirements for participation in and correction of transactions under 
the VFC Program.

DATES: Written comments on the amended and restated VFC Program should 
be submitted on or before January 20, 2023. The Department will notify 
the public of the availability of the amended and restated VFC Program 
in a subsequent Federal Register document.

ADDRESSES: You may submit written comments, identified by RIN 1210-
AB64, to one of the following addresses:
     Federal eRulemaking Portal: www.regulations.gov. Follow 
the instructions for submitting comments.
     Mail: Office of Regulations and Interpretations, Employee 
Benefits Security Administration, Room N-5655, U.S. Department of 
Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attention: 
Amendment and Restatement of Voluntary Fiduciary Correction Program.
    Instructions: Persons submitting comments electronically are 
encouraged not to submit paper copies. Comments will be available to 
the public, without charge online at www.regulations.gov, at 
www.dol.gov/agencies/ebsa, and at the Public Disclosure Room, EBSA, 
U.S. Department of Labor, Suite N-1513, 200 Constitution Avenue NW, 
Washington, DC 20210.
    Warning: Do not include any personally identifiable or confidential 
business information that you do not want publicly disclosed. Comments 
are public records and can be retrieved by most internet search 
engines.

FOR FURTHER INFORMATION CONTACT: Yolanda R. Wartenberg, Office of 
Regulations and Interpretations, EBSA, (202) 693-8500, for questions 
regarding the VFC Program amendments in this document. Susan Wilker, 
Office of Exemption Determinations, EBSA, (202) 693-8540, for questions 
regarding the proposed amendments to the associated class exemption PTE 
2002-51. James Butikofer, Office of Research and Analysis, EBSA, (202) 
693-8410, for questions regarding the regulatory impact analysis. 
(These are not toll-free numbers.)
    For general questions regarding the VFC Program: contact Dawn 
Miatech-Plaska, Office of Enforcement, EBSA, (202) 693-8691. For 
questions regarding specific applications and self-corrections under 
the VFC Program: contact the appropriate EBSA Regional Office listed in 
Appendix C. (These are not toll-free numbers.)
    Customer Service Information: Individuals interested in obtaining 
information from the Department concerning ERISA and employee benefit 
plans may call the Employee Benefits Security Administration (EBSA) 
Toll-Free Hotline, at 1-866- 444-EBSA (3272) or visit the Department's 
website (www.dol.gov/ebsa).

SUPPLEMENTARY INFORMATION: 

A. Summary Overview

    The Department of Labor's (Department) authority to establish the 
Voluntary Fiduciary Correction Program (VFC Program or Program) derives 
from its authority to enforce the fiduciary standards in Title I of the 
Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 
1132(a)(2) and 1132(a)(5), and thereby to establish policies on how 
this authority will be implemented. The Department also has the 
authority under section 408(a) of ERISA (29 U.S.C. 1108) to issue 
exemptions from the prohibited transaction rules in sections 406 and 
407 of ERISA (29 U.S.C. 1106 and 1107) and in section 4975 of the 
Internal Revenue Code (Code).\1\
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    \1\ Under Reorganization Plan No. 4 of 1978, 5 U.S.C. App. at 
252 (2020), the authority of the Secretary of Treasury to issue 
exemptions pursuant to section 4975 of the Internal Revenue Code was 
transferred, with certain exceptions not relevant here, to the 
Secretary of Labor.
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    The Employee Benefits Security Administration (EBSA) originally 
adopted the VFC Program in 2002, and later revised it in 2005 and 
2006.\2\ EBSA designed the VFC Program to encourage employers and plan 
fiduciaries to voluntarily comply with ERISA and allow those 
potentially liable for certain specified fiduciary breaches under ERISA 
to voluntarily apply for relief from civil enforcement actions and 
certain civil penalties, provided they meet the Program's criteria and 
follow the procedures outlined in the Program. The existing VFC Program 
describes how to apply for relief, lists the specific transactions 
covered, and sets forth acceptable methods for correcting fiduciary 
breaches under the Program.\3\ It also provides examples of potential 
breaches and related permissible corrective actions. The Program 
defines the term ``Breach'' to mean any transaction that is or may be a 
violation of the fiduciary responsibilities contained in Part 4 of 
Title I of ERISA. The Program also provides a model application form, a 
checklist, and an Online Calculator for determining correction amounts. 
Eligible applicants that satisfy the terms and conditions of the 
existing VFC Program receive a no action letter from EBSA and are not 
subject to civil monetary penalties for the corrected transactions. 
Excise tax relief for six specific VFC Program transactions is 
conditionally available under an associated class exemption, PTE 2002-
51.\4\ The VFC Program has been, and will continue to be, administered 
in EBSA Regional Offices.
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    \2\ 70 FR 17516 (2005), 71 FR 20262 (2006).
    \3\ EBSA acknowledges, based on its experience, that certain 
transactions may fit within one or more of the listed categories of 
transactions, even if not specifically named in the category, for 
example certain transactions involving contributions in kind under 
Section 7.4(a) of the Program. EBSA encourages potential applicants 
to discuss eligibility and similar issues with the appropriate 
regional VFC Program coordinator.
    \4\ PTE 2002-51 at 67 FR 70623 (2002); amended at 71 FR 20135 
(2006). The current exemptive relief for these six transactions 
remains available while the proposed amendments to the exemption are 
being finalized.
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    While the VFC Program continues to be successful in encouraging and 
facilitating the correction of violations

[[Page 71165]]

of ERISA's fiduciary responsibility and prohibited transaction rules, 
based on a review of the current VFC Program, which was last revised in 
2006,\5\ the Department concluded that certain revisions to the Program 
would facilitate more efficient and less costly corrections of 
fiduciary breaches under the Program, encourage greater participation 
in the Program, and respond to requests from stakeholders for 
adjustments based on their experiences using the Program.
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    \5\ 71 FR 20262 (2006); 71 FR 20135 (2006).
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    The most significant change to the Program is the addition of a new 
self-correction feature contained in section 7.1(b) of the VFC Program 
for certain failures to timely transmit participant contributions (and 
participant loan repayments) to pension plans. Delinquent participant 
contributions is the type of transaction most frequently corrected 
under the Program. The Department has received input from stakeholders 
who said the time and expense required to file a VFC Program 
application with the Department is a disincentive to use the Program to 
correct these transactions, especially when they involve small dollar 
amounts. After carefully considering the issue, the Department agrees 
that a self-correction feature for delinquent participant contributions 
to pension plans that includes appropriately designed safeguards would 
encourage more voluntary corrections by offering plan officials and 
other responsible fiduciaries a streamlined correction process. It 
would also enable EBSA to better allocate resources currently dedicated 
to processing VFC Program applications for these transactions. The 
other Program amendments contained in this document (1) clarify 
existing transactions eligible for correction under the Program, (2) 
expand the scope of certain transactions currently eligible for 
correction, and (3) simplify certain administrative or procedural 
requirements for participation in the VFC Program and correction of 
transactions under the Program. A more detailed summary of the Program 
revisions is set forth below in the section of this preamble entitled 
``VFC Program 2022 Amendments.'' \6\
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    \6\ As is the case under the current VFC Program, multiemployer 
plans and multiple employer plans would be permitted to use the 
amended VFC Program (including the new SC Component) when it becomes 
available. The preamble to the 2006 revision of the VFC Program 
stated that the definition of ``Plan official'' in cases of 
multiemployer plans or multiple employer plans was not limited so 
that an application could be made only by the ``plan administrator'' 
rather than by any contributing or adopting employer. 71 FR 20262, 
20264 (April 19, 2006). The Department explained that the plan 
administrator of such a plan could apply on behalf of the entire 
plan, but any participating employer may apply on its own behalf. 
The Department solicits comments on whether additional guidance on 
those points would be helpful, and if so, what the guidance should 
provide.
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    In tandem with today's publication of amendments to the VFC 
Program, EBSA is publishing a proposed amendment to PTE 2002-51, the 
Program's associated class exemption, to make certain conforming 
amendments to the class exemption. For a more comprehensive discussion 
of the proposed changes to the class exemption and the request for 
public comments on those proposed changes, see the proposed amendment 
to PTE 2002-51 published elsewhere in today's issue of the Federal 
Register.
    As discussed in greater detail below in the section entitled 
``Statement on Availability and Request for Comment,'' this amended and 
restated VFC Program will become available to the public following 
approval by the Office of Management and Budget (OMB) of the revised 
information collections in the Program in accordance with the Paperwork 
Reduction Act of 1995 (PRA). The availability will be announced by the 
Department in a subsequent Federal Register Notice. Further, the 
expanded excise tax relief afforded by the proposed amendments to PTE 
2002-51 is not available until such amendments are adopted in final 
form, which also will be communicated in the Federal Register. However, 
the existing VFC Program and PTE 2002-51 remain available during the 
Department's consideration of the changes.

B. VFC Program 2022 Amendments

    The VFC Program 2022 Amendments set forth in this document would 
retain the fundamentals of the current VFC Program. To facilitate 
reference to the Program, this document includes a restatement of the 
Program in its entirety. Stakeholders interested in a discussion of the 
existing components of the VFC Program should review the Federal 
Register notices announcing the original 2002 program and the 2005 and 
2006 revisions to the Program.\7\ The following is an overview of the 
VFC Program amendments contained in this document.
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    \7\ See 67 FR 15062 (March 28, 2002), 70 FR 17516 (April 6, 
2005), and 71 FR 20262 (April 19, 2006). Prior to adoption in March 
2002, the VFC Program was made available on an interim basis during 
which the Department invited and considered public comments on the 
Program. (See 65 FR 14164, March 15, 2000)).
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(1) Self-Correction Feature for Delinquent Participant Contributions to 
Pension Plans--Section 7.1(b)

    A major change, prompted by input from the regulated community, is 
the addition of a new Self-Correction Component (SC Component or SCC) 
to section 7, ``Description of Eligible Transactions and Corrections 
Under the VFC Program.'' Specifically, section 7.1(b) ``Delinquent 
Participant Contributions and Loan Repayments to Pension Plans under 
the Self-Correction Component'' provides a new self-correction process 
for pension plans.\8\
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    \8\ To reflect the inclusion of the SCC into the Program, 
section 6 in the amended program has been renamed ``VFC Program 
Application and Self-Correction Component Procedures'' and the prior 
section 6 has been renamed and re-designated as section 6.1 ``VFC 
Program Application Procedures.''
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    In the past, as noted in the preamble to the April 2006 VFC Program 
Notice, EBSA was of the view that a self-correction feature would not 
give the Department sufficient information and certainty of correction 
compared to that afforded by the Program's application and approval 
process. However, based on its experience with the Program and input 
from stakeholders, EBSA is persuaded that delinquent participant 
contribution/loan repayment transactions are suitable for a self-
correction procedure. EBSA expects that a well-designed self-correction 
feature will mean more voluntary corrections and more participant 
accounts receiving more timely correction amounts.
    Certain other conditions apply to relief under the SC Component. 
Relief under the SC Component for delinquent participant contributions 
and delinquent plan loan repayments is available to any pension plan 
regardless of the size of the plan's participant population or amount 
of plan assets, but is limited to corrections where the amount of Lost 
Earnings is $1,000.00 or less excluding any excise tax paid to the plan 
under the associated class exemption, PTE 2002-51.\9\ The delinquent 
participant contributions or loan repayments also must have been 
remitted to the plan no more than 180 calendar days from the date of 
withholding or receipt. These conditions are designed to exclude from 
the SCC delinquencies involving lost earning amounts that suggest the 
need for more active evaluation by EBSA of the circumstances 
surrounding the Breach and timing of the correction.
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    \9\ See proposed amendments to PTE 2002-51 elsewhere in today's 
Federal Register.
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    The Department considered but did not include at this time a limit 
on the frequency with which a self-corrector may use the SC Component 
versus

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following the application process for correcting delinquent participant 
contributions. For example, the Department considered adopting a three-
year provision modeled on the provisions in the current VFC prohibited 
transaction exemption (PTE) that precludes reliance on the PTE to avoid 
excise taxes for similar VFC Program covered transactions more 
frequently than once every three years.\10\ The Department concluded, 
however, that the PTE provision was not comparable because it does not 
preclude reliance on the VFC Program; it just limits relief from 
applicable excise taxes and even that limitation was subject to several 
exceptions. The Department was also concerned about a frequency limit 
unintentionally creating disincentives to use the VFC Program and 
encouraging corrections outside the VFC Program. Moreover, as discussed 
in greater detail in the proposed PTE amendment, the Department is 
soliciting public comments on a proposal to remove the three-year 
limitation provision from the PTE. As noted above, no similar frequency 
limitation applies to the use of the VFC Program so parties are able to 
obtain a ``no action'' letter from the Department even in the case of 
repeated use of the VFC Program for similar types of transactions. The 
preamble to the proposed amendments to the PTE also notes that the 
three-year provision was initially included in the PTE to prevent 
parties from becoming lax in efforts to comply with their fiduciary 
duties in connection with covered transactions because of the 
availability of the exemption. However, the Department's experience 
with the VFC Program and exemption indicated that the risk of such 
behavior was low. Also, the application and reporting requirements 
under the VFC Program and the SC Component together with the ``under 
investigation'' ineligibility condition provide the Department with a 
system under which it receives notice of repeat usage and a means of 
protecting against any potentially inappropriate use of the exemption 
in connection with covered transactions. Accordingly, the Department 
decided that it would solicit comments on whether a frequency 
limitation should be included in the PTE, and if so, what it should be 
and should any exceptions apply. Nonetheless, the Department will be 
monitoring for frequent use of the SCC and may communicate with repeat 
users or open investigations to identify and correct systemic issues 
leading to repeated failures to transmit participant contributions in a 
timely fashion.
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    \10\ The exemption is currently unavailable to VFC Program 
applicants that have, within the previous three years, taken 
advantage of the relief provided by the VFC Program or the exemption 
for a similar type of transaction.
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    Relief under the SCC is further conditioned on a particular 
correction method being used. Correction amounts under the SC Component 
consist of the (1) Principal Amount and (2) Lost Earnings. 
Specifically, the Principal Amount is the amount of participant 
contributions or loan repayments that would have been available to the 
plan if the employer had not retained such amounts, while Lost Earnings 
is the amount of earnings that would have been earned on the Principal 
Amount but for the failure to timely remit such amounts to the plan. 
The SC Component requires that Lost Earnings be paid from the ``Date of 
Withholding or Receipt,'' and mandates the use of the Online Calculator 
to determine the amount of the loss payable to the plan. For this 
transaction, Date of Withholding or Receipt means the date the amount 
would otherwise have been payable to the participant in cash in the 
case of amounts withheld by an employer from a participant's wages, or 
the day on which the participant contribution or loan payment is 
received by the employer in the case of amounts that a participant or 
beneficiary pays to an employer. Use of the Online Calculator and the 
Date of Withholding or Receipt--which is a stricter standard than the 
date on which participant contributions or loan repayments could 
reasonably have been segregated from the employer's general assets--are 
critical elements of the SCC that, in the Department's view, will help 
ensure full correction without the need for the protections afforded by 
the Program's application and approval process. These elements also 
will provide self-correctors with assurance of the accuracy of their 
calculations.
    Under the SC Component, section 7.1(b)(2)(iii) details an 
electronically filed notice requirement (SCC notice) which replaces the 
paper application requirements in section 7.1(a)(3) of the Program. The 
required data elements in the SCC notice include: the name and an email 
address for the self-corrector; the plan name; the plan sponsor's nine-
digit number (EIN) and the plan's three-digit number (PN); the 
Principal Amount; the amount of Lost Earnings and the date paid to the 
plan; the Loss Date (Date(s) of Withholding or Receipt); and the number 
of participants affected by the correction. The SCC notice must be 
submitted electronically to EBSA using a new online VFC Program web 
tool to be located on EBSA's website. Self-correctors using the web 
tool will receive an automatic EBSA email acknowledging the SCC notice 
submission.
    Prior to submitting the SCC notice, self-correctors must calculate 
the Lost Earnings amount using the VFC Program's Online Calculator. The 
Lost Earnings calculation is intended to be a reasonable approximation 
of the amount that would have been earned on the delinquent participant 
contributions or loan repayments but for the employer's delinquent 
transmission of the contributions or repayments. Lost Earnings is 
calculated by entering the Principal Amount which is the total amount 
of the delinquent participant contributions or loan repayments, the 
Loss Date (Date of Withholding or Receipt) which may require multiple 
entries based on delinquencies in multiple pay periods, and the date 
the Lost Earnings amount is paid to the plan. The Date of Withholding 
or Receipt is the date the amount would otherwise have been payable to 
the participant in cash in the case of amounts withheld by an employer 
from a participant's wages, or the day on which the participant 
contribution or loan payment is received by the employer in the case of 
amounts that a participant or beneficiary pays to an employer. Detailed 
instructions for the VFC Program Online Calculator are on EBSA's 
website. Definitions of capitalized terms are contained in sections 5 
and 7.1(b).
    Self-correctors also must complete the SCC Retention Record 
Checklist in Appendix F, prepare or collect the documents listed in the 
Appendix, and provide the completed checklist and required 
documentation to the plan administrator as required by sections 6.2(d) 
and 7.1(b)(3). This obligation applies even if the employer is the plan 
administrator. Such ``dual role'' situations do not relieve the 
employer as plan administrator from fiduciary recordkeeping and 
obligations under ERISA. The plan administrator then must maintain 
these documents as part of the plan's records as required by law. 
Although self-correctors that satisfy the terms and conditions of the 
VFC Program do not receive a no action letter from EBSA, similar to a 
no action letter, the SCC provides that compliance with the SCC terms 
and conditions results in not being subject to civil monetary penalties 
or an EBSA civil enforcement action. As with an application under the 
Program, however, and in accordance with section 2(b) ``Verification,'' 
EBSA reserves the right to investigate and take other actions with 
respect to the transaction corrected through the SCC, including taking 
steps to confirm the

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corrective action was in fact taken. The relief does not extend to 
criminal investigations or to persons other than the self-corrector. 
Also, if EBSA determines that the terms and conditions of the SCC were 
not satisfied, the ``self-corrector'' would, obviously, not be exempt 
from civil penalties or EBSA enforcement actions related to relevant 
participant contributions.
    Other procedural requirements for self-correction are detailed in 
section 6.2 ``VFC Program Self-Correction Component Procedures,'' 
including a Penalty of Perjury Statement. For convenience, a compliant 
Penalty of Perjury Statement is included as part of the SCC Retention 
Record Checklist in Appendix F.
    EBSA is seeking comments from interested persons on the revisions 
to the Program set forth in this document, including comments on the 
SCC criteria and conditions and whether other criteria or conditions 
would adequately protect plans and participants while being less 
burdensome or less costly. For example, the Department invites public 
comments on whether the SCC should incorporate additional protections 
for pension plans that are classified as small based on their 
participant population (generally those covering fewer than 100 
participants).\11\ A possible additional protection would be to limit 
the participation of small plans to only those whose plan sponsors 
comply with the safe harbor standard in 29 CFR 2510.3-102(a)(2) for the 
timely handling of participant contributions. Compliance could require, 
for example, either an existing practice or an agreement to put in 
place a customary practice of depositing participant contributions and 
loan payments with the plan not later than the 7th business day 
following the day on which such amount would otherwise have been 
payable to the participant in cash in the case of amounts withheld by 
an employer from a participant's wages, or the 7th business day 
following the day on which the participant contribution or loan payment 
is received by the employer in the case of amounts that a participant 
or beneficiary pays to an employer. The additional protection that 
would result from requiring compliance with the safe harbor as a 
condition of SCC relief is that small employers would either have or 
agree to implement clear procedures for the timely handling of 
participant contributions. In the Department's view, the use of the 
small plan safe harbor standard for large plans would be inappropriate. 
EBSA expects that large plans generally can and should be depositing 
participant contributions with the plan sooner than 7 business days 
after the contributions are withheld or received by the employer.
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    \11\ In determining whether a plan qualifies as a ``small'' 
plan, self-correctors can rely on the end of year participant count 
reported on the latest Form 5500 or Form 5500-SF filed for the plan 
because that would be the annual report count closest in time to use 
of the SCC. If there is no Form 5500 or Form 5500-SF for the prior 
year, the self-corrector should use the participant count for the 
end of the year that would have been reported if a Form 5500 or Form 
5500-SF were required or that will be reported when the prior year 
Form 5500 or Form 5500-SF is filed. Images of the Form 5500 and Form 
5500-SF filings for plan years after 2008 can be accessed on EBSA's 
website at efast.dol.gov/5500search/. The Department notes that 
potential self-correctors who fail to meet the SCC conditions for 
participating in the SCC may still be eligible to correct the 
delinquency violation through the normal application process under 
the VFC Program.
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(2) Conforming Revisions to Current Application Process Provisions for 
Delinquent Participant Contributions (Sections 7.1(a), (c) and (d))

    Section 7.1(a) has been renamed ``Delinquent Participant 
Contributions and Loan Repayments to Pension Plans under VFC Program 
Applications'' to clarify that it applies only to corrections pursuant 
to Program applications in contrast to self-corrections under section 
7.1(b). Additionally, section 7.1(a) has been revised to reflect the 
Department's amendment of its regulation defining plan assets in 2010 
to include participant loan repayments within these regulatory 
principles. (See 29 CFR 2510.3-102(a)(1)). Language has also been added 
to sections 7.1(a)(3)(ii)(A) and (iii)(A) to explain that the required 
narrative in the application must include a description of any steps 
taken to prevent future delinquencies. Language referring to 
Restoration of Profits has been deleted from sections 7.1(a)(2)(i) and 
(ii) to simplify the Program because in the Department's experience no 
applicant has reported generating a profit through use of the 
delinquent amounts.
    Sections 7.1(b) ``Delinquent Participant Contributions to Insured 
Welfare Plans'' and (c) ``Delinquent Participant Contributions to 
Welfare Plan Trusts'' are being re-designated as sections 7.1(c) and 
(d) respectively. A change also has been made to each of these sections 
to clarify that the participant contributions were remitted to the 
insurance provider in section 7.1(c)(3)(iii) and to the trust in 
section 7.1(d)(3)(ii) rather than the plan as previously stated. A 
change was also made to delete language referring to Restoration of 
Profits in sections 7.1(d)(2)(i) and (ii) to simplify the Program 
because, as stated above, no applicant has reported generating a profit 
through use of the delinquent amounts.
    The VFC Program does not include a correction for delinquent 
matching employer contributions. Although some applications filed under 
the current VFC Program for delinquent participant contributions have 
sought relief for matching employer contributions, EBSA historically 
concluded that the different characteristics of the plan asset and 
fiduciary obligations that apply in the case of employer contributions 
make it inappropriate to include matching employer contributions as a 
transaction in a VFC Program. The Agency's position on that subject has 
not changed. Nonetheless, to the extent that a Program application 
provides that the employer will apply the same correction formula to 
the employer matching contributions that it is required to apply to the 
delinquent participant contributions, EBSA anticipates that it will not 
reject or refuse to process such applications even though the 
``correction'' of the employer contribution is not a covered 
transaction under the VFC Program, is not entitled to any relief under 
the Program, and will not be covered by any no action letter.

(3) Loans--Sections 7.2(b), (c) and (d)

    The original VFC Program included as an eligible transaction ``Loan 
at Below-Market Interest Rate to a Party in Interest with Respect to 
the Plan.'' The corrective action in section 7.2(b) under both the 
current and this amended and restated Program requires the payment of 
the loan in full, plus penalties, and the greater of the Lost Earnings 
or Restoration of Profits. In addition to the required section 6.1 
documentation, an applicant currently must provide both a written copy 
of an independent commercial lender's fair market interest rate 
determination under section 7.2(b)(3)(ii) and a copy of an independent 
fiduciary's dated, written approval of the fair market interest rate 
determination under section 7.2(b)(3)(iii). To reduce applicants' 
costs, the VFC Program 2022 Amendments would amend section 
7.2(b)(3)(iii) to eliminate the requirement that an independent 
fiduciary validate in writing the process used to determine the fair 
market interest rate determination for loans in the amount of $10,000 
or less. Thus, under these amendments to the Program, in the case of 
below-market interest rate loans in the amount of $10,000 or less, a 
copy of the independent commercial lender's written fair market 
interest rate

[[Page 71168]]

determination will now suffice to validate the interest rate.
    As a further clarifying change, the wording in section 7.2(b)(3)(i) 
is being revised to require a narrative describing the process used to 
determine the interest rate at the time the loan was made.
    Section 7.2(c) ``Loan at Below-Market Interest Rate to a Person Who 
is Not a Party in Interest With Respect to the Plan'' is also a 
transaction that dates from the original VFC Program. Sections 
7.2(c)(2)(i) and (ii) are being re-organized to clarify the required 
correction for this transaction. Section 7.2(c)(2)(ii) also adds an 
alternative to payment of the present value of the Principal Amounts 
from the Recovery Date to the loan's maturity date. The present value 
payment method must be coupled with the borrower's continued payment of 
the outstanding loan balance under the original repayment schedule for 
the duration of the loan. The new alternative permits the borrower's 
payment of the amortized outstanding loan balance over the remaining 
payment schedule of the loan at the interest rate that would have been 
applicable if the loan had originally been made at the fair market 
interest rate. When this new alternative is used, the applicant must 
submit a copy of the loan repayment schedule for the re-amortized loan 
repayments under section 7.2(c)(3)(iii). Any fair market interest rate 
must be determined by an independent commercial lender.
    The wording in section 7.2(c)(3)(i) is being revised in a similar 
fashion to the wording in section 7.2(b)(3)(i) to require a narrative 
describing the process used to determine the interest rate at the time 
the loan was made.
    Section 7.2(d) ``Loan at Below-Market Interest Rate Solely Due to a 
Delay in Perfecting the Plan's Security Interest'' is another 
transaction dating back to the original 2002 Program. It provides a 
correction for when a plan made a purportedly secured loan to a non-
party in interest, but a delay occurred in recording or otherwise 
perfecting the plan's interest in the loan collateral, resulting in the 
loan being treated as an unsecured loan until the plan's security 
interest was perfected. Section 7.2(d)(2) is being re-organized to 
clarify the correction. Section 7.2(d)(2)(ii) specifically requires 
that the plan's interest in the loan collateral be recorded or 
perfected. For situations where the delay in perfecting the loan's 
security caused a permanent change in the risk characteristics of the 
loan, section 7.2(d)(2)(iii) is being amended to add an alternative to 
the payment of the present value of the remaining Principal Amounts 
from the date the loan is fully secured to the maturity date of the 
loan. The present value payment method must be coupled with the 
borrower's continued payment of the outstanding loan balance under the 
original repayment schedule for the duration of the loan. The new 
alternative permits the borrower's payment of the amortized outstanding 
loan balance over the remaining payment schedule of the loan at the 
interest rate that would have been applicable for a loan with the 
changed risk characteristics. When this new alternative is used, the 
applicant must submit a copy of the loan repayment schedule for the re-
amortized loan repayments under section 7.2(d)(3)(iii). Any fair market 
interest rate must be determined by an independent commercial lender.
    In a related modification applicable to these three types of loans, 
section 5(a) is being revised to include a specific explanation in 
section 5(a)(5) for when a commercial lender will be considered to be 
``independent'' using the same criteria as is used to determine the 
``independence'' of an appraiser.
    As an ongoing protection for plans and their participants, EBSA 
staff, as part of the application review process, will continue to 
monitor a commercial lender's interest rate determination process and 
will object if it appears that a lender is not truly ``independent'' or 
the interest rate determination process is otherwise flawed.

(4) Purchases, Sales and Exchanges--Section 7.4

    Section 7.4(a) ``Purchase of an Asset (Including Real Property) by 
a Plan from a Party in Interest'' provides a method of correction for 
situations when the plan purchased an asset (including real property) 
from a party in interest in a transaction to which no prohibited 
transaction exemption applies. A plan's purchase from a party in 
interest can be corrected by reversing the transaction provided the 
plan receives the higher of the fair market value at resale or the 
Principal Amount plus the greater of either Lost Earnings or 
Restoration of Profits. As an alternative correction, a plan may retain 
the asset plus receive an amount resulting from application of a 
formulaic calculation, but only if an independent fiduciary determines 
that the plan will realize a greater benefit from this alternative 
correction than from the resale of the asset. Section 7.4(a)(2) is 
being amended by adding a new paragraph (iii) that provides a third 
method of correction in situations when the purchase cannot be reversed 
or the asset retained because the plan no longer owns the asset (e.g., 
sales, maturity, destruction). Under this new correction, the plan can 
receive a ``cash settlement'' if the asset has been sold and a Plan 
Official provides a statement, as required by section 7.4(a)(3)(v), 
that the sale was upon the advice of an independent fiduciary and not 
in anticipation of applying for relief under the Program. The 
determination of the cash settlement amount is prescribed in section 
7.4(a)(2)(iii) and takes into account, among other factors, whether the 
plan realized a profit on the resale of the asset, or a loss on the 
resale, maturity or destruction of the asset.
    As a further clarifying change, the wording in section 
7.4(a)(2)(ii), is being modified to permit the subtraction of any 
earnings received on the asset up to the Recovery Date from Lost 
Earnings.
    EBSA is also amending section 7.4(b) ``Sale of an Asset (Including 
Real Property) by a Plan to a Party in Interest.'' Section 7.4(b) 
provides a method of correction in situations when the plan sold an 
asset for cash to a party in interest in a transaction to which no 
prohibited transaction exemption applies. The amendment adds a 
condition to the section 7.4(b)(2)(ii) correction to permit the plan to 
receive the correction amount rather than to repurchase the asset by 
permitting a Plan Official to determine that the asset cannot be 
repurchased (e.g., destruction, maturity). This new condition in 
section 7.4(b)(2)(ii) is an alternative to the section's existing 
condition requiring an independent fiduciary to determine that the plan 
will recognize a greater benefit from this correction than the 
correction in section 7.4(b)(2)(i). As part of the required 
documentation under section 7.4(b)(3)(iv), the Plan Official making 
this determination must provide a written explanation of why the asset 
cannot be repurchased.

(5) Sales/Leasebacks--Section 7.4(c)

    Section 7.4(c) ``Sale and Leaseback of Real Property to Employer'' 
provides a method of correction for a plan sponsor that sells a parcel 
of real property to the plan, which is then leased back to the plan 
sponsor and is not otherwise exempt. To more accurately reflect the 
statutory exemption provided by ERISA section 408(e), which does not 
limit the transaction to the plan sponsor, the VFC Program 2022 
Amendments would explicitly expand the transaction to allow correction 
of leases to affiliates of the plan sponsor. Changes, where 
appropriate, to the associated class exemption are being proposed for 
consistency with these amendments.

[[Page 71169]]

(6) Illiquid Assets--Section 7.4(f)

    The April 2005 Program revision added a correction for a 
transaction that permits a plan to divest, rather than continue to hold 
in its portfolio, a previously purchased asset that is determined to be 
illiquid and that had been acquired under three possible circumstances 
described in the transaction. The transaction was further expanded in 
2006 by adding a fourth scenario reflecting the acquisition of an asset 
from a party in interest to which a statutory or administrative 
exemption applied. This amendment of the VFC Program retains the four 
scenarios that compose the transaction, as well as the correction 
method, which permits the sale of the asset to a party in interest, 
provided the plan receives the higher of (A) the fair market value of 
the asset at the time of resale, without a reduction for the costs of 
sale; or (B) the Principal Amount, plus Lost Earnings as described in 
section 5(b). This correction encompasses a sale of the illiquid asset 
to a party in interest by the plan even if the original purchase of the 
asset by the plan was not a prohibited transaction or imprudent. In 
this regard, the definition of Principal Amount is being modified to 
take into account the possibility that the transaction being corrected 
was neither a prohibited transaction nor a fiduciary Breach. Section 
7.4(f)(2)(ii) will now define Principal Amount as either the amount 
that would have been available had the Breach not occurred, or the 
plan's original purchase price if the original purchase was not a 
prohibited transaction or imprudent. The amendments also clarify that 
in the case of an illiquid asset that is a parcel of real estate, no 
party in interest may own real estate that is contiguous to the plan's 
parcel of real estate on the Recovery Date.

(7) Definitions--Section 3

    The definition of ``Under Investigation'' in section 3(b)(3)(i) is 
being modified to state that an investigation of a plan resulting from 
an EBSA staff review, which could include a review by an EBSA Benefits 
Advisor, is considered an investigation by EBSA that automatically 
makes an applicant, self-corrector or plan sponsor ineligible to 
participate in the Program in connection with the plan provided that, 
as is currently required, written or oral notice of an investigation, 
review or examination has been received by the plan, a Plan Official, 
or an authorized plan representative. However, section 3(b)(3) makes 
clear that a plan will not be considered to be ``Under Investigation'' 
merely because EBSA staff has contacted the plan, the applicant, the 
self-corrector, or the plan sponsor in connection with a participant 
complaint, unless the participant complaint concerns the transaction 
described in the application or identified in the SCC notice and the 
plan has not received the correction amount due under the Program as of 
the date EBSA staff contacted the plan, the applicant, the self-
corrector, or the plan sponsor.
    There is a new limited exception to the definition of ``Under 
Investigation'' for bulk applicants that is discussed more fully below. 
Moreover, the existing exception from the definition of ``Under 
Investigation'' in section 3(b)(3) for a work paper review of the 
accountant of a plan by EBSA's Office of the Chief Accountant remains 
unchanged.

(8) Eligibility Criteria--Section 4

    Section 4 ``VFC Program Eligibility'' is being amended to add two 
new limited exceptions to the existing eligibility requirements to 
promote increased usage of the Program. Currently, in order to be 
eligible to participate in the VFC Program there are two requirements 
involving possible criminal activity. First, if ``any governmental 
agency is conducting a criminal investigation of the plan, or of the 
potential applicant, self-corrector or plan sponsor in connection with 
an act or transaction directly related to the plan,'' such plan is 
considered ``Under Investigation'' in accordance with section 
3(b)(3)(iii) and is not eligible for relief under the Program. This 
requirement remains. However, in addition to the first requirement, a 
second eligibility requirement in section 4(b) requires that there can 
be ``no evidence of potential criminal violations as determined by 
EBSA.'' EBSA has received applications involving clear evidence of 
potential criminal violations such as when a bookkeeper allegedly 
embezzled money from the plan sponsor, including participant 
contributions. In some situations, the plan sponsor repaid the money to 
the plan, including Lost Earnings, and referred the embezzlement to the 
local authorities who subsequently prosecuted the alleged embezzler. In 
situations like this, EBSA does not believe an innocent applicant who 
applies under the Program in such situations should be ineligible for 
relief under the Program. Accordingly, an exception is being added in 
paragraph (b)(2) to the section 4 requirements for eligibility to allow 
participation in the Program by an innocent plan administrator, plan 
sponsor or applicant for cases involving delinquent participant 
contributions and loan repayments when (1) all funds have been repaid 
to the plan; (2) the appropriate law enforcement agency has been 
notified of the alleged criminal activity; and (3) the applicant 
submits a statement (covered by the Penalty of Perjury Statement) with 
the application providing contact information for the law enforcement 
agency, asserting that the applicant was not involved in the alleged 
criminal activity, and reporting whether a claim relating to the 
potential criminal violation has been made under an ERISA section 412 
fidelity bond. In light of that change, section 4(b) is re-named and 
re-designated as section 4(b)(1), ``In general.'' EBSA always retains 
the right to reject any VFC Program application based on its review of 
the criminal activity involved.
    With regard to the ERISA fidelity bond, although a copy was 
originally required to be included with an application, the 2002 
Program was modified to instead permit applicants to include 
information concerning the plan's ERISA fidelity bond. This 
informational requirement was eliminated in the 2006 Program. Although 
the informational requirement is not being added back to the Program 
under the VFC Program 2022 Amendments, EBSA emphasizes that these 
modifications focused merely on streamlining the application process 
and should not be misconstrued as eliminating or modifying the ERISA 
section 412 bonding requirements that protect plans against loss by 
reason of acts of fraud or dishonesty.\12\
---------------------------------------------------------------------------

    \12\ See FAB 2008-04, (Nov. 25, 2008); 29 CFR 2550.412-1 (1975) 
and Part 2580 (1985).
---------------------------------------------------------------------------

    As noted above, a plan is automatically ineligible to participate 
in the Program if it is considered ``Under Investigation'' by EBSA as 
defined in section 3(b)(3) of the Program. Over the past several years, 
EBSA has received Program applications from service providers to 
correct Breaches involving multiple plans. Some of these applications 
have involved hundreds, or even thousands, of plans, some of which are 
Under Investigation by EBSA. Consequently under the 2006 Program, such 
plans could not be included in any resulting no action letter. EBSA 
would like to be able to issue a no action letter to the service 
provider that covers all plans named in the application in certain 
circumstances. Accordingly, an exception is being added in section 4(d) 
to permit the submission of bulk applications by a single service 
provider when certain conditions are met. To qualify: (1) the 
application must cover at

[[Page 71170]]

least ten named plans and each plan must have participated in the 
transaction being corrected; (2) the applicant must be a service 
provider that is applying for relief only on its own behalf; (3) the 
applicant is currently or was providing services to each of the named 
plans at the time of the transaction being corrected; and (4) the 
service provider cannot be Under Investigation by EBSA and the 
corrective action cannot have been taken as a result of an EBSA 
investigation or review of any named plan. EBSA, of course, retains the 
right to determine whether the corrective action was taken as a result 
of any investigation, and to exclude any plan involved in the 
investigation from the no action letter. Also, section 6.1(d)(3) is 
being amended to permit a bulk applicant to provide for each named plan 
either the Annual Report Form 5500 filing information or the plan 
sponsor's nine-digit number (EIN). This procedural change will avoid 
undue delay while a service provider attempts to secure Annual Report 
Form 5500 filing information, which may not be directly related to the 
Breach. Section 6.1(g) is also being amended to permit a bulk applicant 
with knowledge of the transaction that is the subject of the 
application to sign and date the Penalty of Perjury Statement in which 
the applicant certifies that it is not Under Investigation by EBSA 
instead of requiring a signature from a plan fiduciary for each plan 
covered by the application.

(9) Miscellaneous Modifications

    This document contains assorted other clarifying changes to update 
the Program, assist Program users and maintain consistency among 
provisions. For example, section 5(d) ``Distributions'' reflects the 
cessation of both the Internal Revenue Service (IRS) and Social 
Security Administration letter forwarding services for missing 
participants and now provides revised guidance on locating individuals 
who are owed supplemental distributions. Another example is sections 
7.3(a)(3) and (b)(3). Those sections provide that only certain 
supporting documentation must be provided with the application. The 
words ``unless otherwise requested by EBSA'' have been added to confirm 
that EBSA may in individual cases request copies of other supporting 
documentation. Similarly, references to self-corrector, self-correction 
and the SCC notice have been added to various provisions where 
appropriate. Additionally, in sections 7.4(d) and (e) dealing with 
transactions at greater and less than fair market value respectively, 
the documentation requirement for the qualified, independent 
appraiser's report has been revised to correctly specify value rather 
than fair market value at the time of the transaction. In section 7.5 
``Benefits,'' concerning the distribution of overvalued plan assets in 
a defined contribution plan, the correction specifically requires the 
restoration to the plan of the amount that exceeded the paid 
distribution amount to which all affected participants were entitled 
under the terms of the plan, plus Lost Earnings as described in section 
5(b) on the overpaid distributions.

C. Statement on Availability and Request for Comments

    Although the Department is not required to seek public comments on 
an enforcement policy, the Department solicits comments from the public 
on the revisions to the VFC Program discussed in this document, 
including whether there are different ways in which the new 
transactions included in the Program could be corrected in accordance 
with the goals of the Program. Additionally, as the VFC Program 
includes information collections that are subject to the PRA, the 
Department seeks public comment below on the revisions to the 
information collections included in this amended and restated VFC 
Program. The Department will then seek approval of the revisions from 
OMB in accordance with procedures established by the PRA. A separate 
notice will be published in the Federal Register with a 30-day comment 
period when the Department submits the VFC Program to OMB seeking OMB's 
approval of the revised information collections. This amended and 
restated VFC Program, including the SC Component, will become available 
following OMB approval and the Department will announce the 
availability in a subsequent Federal Register Notice. Until such time, 
the existing VFC Program remains available.
    The amendments to the associated class exemption, PTE 2002-51, are 
proposed so that its conditional relief also is not available until the 
amendments are published in final form; however, relief remains 
available under the conditions of the existing exemption. The 
Department expects that the availability of the amended and restated 
Program will encourage employers and fiduciaries, which otherwise might 
not do so, to correct Breaches and reimburse plan losses. Of course, 
implementation of this amended and restated Program does not foreclose 
resolution of fiduciary Breaches by other means, including entering 
into settlement agreements with the Department.
    Comments may be submitted on any aspect of the VFC Program, 
including the amendments being announced in this document. The 
Department is particularly interested in comments on whether the 
Program should be further expanded in four respects.
    First, EBSA has undertaken a nationwide compliance initiative to 
help retirement plans focus on practices to maintain complete and 
accurate census information, communicate with participants and 
beneficiaries about their eligibility for benefits, and implement 
effective policies and procedures to locate missing participants and 
beneficiaries. The Agency has a national enforcement project focused on 
these issues in defined benefit plans, has issued a compliance 
assistance release, and published a set of best practices that the 
fiduciaries of defined benefit and defined contribution plans, such as 
401(k) plans, can follow to ensure that plan participants and 
beneficiaries receive promised benefits when they reach retirement age. 
The Department is interested in public comments on whether the VFC 
Program should include a transaction for correction of fiduciary 
breaches involved in such recordkeeping, communication, and benefit 
payment failures.
    Second, the VFC Program contains a transaction for certain 
participant loans that fail to qualify for ERISA's statutory exemption 
for plan loan programs in ERISA section 408(b)(1). The covered 
transaction is for a loan the terms of which did not comply with plan 
provisions that incorporated requirements of section 72(p) of the Code. 
The VFC Program requires that the plan official voluntarily correct the 
loan with IRS approval under the Voluntary Correction Program of the 
IRS' Employee Plans Compliance Resolution System (EPCRS). The 
Department is interested in public comments on whether there are other 
circumstances in which the VFC Program could be integrated with 
corrections under EPCRS. For example, the IRS now allows participant 
loan transactions to be corrected under the Self-Correction Program 
component of EPCRS, but the VFC Program does not have a corollary self-
correction component for participant loan transactions and requires 
that applicants correct participant loan transactions under the normal 
EPCRS procedures to be eligible for VFC Program correction under Title 
I of ERISA. Further, the latest updated version of EPCRS in Rev.

[[Page 71171]]

Proc. 2021-30 makes improvements to the program's rules for correcting 
benefit overpayments from defined benefit (DB) pension plans that give 
DB plan fiduciaries new options for correcting such overpayments and 
addressing inequities that may arise if the plan seeks to place a 
repayment burden on the participant. The Department has issued guidance 
that the hardship of a participant or beneficiary resulting from a 
recovery attempt, or the cost of collection efforts, may be such that 
it would be prudent for the plan not to seek recovery notwithstanding 
the fact that an overpayment of benefits to a participant or 
beneficiary may involve a fiduciary's failure to properly administer 
the plan in accordance with the terms of the plan's governing 
documents. See Advisory Opinions 77-07, 77-08, 77-32A, 77-33, 77-34. 
The Department is interested in comments on whether changes should be 
made to better integrate the VFC Program provisions on participant loan 
transactions with the IRS EPCRS and whether a transaction for 
correcting overpayments from DB pension plans should be added to the 
VFC Program that is integrated with correction of the overpayment under 
the IRS EPCRS.
    Third, the Department is considering revising the program to either 
permit or require that VFC Program applications be submitted 
electronically. The Department is evaluating available alternative 
approaches to e-submission, e.g., email versus an internet or web-based 
portal, but is particularly interested in comments on whether e-
submission should be required and whether applicants or classes of 
applicants have issues or challenges with e-submission that the 
Department should consider ways to accommodate. The VFC Program 
application process is currently administered out of EBSA's Regional 
Offices. Some EBSA Regional Offices have email boxes that can be used 
for e-submission of VFC Program applications and supporting documents. 
As an interim step while EBSA considers a more uniform approach, text 
is being added to the VFC Program to encourage applicants to contact 
the relevant Regional Office about email submission options and format 
requirements, e.g., penalty of perjury statements.
    Fourth, on June 3, 2022, the IRS announced a pre-audit compliance 
pilot program for retirement plans. See Employee Plans News [verbar] 
Internal Revenue Service at www.irs.gov/retirement-plans/employee-plans-news. Under the program, the IRS will send a pre-audit letter to 
plan sponsors whose retirement plans have been selected for audit 
giving the plan sponsor a 90-day window to review the plan's documents 
and operations to determine if they meet current tax law requirements. 
If that review reveals mistakes, the plan sponsor may be able to self-
correct or request a closing agreement, notify the IRS of correction 
actions taken and potentially avoid or limit the scope of the IRS 
examination. The goal is to reduce taxpayer burden and reduce the 
amount of time spent on retirement plan examinations. The IRS 
newsletter states that at the end of the pilot, the IRS intends to 
evaluate its effectiveness and determine if it should continue to be 
part of the IRS' overall compliance strategy. This is a change from the 
IRS' existing position that generally allows voluntary correction only 
until the IRS had identified the plan for audit. The VFC Program 
includes a similar principle under which persons are ineligible to use 
the VFC Program if they have received written or oral notice of an 
investigation, review, or examination by EBSA, IRS, and certain other 
governmental authorities. The Department is interested in comments on 
whether it should adopt a pre-audit program similar to the IRS pilot 
program, and if so, whether the ``under investigation'' provisions of 
the VFC Program should be revised to accommodate voluntary correction 
of covered transactions in connection with such a pre-audit program.

D. Regulatory Impact Analysis

    The following is a discussion of the examination of the effects of 
this regulatory action as required by Executive Order 12866,\13\ 
Executive Order 13563,\14\ the Paperwork Reduction Act of 1995,\15\ the 
Regulatory Flexibility Act,\16\ section 202 of the Unfunded Mandates 
Reform Act of 1995,\17\ Executive Order 13132,\18\ and the 
Congressional Review Act.\19\
---------------------------------------------------------------------------

    \13\ Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).
    \14\ Improving Regulation and Regulatory Review, 76 FR 3821 
(Jan. 18, 2011).
    \15\ 44 U.S.C. 3506(c)(2)(A) (1995).
    \16\ 5 U.S.C. 601 et seq. (1980).
    \17\ 2 U.S.C. 1501 et seq. (1995).
    \18\ Federalism, 64 FR 153 (Aug. 4, 1999).
    \19\ 5 U.S.C. 804(2) (1996).
---------------------------------------------------------------------------

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing and streamlining rules, and 
of promoting flexibility.
    Under Executive Order 12866, ``significant'' regulatory actions are 
subject to the requirements of the executive order and review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action that is 
likely to result in a rule (1) having an annual effect on the economy 
of $100 million or more, or adversely and materially affecting a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or State, local or tribal governments or 
communities (also referred to as ``economically significant''); (2) 
creating serious inconsistency or otherwise interfering with an action 
taken or planned by another agency; (3) materially altering the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. For 
this purpose, a ``rule'' includes ``an agency statement of general 
applicability and future effect . . . that is designed to implement, 
interpret, or prescribe . . . policy or to describe the procedure or 
practice requirements of an agency.''
    OMB has determined that this action is significant under section 
3(f)(4) because it raises novel legal or policy issues arising from the 
President's priorities. Accordingly, OMB has reviewed this action, and 
the Department has assessed the costs and benefits of its amended 
enforcement policy and related PTE proposal.
    The VFC Program is designed to provide an efficient, cost-effective 
method for Plan Officials to correct a variety of ERISA fiduciary 
breaches and prohibited transactions and receive Departmental 
recognition of the correction. The Department expects that the 
amendments to the VFC Program will increase efficiency and 
accessibility for potential applicants and self-correctors. These 
changes, described further below, include in part, a new Self-
Correction Component for delinquent participant contributions and loan 
repayments involving Lost Earnings less than or equal to $1,000, 
acceptance of bulk applications with modified requirements, and 
increased flexibility in the procedures for a variety of other 
transactions. These changes

[[Page 71172]]

also include proposed elimination from the exemption of a three-year 
limitation for VFC Program applicants that take advantage of the relief 
provided by the VFC Program and the exemption for a similar type of 
transaction.
    All pension and welfare plans can utilize the VFC Program if they 
have a fiduciary breach for which there is an eligible transaction. 
Parties that are covered by section 4975 of the Code can rely on the 
related class exemption for excise tax relief for transactions 
identified in the exemption that are corrected under the VFC Program. 
In 2019 there were 686,809 defined contribution plans and 46,870 
defined benefit plans that would be impacted by these changes.\20\ In 
2021 there were 2,468,363 health plans \21\ and 673,000 other welfare 
benefit plans that would also be impacted by these changes.\22\
---------------------------------------------------------------------------

    \20\ Employee Benefits Security Administration. ``Private 
Pension Plan Bulletin: Abstract of 2019 Form 5500 Annual Reports.'' 
(September 2021).
    \21\ U.S. Department of Labor, EBSA calculations using the 2021 
Medical Expenditure Panel Survey, Insurance Component (MEPS-IC), the 
Form 5500 and 2019 Census County Business Patterns.
    \22\ U.S. Department of Labor, EBSA calculations using non-
health welfare plan Form 5500 filings and projecting non-filers 
using estimates based on the non-filing health universe.
---------------------------------------------------------------------------

    An average of 1,429 applicants per year used the VFC Program from 
2018 to 2020. Since the Department does not have data on the Self-
Correction Component, as it is new, the Department assumes that 74 
percent of VFC Program applicants will move to the Self-Correction 
Component.\23\ The Department projects that the changes to the VFC 
Program will result in two new Program users filing bulk applications, 
367 Program users filing non-bulk applications,\24\ 1,072 plans using 
the new Self-Correction Component,\25\ for a total of 1,441 users of 
the program and PTE.\26\
---------------------------------------------------------------------------

    \23\ The Department estimates that the Self-Correction Component 
will streamline the process for the 74 percent of small and large 
VFC Program applicants involving lost earnings less than or equal to 
$1,000.
    \24\ 1,429 applicants x (100% minus 74.3%) = 367 non-bulk 
applicants.
    \25\ The estimate includes a one percent increase in the number 
of self-corrections, resulting from the removal of the three-year 
limitation provision for self-correctors. (1,429 applicants x 74.3% 
x 1.01 = 1,072.)
    \26\ 1,072 self-correctors + 2 bulk applicants + 367 non-bulk 
applicants = 1,441 Program Users.
---------------------------------------------------------------------------

    The Department believes that the benefits of the amended VFC 
Program and related PTE justify its costs. Because participation is 
voluntary, the VFC Program imposes no costs unless Plan Officials 
choose to avail themselves of the opportunity to correct a potential 
fiduciary breach under the terms of the VFC Program. The Department 
expects that the revised VFC Program will be easier and more useful for 
potential applicants. The greater efficiency and accessibility that 
will result from the availability of a Self-Correction Component for 
delinquent participant contributions, and other expansions and 
clarifying modifications of the Program, are expected to make the 
Program easier to use, to lessen the cost of participation in many 
instances, and to increase efficiency for both applicants and 
reviewers.
    The VFC Program has been very successful to date in encouraging and 
facilitating the correction of violations. The Department anticipates 
that the revised VFC Program will encourage Plan Officials, who 
otherwise might not do so, to correct violations and reimburse plan 
losses. The Department is unable to predict with certainty either the 
reduction in application costs that will arise from the revisions to 
the Program, or the potential increase in participation that will be 
associated with these revisions. However, these changes to the VFC 
Program will reduce associated costs by reducing the number of hours 
required to make corrections and file applications. Compared with the 
existing VFC Program, the Department expects the amended Program's per-
user costs to be lower because the amendments could move 74 percent of 
VFC Program applications to the Self-Correction Component.\27\ 
Moreover, implementing the Self-Correction Component will reduce the 
recordkeeping and reporting cost for Plan Officials with small amounts 
of delinquent participant contributions and loan repayments, because 
they no longer will have to submit an application to the Department 
with extensive supporting documentation, but merely submit a self-
correction notice with minimal data to the Department and provide 
corroborating documentation to the plan administrator. This Self-
Correction Component provides additional flexibility to Plan Officials. 
The Department is also providing additional flexibility by proposing to 
eliminate the three-year limitation in the PTE. The Department 
estimates that the total cost savings associated with the Self-
Correction Component is $206,550.\28\
---------------------------------------------------------------------------

    \27\ The Department estimates that the Self-Correction Component 
will streamline the process for 74 percent of small and large VFC 
cases involving lost earnings less than or equal to $1,000.
    \28\ The Department estimates that the quantified cost of the 
VFC Program before the addition of the Self-Correction Component 
would have been $794,724. The Department estimates that the 
quantified cost of the VFC Program with the Self-Correction 
Component is $588,174. Thus, the Department estimates that total 
cost savings associated with the Self-Correction Component is 
$206,550 ($794,724-$588,174).
---------------------------------------------------------------------------

    Plans or their service providers will need to familiarize 
themselves with the changes to the VFC Program and amendments to the 
PTE. Service providers can help multiple plans in a year or across 
years, so although it could take a service provider multiple hours to 
review the amended requirements the actual burden impact on an 
individual plan would be less. With an hourly rate for the in-house 
compensation and benefits manager of $124.75 per hour,\29\ the 
Department estimates that the total cost burden for compensation and 
benefit managers to become familiar with the changes to the VFC Program 
and amended PTE will be $359,530.\30\
---------------------------------------------------------------------------

    \29\ Internal DOL calculation based on 2021 labor cost data. For 
a description of the Department's methodology for calculating labor 
rates, see: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.
    \30\ 1,441 users x 2 hours x $124.75 = $359,530.
---------------------------------------------------------------------------

    Overall, the Department estimates that the costs of the VFC Program 
and the associated class exemption, in their amended forms, would total 
approximately $1,359,006 ($1,289,305 in annual equivalent costs 
reflecting the monetized cost of the work performed by in-house 
personnel and outside service providers and $69,701 in annual cost 
burden reflecting the cost of materials and postage). These costs are 
quantified and discussed in more detail in the Paperwork Reduction Act 
section, below. This total represents a cost savings due to the new 
Self-Correction Component.
    Benefits for Plan Officials who are granted relief under the VFC 
Program include elimination of risks arising from an otherwise 
uncorrected fiduciary breach, as well as savings of resources that 
otherwise might have been needed to defend against a civil action by 
the Department based on the breach. An additional and significant 
benefit of the VFC Program accrues to participants and beneficiaries 
through the correction of fiduciary breaches and the restoration to the 
plan of amounts representing losses or improperly generated profits 
arising from impermissible transactions, resulting in greater security 
of plan assets and future benefits. The changes to the VFC Program will 
allow Plan Officials to obtain the above benefits at a reduced cost. 
The Department hopes that this cost reduction may encourage other Plan 
Officials to correct previously undetected and unreported fiduciary 
breaches, which would enhance the retirement income security of 
participants and beneficiaries; however,

[[Page 71173]]

it has no data to reliably predict the extent of the increased usage. 
The Department will continue to actively monitor the use of the VFC 
Program in order to better evaluate its benefits and costs.

Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) \31\ imposes certain 
requirements with respect to federal rules that are subject to the 
notice and comment requirements of section 553(b) of the Administrative 
Procedure Act, or any other law, and are likely to have a significant 
economic impact on a substantial number of small entities.\32\ Unless 
the head of an agency certifies that a proposed rule will not have a 
significant economic impact on a substantial number of small entities, 
section 603 of the RFA requires the agency to prepare and make 
available for public comment an initial regulatory flexibility analysis 
of the proposed rule.\33\
---------------------------------------------------------------------------

    \31\ 5 U.S.C. 601 et seq. (1980).
    \32\ 5 U.S.C. 551 et seq. (1946).
    \33\ 5 U.S.C. 604 (1980).
---------------------------------------------------------------------------

    This document describes an enforcement policy of the Department 
that is not being issued as a general notice of proposed rulemaking. 
Therefore, the RFA does not apply. However, the Department is also 
issuing a proposed amendment to a class exemption (PTE 2002-51) to 
which the Regulatory Flexibility Act does apply. The Department 
certifies that the amendments to PTE 2002-51 will not have a 
significant economic impact on a substantial number of small entities. 
However, EBSA considered the potential costs and benefits of this 
action for small pension plans and the Plan Officials in developing the 
proposed amendment to the class exemption and believes that its greater 
simplicity and accessibility would make the Program more useful to 
small employers who wish to avail themselves of the relief offered 
under the exemption. Below is the factual basis for the certification.
    As mentioned previously, all pension and welfare plans can utilize 
the VFC Program with the related PTE if they have a fiduciary breach 
for which there is an eligible transaction. In 2019 there were 600,165 
small defined contribution plans and 39,586 small defined benefit plans 
and plan officials that would be impacted by these changes.\34\ In 2021 
there were 2,386,024 small health plans that would also be impacted by 
these changes.\35\ Currently 1,429 plan fiduciaries make use of the VFC 
Program in a given year and the Department projects a small increase to 
1,441 fiduciaries making use of the VFC Program in a given year. An 
estimated 1,072 plans will utilize the new Self-Correction Component in 
a given year.
---------------------------------------------------------------------------

    \34\ Employee Benefits Security Administration. ``Private 
Pension Plan Bulletin: Abstract of 2019 Form 5500 Annual Reports.'' 
(September 2021).
    \35\ U.S. Department of Labor, EBSA calculations using the 2021 
Medical Expenditure Panel Survey, Insurance Component (MEPS-IC), the 
Form 5500 and 2019 Census County Business Patterns.
---------------------------------------------------------------------------

    The Department is proposing to amend the related PTE so that excise 
tax relief will be available for transactions that are corrected under 
the Self-Correction Component. The Department is also proposing to 
amend the PTE to eliminate the three-year limitation. Thus, all plans 
eligible to use the VFC Program would be eligible to use the PTE more 
than just once every three years. However, the Department estimates 
that, of the total number of pension and welfare plans significantly 
less than one percent will use the PTE in a given year.\36\
---------------------------------------------------------------------------

    \36\ In 2019, there were 733,678 pension plans. (Source: 
Employee Benefits Security Administration. ``Private Pension Plan 
Bulletin: Abstract of 2019 Form 5500 Annual Reports.'' (September 
2021).) In 2021, there were 673,000 welfare benefit plans. (Source: 
U.S. Department of Labor, EBSA calculations using non-health welfare 
plan Form 5500 filings and projecting non-filers using estimates 
based on the non-filing health universe.) Thus, 0.08% of all pension 
and welfare plans will use the PTE in a given year. (1,072 plans/
(733,678 plans + 673,000 welfare benefit plans) = 0.08%.)
---------------------------------------------------------------------------

    The proposed amended PTE would provide excise tax relief for self-
correctors if they pay the amount of the excise tax owed to the plan. 
The Self-Correction Component can only be used in situations where the 
size of lost earnings is $1,000 or less. Section 4975(a) imposes an 
excise tax on each prohibited transaction equal to 15 percent of the 
amount involved with respect to the prohibited transaction for each 
year (or part thereof) in the taxable period. Therefore, the maximum 
excise tax owed for each year would generally not exceed $150.\37\
---------------------------------------------------------------------------

    \37\ Under Reorganization Plan No. 4 of 1978, supra n. 1, the 
Secretary of the Treasury retains interpretive authority over Code 
sections 4975(a) and (b).
---------------------------------------------------------------------------

    Plans or their service providers will need to familiarize 
themselves with the amendments to the PTE. Service providers can help 
multiple plans in a year or across years, so although it could take a 
service provider multiple hours to review the amended requirements the 
actual burden impact on an individual plan would be less. The 
Department estimates that all 1,072 self-correctors will use the new 
provisions of the amended class exemption.\38\ The per-plan cost for 
rule familiarization would be $125.\39\
---------------------------------------------------------------------------

    \38\ Internal DOL calculation based on 2021 labor cost data. For 
a description of the Department's methodology for calculating labor 
rates, see: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.
    \39\ With an hourly rate for the in-house compensation and 
benefits manager of $124.75 per hour and one hour of burden 
allocated to a plan the burden be plan would be $125 (rounded).
---------------------------------------------------------------------------

    For plans with the maximum lost earnings of $1,000 and an excise 
tax of 15 percent the maximum excise tax in each year would generally 
not exceed $150. Including the cost of rule familiarization of $125, 
the total expense could be $275 in a year. Based on the foregoing, the 
Department hereby certifies that these proposed amendments will not 
have a significant economic impact on a substantial number of small 
entities. Therefore, the Department has not prepared an Initial 
Regulatory Flexibility Analysis.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department conducts a preclearance consultation program to 
provide the general public and federal agencies with an opportunity to 
comment on proposed and continuing collections of information in 
accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 
3506(c)(2)(A)). This helps to ensure that requested data can be 
provided in the desired format, reporting burden (time and financial 
resources) is minimized, collection instruments are clearly understood, 
and the impact of collection requirements on respondents can be 
properly assessed.
    The ICRs in the VFC Program and PTE 2002-51 are currently approved 
under OMB Control Number 1210-0118. A copy of the ICRs may be obtained 
by contacting the office listed in the Addresses section below.
    The Department is seeking comment the revisions to the information 
collections in the enforcement policy and proposed amendments to PTE 
2002-51. The Department is particularly interested in comments that:
     Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;

[[Page 71174]]

     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Dates: Written comments must be submitted to the office shown in 
the Addresses section on or before January 20, 2023.
    Addresses: Comments should be sent to James Butikofer, Office of 
Research and Analysis, U.S. Department of Labor, Employee Benefits 
Security Administration, 200 Constitution Avenue NW, Room N-5718, 
Washington, DC 20210 or email: [email protected].
    The amended VFC Program, described above, includes a Self-
Correction Component for delinquent participant contributions and loan 
repayments to pension plans involving Lost Earnings less than or equal 
to $1,000, streamlined requirements for bulk applications, and it 
expands and modifies transactions that are currently eligible for the 
VFC Program. The Self-Correction Component permits applicants to self-
correct, and then provide EBSA with a notice of the self-correction 
through the online VFC Program web tool. Service providers are able to 
submit bulk applications to the VFC Program, under the existing terms 
and requirements of the Program, with some easing of the eligibility 
and information requirements. Under the new bulk applicant provisions, 
the bulk applicant will receive a no action letter providing relief 
only to the service provider correcting transactions involving each of 
the plans named in the application.
    An average of 1,429 applicants per year used the VFC Program from 
2018 to 2020. Since the Department does not have data on the Self-
Correction Component, as it is new, the Department assumes that 74 
percent of VFC Program applicants will move to the Self-Correction 
Component.\40\ The Department projects that the changes to the VFC 
Program will result in two new Program users filing bulk applications, 
367 Program users filing non-bulk applications,\41\ 1,072 plans using 
the new Self-Correction Component,\42\ for a total of 1,441 users of 
the program and PTE.\43\
---------------------------------------------------------------------------

    \40\ The Department estimates that the Self-Correction Component 
will streamline the process for the 74 percent of small and large 
VFC Program applicants involving lost earnings less than or equal to 
$1,000.
    \41\ 1,429 applicants x (100% minus 74.3%) = 367 non-bulk 
applicants.
    \42\ The estimate includes a one percent increase in the number 
of self-corrections, resulting from the removal of the three-year 
limitation provision for self-correctors. (1,429 applicants x 74.3% 
x 1.01 = 1,072.)
    \43\ 1,072 self-correctors + 2 bulk applicants + 367 non-bulk 
applicants = 1,441 Program Users.
---------------------------------------------------------------------------

    In addition to the VFC Program, the Department is publishing a 
proposed amendment to the associated class exemption PTE 2002-51, which 
applies only to qualifying applicants and self-correctors participating 
in the VFC Program. The exemption is currently unavailable to VFC 
Program applicants that have, within the previous three years, taken 
advantage of the relief provided by the VFC Program and the exemption 
for a similar type of transaction. The Department is proposing to 
eliminate the three-year limitation. The three-year provision was 
initially included in the exemption to prevent parties from becoming 
lax in complying with fiduciary and other ERISA duties because of the 
availability of the exemption. Based on the Department's experience 
with the VFC Program and the exemption, the Department concluded that 
the risk of such behavior is low.
    The overall paperwork burden for the amended VFC Program and the 
amended PTE 2002-51 is provided below.

VFC Program

    For the VFC Program, the Department estimates that Plan Officials 
will devote 2.5 hours of clerical staff gathering paperwork, one hour 
of a compensation and benefits manager calculating Lost Earnings, and 
one hour of clerical staff engaging in recordkeeping activities for 
each non-bulk application or self-correction. The Department estimates 
that for each bulk application, Plan Officials will devote 25 hours of 
clerical staff gathering paperwork, 10 hours of a compensation and 
benefits manager calculating Lost Earnings, and 10 hours of clerical 
staff engaging in recordkeeping activities. Therefore, total burden 
hours for Plan Officials will equal approximately 6,566 hours.\44\ With 
an hourly rate for the in-house compensation and benefits manager of 
$124.75 per hour \45\ and an hourly rate for in-house clerical staff of 
$58.66 per hour,\46\ this results in an equivalent cost of 
approximately $481,558.\47\
---------------------------------------------------------------------------

    \44\ [((1,072 self-correctors) + 367 non-bulk applicants) x (2.5 
hours of gathering paperwork + 1 hour of calculating Lost Earnings + 
1 hour of recordkeeping)] + [2 bulk applicants x (25 hours of 
gathering paperwork + 10 hours of calculating Lost Earnings + 10 
hours of recordkeeping)] = 6,566 hours.
    \45\ Internal DOL calculation based on 2021 labor cost data. For 
a description of the Department's methodology for calculating labor 
rates, see: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.
    \46\ Ibid.
    \47\ [((1,072 self-correctors) + 367 non-bulk applicants) x (2.5 
hours of gathering paperwork x $58.66 + 1 hour of calculating Lost 
Earnings x $124.75 + 1 hour of recordkeeping x $58.66)] + [2 bulk 
applicants x (25 hours of gathering paperwork x $58.66 + 10 hours of 
calculating Lost Earnings x $124.75 + 10 hours of recordkeeping x 
$58.66)] = $481,558.
---------------------------------------------------------------------------

    The Department estimates that external service providers will spend 
about 10 minutes completing and submitting the online Self-Correction 
Component notice, 20 hours completing and submitting bulk applications, 
and two hours completing and submitting all other applications.\48\ 
Therefore, total hour burden for external service providers will be 952 
hours.\49\ With a rate of $108.04 per hour for an accounting 
professional,\50\ the hour burden is equivalent to approximately 
$102,926.\51\
---------------------------------------------------------------------------

    \48\ It should be noted that the required checklist for 
applications filed with the Department under the Program appears 
twice within the Appendices to the Program. While it is required to 
be submitted only once, it is included as the separate Appendix B 
for applicants who do not choose to use the model application in 
Appendix E, and separately as the final item in the model 
application for ease of use for those who do choose to use the model 
application.
    \49\ (1,072 self-correctors 10 minutes) + (367 non-bulk 
application x 2 hours) + (2 bulk application x 20 hours) = 952 
hours.
    \50\ Internal DOL calculation based on 2021 labor cost data. For 
a description of the Department's methodology for calculating labor 
rates, see: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.
    \51\ (1,072 self-correctors x 10 minutes x $108.04) + (367 non-
bulk application x 2 hours x $108.04) + (2 bulk application x 20 
hours x $108.04) = $102,926.
---------------------------------------------------------------------------

    Factoring in mailing costs of $10 per application for all 
applications except those under the Self-Correction Component, the 
total cost burden for applicants will be approximately $3,690.\52\
---------------------------------------------------------------------------

    \52\ (367 non-bulk applications + 2 bulk applications) x $10 
materials and postage per application = $3690.
---------------------------------------------------------------------------

    The total hour burden associated with the VFC Program will be 7,518 
hours with an equivalent cost of $584,484. The total cost burden 
associated with the VFC Program will be $3,690.

VFCP Class Exemption (PTE 2002-51)

    The Department estimates that all 1,072 self-correctors and 286 of 
the VFC Program applicants will use the amended class exemption. The 
Department has determined that service

[[Page 71175]]

providers will prepare the documentation required by the exemption at a 
cost of $108.04 per hour, which will require approximately one hour for 
completion and delivery. The hour burden associated with the exemption 
therefore is 1,358 hours with an equivalent cost of $146,718.\53\
---------------------------------------------------------------------------

    \53\ 1 hour x 1,358 users = 1,358 hours; 1 hour x 1,358 users x 
$108.04 per hour x = $146,718.
---------------------------------------------------------------------------

    Of the 286 VFC Program applicants using the exemption, 167 VFC 
Program applicants are required to send notices to their participants 
and beneficiaries.\54\ Mailing notices to these 167 VFC Program 
applicants' estimated 242,956 participants and beneficiaries will 
result in a cost burden of $66,011 \55\ and a hour burden of 3,385 
hours \56\ and an equivalent cost of $198,574.
---------------------------------------------------------------------------

    \54\ The 1,072 self-correctors that meet the requirements of 
section IV D. of the exemption and 167 VFC Program applicants for 
whom a small amount of excise taxes otherwise would be imposed and 
that meet the requirement of section IV C. of the exemption are not 
required to provide the notice.
    \55\ For materials and postage for paper notices. 242,956 
notices x 41.8% paper notices x ($0.65 per paper notice)] = $66,011. 
Electronic notices will be distributed at de minimis cost.
    \56\ For labor costs for paper notices. 242,956 notices x 41.8% 
paper notices x 2 minutes = 3,385; 242,956 notices x 41.8% paper 
notices x 2 minutes x $58.66 = $198,574. Electronic notices will be 
distributed at de minimis cost.
---------------------------------------------------------------------------

    The total hour burden associated with the VFCP exemption will be 
4,743 hours with an equivalent cost of $345,292. The total cost burden 
associated with the VFCP exemption will be $66,011.

Summary

    The total aggregate annual hour burden for the information 
collection arising from the VFC Program and the exemption is estimated 
at 12,261 hours with an equivalent cost of $929,776 (7,518 hours with 
an equivalent cost of $584,484 for the VFC Program, 4,743 hours with an 
equivalent cost of $345,292 for VFCP exemption).
    The total aggregate annual cost burden for the information 
collection arising from the VFC Program and the exemption is estimated 
at $69,701 ($3,690 for the VFC Program and $66,011 for VFCP exemption).
    In summary, the categories in the table below encompass the numbers 
for both the VFC Program and the amended class exemption:
    Type of Review: Revision of currently approved collection of 
information.
    Agency: Department of Labor, Employee Benefits Security 
Administration.
    Title: Voluntary Fiduciary Correction Program.
    OMB Number: 1210-0118.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Respondents: 1,442.
    Frequency of Response: On occasion.
    Responses: 244,397.
    Estimated Total Burden Hours: 12,261.
    Total Annual Cost (Operating and Maintenance): $69,701.
    Comments submitted in response to this notice will be summarized 
and/or included in the request for OMB approval of the information 
collection request; they will also become a matter of public record. 
The Department notes that persons are not required to respond to the 
revised information collection unless it displays a currently valid OMB 
control number.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this action does not include 
any Federal mandate that may result in expenditures by State, local, or 
tribal governments in the aggregate of more than $100 million, adjusted 
for inflation, or increase expenditures by the private sector of more 
than $100 million, adjusted for inflation.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by Federal agencies in the process of their formulation and 
implementation of policies that have ``substantial direct effects'' on 
the States, the relationship between the national government and 
States, or on the distribution of power and responsibilities among the 
various levels of government. Federal agencies promulgating regulations 
that have federalism implications must consult with State and local 
officials and describe the extent of their consultation and the nature 
of the concerns of State and local officials. This action does not have 
federalism implications because it has no substantial direct effect on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Section 514 of ERISA provides, with 
certain exceptions specifically enumerated, that the provisions of 
Titles I and IV of ERISA supersede any and all laws of the States as 
they relate to any employee benefit plan covered under ERISA. The 
amendments of the VFC Program in this document do not alter the 
fundamental provisions of the statute with respect to employee benefit 
plans, and as such would have no implications for the States or the 
relationship or distribution of power between the national government 
and the States.

    Authority: Secretary of Labor's Order 1-2011, 77 FR 1088 
(January 9, 2012). 29 U.S.C. 1132(a)(2) and (a)(5), 1136(b).

Voluntary Fiduciary Correction Program

Section 1. Purpose and Overview of the VFC Program
Section 2. Effect of the VFC Program
Section 3. Definitions
Section 4. VFC Program Eligibility
Section 5. General Rules for Acceptable Corrections
    (a) Fair Market Determinations
    (b) Correction Amount
    (c) Costs of Correction
    (d) Distributions
    (e) De Minimis Exception
Section 6. VFC Program Application and Self-Correction Component 
Procedures
    6.1 VFC Program Application Procedures
    6.2 VFC Program Self-Correction Component Procedures
Section 7. Description of Eligible Transactions and Corrections Under 
the VFC Program
    7.1 Delinquent Remittance of Funds
    (a) Delinquent Participant Contributions and Loan Repayments to 
Pension Plans Under VFC Program Applications
    (b) Delinquent Participant Contributions and Loan Repayments to 
Pension Plans Under the Self-Correction Component
    (c) Delinquent Participant Contributions to Insured Welfare Plans
    (d) Delinquent Participant Contributions to Welfare Plan Trusts
    7.2 Loans
    (a) Loan at Fair Market Interest Rate to a Party in Interest With 
Respect to the Plan
    (b) Loan at Below-Market Interest Rate to a Party in Interest With 
Respect to the Plan
    (c) Loan at Below-Market Interest Rate to a Person Who is Not a 
Party in Interest With Respect to the Plan
    (d) Loan at Below-Market Interest Rate Solely Due to a Delay in 
Perfecting the Plan's Security Interest
    7.3 Participant Loans
    (a) Loans Failing to Comply With Plan Provisions for Amount, 
Duration, or Level Amortization
    (b) Default Loans
    7.4 Purchases, Sales and Exchanges
    (a) Purchase of an Asset (Including Real Property) by a Plan From a

[[Page 71176]]

Party in Interest
    (b) Sale of an Asset (Including Real Property) by a Plan to a Party 
in Interest
    (c) Sale and Leaseback of Real Property to Employer
    (d) Purchase of an Asset (Including Real Property) by a Plan From a 
Person Who is Not a Party in Interest With Respect to the Plan at a 
Price More Than Fair Market Value
    (e) Sale of an Asset (Including Real Property) by a Plan to a 
Person Who is Not a Party in Interest With Respect to the Plan at a 
Price Less Than Fair Market Value
    (f) Holding of an Illiquid Asset Previously Purchased by a Plan
    7.5 Benefits
    (a) Payment of Benefits Without Properly Valuing Plan Assets on 
Which Payment is Based
    7.6 Plan Expenses
    (a) Duplicative, Excessive, or Unnecessary Compensation Paid by a 
Plan
    (b) Expenses Improperly Paid by a Plan
    (c) Payment of Dual Compensation to a Plan Fiduciary
Appendix A. Sample VFC Program No Action Letter
Appendix B. VFC Program Application Checklist (Required)
Appendix C. List of EBSA Regional Offices
Appendix D. Lost Earnings Example
Appendix E. Model Application Form (Optional)
Appendix F. SCC Retention Record Checklist (Required)

Section 1. Purpose and Overview of the VFC Program

    The purpose of the Voluntary Fiduciary Correction Program (VFC 
Program or Program), including its Self-Correction Component (SC 
Component or SCC), is to protect the financial security of workers by 
encouraging identification and correction of transactions that violate 
or may violate Part 4 of Title I of the Employee Retirement Income 
Security Act of 1974, as amended (ERISA). Part 4 of Title I of ERISA 
sets out the responsibilities of employee benefit plan fiduciaries. 
Section 409 of ERISA provides that a fiduciary who breaches any of 
these responsibilities shall be personally liable to make good to the 
plan any losses to the plan resulting from each breach and to restore 
to the plan any profits the fiduciary made through the use of the 
plan's assets. Section 405 of ERISA provides that a fiduciary may be 
liable, under certain circumstances, for a breach of fiduciary 
responsibility by a co-fiduciary. In addition, under certain 
circumstances, there may be liability for knowing participation in a 
fiduciary breach. In order to assist all affected persons in 
understanding the requirements of ERISA and meeting their legal 
responsibilities, the Employee Benefits Security Administration (EBSA) 
is providing guidance on what constitutes adequate correction under 
Title I of ERISA for the Breaches described in this Program.

Section 2. Effect of the VFC Program

    (a)(1) Effect of a no action letter. EBSA generally will issue to 
the applicant a no action letter \57\ with respect to a Breach 
identified in the Program application if the eligibility requirements 
of section 4 are satisfied and a Plan Official corrects a Breach, as 
defined in section 3, in accordance with the requirements of sections 
5, 6 and 7. Pursuant to the no action letter it issues, EBSA will not 
initiate a civil investigation under Title I of ERISA regarding the 
applicant's responsibility for any transaction described in the no 
action letter, or assess civil penalties under either section 502(l) or 
502(i) of ERISA on the correction amount paid to the plan or its 
participants.
---------------------------------------------------------------------------

    \57\ See Appendix A.
---------------------------------------------------------------------------

    (2) Effect of correction under the SCC. EBSA will not issue a no 
action letter to a self-corrector under the Self-Correction Component 
of the Program. A self-corrector will receive an acknowledgment and 
summary of the SCC notice submission by email. If the self-corrector 
satisfies the eligibility requirements of section 4 and corrects a 
Breach, as defined in section 3, in accordance with the requirements of 
sections 5, 6 and 7, EBSA will not initiate a civil investigation under 
Title I of ERISA regarding the self-corrector's responsibility for the 
Breach identified in the SCC notice or assess civil penalties under 
section 502(l) or 502(i) of ERISA on the correction amount paid to the 
plan or its participants.
    (b) Verification. EBSA reserves the right to conduct an 
investigation at any time to determine (1) the truthfulness and 
completeness of the factual statements set forth in the Program 
application or the SCC notice and (2) that the corrective action was, 
in fact, taken.
    (c) Limits on the effect of a no action letter under the VFC 
Program. (1) In general. Any no action letter issued under the VFC 
Program is limited to the Breach and applicants identified therein. 
Moreover, the method of calculating the correction amount described in 
this Program is only intended to correct the specific Breach described 
in the application. Methods of calculating losses other than, or in 
addition to, those set forth in the Program may be more appropriate, 
depending on the facts and circumstances, if the transaction violates 
provisions of ERISA other than those that can be corrected under the 
Program. If a transaction gave rise to Breaches not specifically 
described in the Program, the relief afforded by the Program would not 
extend to such additional Breaches.
    (2) No implied approval of other matters. A no action letter does 
not imply Departmental approval of matters not included therein, 
including steps that the fiduciaries take to prevent recurrence of the 
Breach described in the application and to ensure the plan's future 
compliance with Title I of ERISA.
    (3) Material misrepresentation. Any no action letter issued under 
the VFC Program is conditioned on the truthfulness, completeness and 
accuracy of the statements made in the application and of any 
subsequent oral and written statements or submissions. Any material 
misrepresentations or omissions will void the no action letter, 
retroactive to the date that the letter was issued by EBSA, with 
respect to the transaction that was materially misrepresented.
    (4) Applicant fails to satisfy terms of the VFC Program. If an 
application fails to satisfy the terms of the VFC Program, as 
determined by EBSA, EBSA reserves the right to investigate and take any 
other action with respect to the transaction and/or plan that is the 
subject of the application, including issuing a rejection letter.
    (5) Criminal investigations not precluded. Participation in the VFC 
Program will not preclude:
    (i) EBSA or any other governmental agency from conducting a 
criminal investigation of the transaction identified in the 
application;
    (ii) EBSA's assistance to such other agency; or
    (iii) EBSA from making the appropriate referrals of criminal 
violations as required by section 506(b) of ERISA.\58\
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    \58\ Section 506(b) provides that the Secretary of Labor shall 
have the responsibility and authority to detect and investigate and 
refer, where appropriate, civil and criminal violations related to 
the provisions of Title I of ERISA and other related Federal laws, 
including the detection, investigation, and appropriate referrals of 
related violations of Title 18 of the United States Code.
---------------------------------------------------------------------------

    (6) Other actions not precluded. Compliance with the terms of the 
VFC Program will not preclude EBSA from taking any of the following 
actions:

[[Page 71177]]

    (i) Seeking removal from positions of responsibility with respect 
to a plan or other non-monetary injunctive relief against any person 
responsible for the transaction at issue;
    (ii) Referring information regarding the transaction to the 
Internal Revenue Service as required by section 3003(c) of ERISA; \59\ 
or
---------------------------------------------------------------------------

    \59\ Section 3003(c) provides that, whenever the Secretary of 
Labor obtains information indicating that a party in interest or 
disqualified person is violating section 406 of ERISA, the Secretary 
shall transmit such information to the Secretary of the Treasury.
---------------------------------------------------------------------------

    (iii) Imposing civil penalties under section 502(c)(2) of ERISA 
based on the failure or refusal to file a timely, complete and accurate 
Annual Report Form 5500. Applicants should be aware that amended annual 
report filings may be required if possible Breaches of ERISA have been 
identified, or if action is taken to correct possible Breaches in 
accordance with the VFC Program.
    (7) Not binding on others. The issuance of a no action letter does 
not affect the ability of any other government agency, or any other 
person, to enforce any rights or carry out any authority they may have, 
with respect to matters described in the no action letter.
    (8) Example. A plan fiduciary causes the plan to purchase real 
estate from the plan sponsor under circumstances to which no prohibited 
transaction exemption applies. In connection with this transaction, the 
purchase causes the plan assets to be no longer diversified, in 
violation of ERISA section 404(a)(1)(C). If the application reflects 
full compliance with the requirements of the Program, the Department's 
no action letter would apply to the violation of ERISA section 
406(a)(1)(A) but would not apply to the violation of section 
404(a)(1)(C).
    (d) Limits on the effect of self-correction under the SCC. (1) In 
general. Any relief afforded by a self-correction under the SCC is 
limited to the Breaches described in section 7.1(b) of the Program and 
to the Plan Officials who complete the Penalty of Perjury Statement in 
accordance with section 6.2(e). If a transaction gives rise to Breaches 
not specifically described in section 7.1(b) of the Program, the relief 
afforded by the SCC will not extend to such additional Breaches.
    (2) Self-corrector fails to satisfy the terms of the SCC. If a 
self-corrector fails to satisfy the terms of the SCC, as determined by 
EBSA, EBSA reserves the right to investigate and take any other action 
with respect to the transaction and/or plan that is the subject of the 
self-correction.
    (3) Criminal investigations not precluded. Participation in the SCC 
will not preclude:
    (i) EBSA or any other governmental agency from conducting a 
criminal investigation of the transactions identified in section 7.1(b) 
of the Program;
    (ii) EBSA's assistance to such other agency; or
    (iii) EBSA from making the appropriate referrals of criminal 
violations as required by section 506(b) of ERISA.\60\
---------------------------------------------------------------------------

    \60\ See supra note 58.
---------------------------------------------------------------------------

    (4) Other actions not precluded. Compliance with the terms of the 
SCC will not preclude EBSA from taking any of the following actions:
    (i) Seeking removal from positions of responsibility with respect 
to a plan or other non-monetary injunctive relief against any person 
responsible for the transaction at issue; or
    (ii) Imposing civil penalties under section 502(c)(2) of ERISA 
based on the failure or refusal to file a timely, complete and accurate 
Annual Report Form 5500. Self-correctors should be aware that amended 
annual report filings may be required if action is taken to correct a 
Breach in accordance with submitting an SCC notice.
    (5) Not binding on others. Compliance with the SCC does not affect 
the ability of any other government agency, or any other person, to 
enforce any rights or carry out any authority they may have regarding 
the Breach corrected under the SCC.
    Example. The plan sponsor withheld monies from employees' 
paychecks, which were to be contributed, in part, to both a 401(k) plan 
and an insured health benefit plan. The plan sponsor did not remit the 
funds to either plan until four months after the Date of Withholding or 
Receipt. The plan sponsor corrects both Breaches and pays the 
appropriate Lost Earnings amount to each of the plans. The plan sponsor 
properly completes and submits an SCC notice to EBSA identifying the 
transaction involving the 401(k) plan. Assuming all conditions of the 
SCC have been met, relief under the Program is provided to the plan 
sponsor as the self-corrector for the delinquent participant 
contributions to the 401(k) plan, but not for the delinquent 
participant contributions to the insured health benefit plan. However, 
the plan sponsor may submit an application to correct the Breach 
involving the insured health benefit plan contributions under section 
7.1(c) of the Program.
    (e) Correction. The correction criteria listed in the VFC Program 
represent EBSA enforcement policy with respect to both applications 
under the Program and use of the SC Component, and are provided for 
informational purposes to the public, but are not intended to confer 
enforceable rights on any person who purports to correct a Breach. 
Applicants and self-correctors are advised that the term ``correction'' 
as used in the VFC Program is not necessarily the same as 
``correction'' pursuant to section 4975 of the Internal Revenue Code 
(Code).\61\ Correction may not be achieved under the Program by 
engaging in a prohibited transaction that is not subject to a 
prohibited transaction administrative exemption.
---------------------------------------------------------------------------

    \61\ See section 4975(f)(5) of the Code; section 141.4975-13 of 
the temporary Treasury Regulations and section 53.4941(e)-1(c) of 
the Treasury Regulations. The federal tax treatment of a violation 
and correction under the VFC Program (including the federal income 
and employment tax consequences to participants, beneficiaries, and 
plan sponsors) are determined under the Code. The IRS has indicated 
that, unless and until the Department of the Treasury and the IRS 
issue further guidance, except in those instances where the 
fiduciary breach or its correction involve a tax abuse, a correction 
under the VFC Program for a breach that constitutes a prohibited 
transaction under section 4975 of the Code generally will be treated 
as correction for purposes of section 4975. Also, a correction under 
the VFC Program for a breach that also constitutes an operational 
plan qualification failure generally will be treated as correction 
for purposes of the IRS' EPCRS.
---------------------------------------------------------------------------

    (f) EBSA's authority to investigate. EBSA reserves the right to 
conduct an investigation and take any other enforcement action relating 
to the transaction identified in a VFC Program application or SCC 
notice in certain circumstances, such as prejudice to the Department 
that may be caused by the expiration of the statute of limitations 
period, material misrepresentations or omissions, other abuses of the 
VFC Program, or significant harm to the plan or its participants that 
is not cured by the correction provided under the VFC Program. EBSA may 
also conduct a civil investigation and take any other enforcement 
action relating to matters not covered by the VFC Program application 
or SCC notice, or relating to other plans sponsored by the same plan 
sponsor, while a VFC Program application involving the plan or the plan 
sponsor is pending.
    (g) Confidentiality. EBSA will maintain the confidentiality of any 
documents submitted under the VFC Program, to the extent permitted by 
law. However, as noted in paragraphs (c)(5) and (6) and (d)(3) and (4) 
of this section, EBSA has an obligation to make referrals to the IRS 
and to refer to other agencies evidence of criminality and other 
information for law enforcement purposes.

[[Page 71178]]

Section 3. Definitions

    (a) The terms used in this document have the same meaning as 
provided in section 3 of ERISA, 29 U.S.C. 1002, unless separately 
defined herein.
    (b) The following definitions apply for purposes of the VFC 
Program:
    (1) Breach. The term ``Breach'' means any transaction that is or 
may be a violation of the fiduciary responsibility provisions contained 
in Part 4 of Title I of ERISA.
    (2) Plan Official. The term ``Plan Official'' means a plan 
fiduciary, plan sponsor, party in interest with respect to a plan, or 
other person who is in a position to correct a Breach by filing an 
application or submitting a self-correction notice in accordance with 
the VFC Program's requirements.
    (3) Under Investigation. For purposes of section 4(a), a plan, 
potential applicant or self-corrector shall be considered to be ``Under 
Investigation'' if any investigation, review or examination described 
in (i), (ii), (iii), (iv) or (v) of this section 3 exists, and the 
plan, a Plan Official, or any authorized plan representative has 
received a written or oral notice of the investigation, review or 
examination.
    (i) EBSA is conducting an investigation or review of the plan;
    (ii) EBSA is conducting an investigation of the potential 
applicant, self-corrector or plan sponsor in connection with an act or 
transaction directly related to the plan;
    (iii) any governmental agency is conducting a criminal 
investigation of the plan, or of the potential applicant, self-
corrector or plan sponsor in connection with an act or transaction 
directly related to the plan;
    (iv) the IRS is conducting an Employee Plans examination of the 
plan; or
    (v) Other than investigations identified in sections 3(b)(3)(i), 
(ii), (iii), or (iv), the Pension Benefit Guaranty Corporation (PBGC), 
any state attorney general, any federal governmental agency, or any 
state insurance commissioner is conducting an investigation or 
examination of the plan, or of the applicant, self-corrector or plan 
sponsor in connection with an act or transaction directly related to 
the plan, unless in the case of a VFC Program application, the 
applicant notifies EBSA, in writing, of such an investigation or 
examination at the time of the application.
    An applicant notifying EBSA of an investigation or examination 
under section 3(b)(3)(v) must submit the name of the examining agency 
and a contact person at such agency. Upon receipt of an application 
including such information, EBSA will promptly notify the investigating 
agency in writing of the VFC Program application. EBSA's notice will 
afford the examining agency an opportunity to provide EBSA with 
information relevant to the investigation or examination. In response 
to the information received from the investigating agency, EBSA, in its 
sole discretion, may decline to issue a no action letter to the 
applicant. For purposes of section 4(a), a plan shall not be considered 
to be ``Under Investigation'' merely because EBSA staff has contacted 
the plan, the applicant, the self-corrector or the plan sponsor in 
connection with a participant complaint, unless the participant 
complaint concerns the transaction described in the application or 
identified in the SCC notice and the plan has not received the 
correction amount due under the Program as of the date EBSA staff 
contacted the plan, the applicant, the self-corrector or the plan 
sponsor. A plan also is not considered to be ``Under Investigation'' if 
the accountant of the plan is undergoing a work paper review based on 
such accountant's audit of the plan by EBSA's Office of the Chief 
Accountant under the authority of ERISA section 504(a).
    Example 1. On March 1, the plan sponsor of a multiple employer 
welfare arrangement (MEWA) received written notification from an agent 
of the state insurance commissioner's office that the MEWA has been 
scheduled for examination. The applicant does not notify EBSA of the 
examination. As of March 1, the plan is ineligible for participation in 
the VFC Program because the plan sponsor has received a notice from the 
state insurance commissioner's office concerning its intent to examine 
the plan, and the applicant did not provide EBSA written notice of the 
examination with the application.
    Example 2. Assume the same facts as in Example 1, except that the 
applicant chooses to notify EBSA in writing of the examination. The 
plan's eligibility to apply under the VFC Program would not be affected 
because the applicant provides written notice of the examination to 
EBSA with the application. EBSA will promptly notify the state 
insurance commissioner of the pending VFC Program application so that 
the state insurance commissioner's office has an opportunity to provide 
information about its examination to EBSA. EBSA will include the 
information received from the state insurance commissioner's office in 
its review of the VFC Program application.

Section 4. VFC Program Eligibility

    Eligibility for the VFC Program is conditioned on the following:
    (a) The plan, the applicant, or the self-corrector is not Under 
Investigation.
    (b)(1) In general. The Program application contains no evidence of 
potential criminal violations as determined by EBSA.
    (2) Exception for VFC Program applications correcting transactions 
described in Section 7.1(a). Participation in the VFC Program to 
correct delinquent participant contributions and loan repayments is 
permitted in cases where there is evidence of potential criminal 
violation by parties other than the plan administrator, the plan 
sponsor or the applicant provided:
    (i) all funds have been repaid to the plan;
    (ii) the appropriate law enforcement agency has been notified of 
the potential criminal violation; and
    (iii) the applicant submits to the appropriate EBSA office a 
statement (A) providing contact information for the law enforcement 
agency that has been notified of the alleged criminal activity; (B) 
asserting that the applicant was not involved in the potential criminal 
violation; and (C) stating whether a claim relating to the criminal 
activity has been made under an ERISA section 412 fidelity bond.
    Example. The bookkeeper of the plan sponsor of a 401(k) plan 
allegedly embezzled funds from the plan sponsor, including amounts 
which had been withheld from employees' paychecks but not yet forwarded 
to the plan. As a result of the embezzlement, participant contributions 
were remitted to the plan two months later than the plan sponsor's 
usual practice. The owner of the company sponsoring the plan was not 
involved in the embezzlement and notified local law enforcement of the 
embezzlement. This owner is eligible to submit an application for 
relief under the VFC Program despite the potential criminal violation 
if the requirements under section 4(b)(2) are met. Note that the owner 
is not eligible for relief under the SCC because the exception under 
section 4(b)(2) is only available to applicants under the VFC Program 
and not the SC Component.
    (c) EBSA has not conducted an investigation which resulted in 
written notice to a plan fiduciary that the transaction, for which the 
potential applicant or self-corrector could otherwise have sought 
relief under the Program, has been referred to the IRS. This condition 
applies only to those transactions specifically identified in

[[Page 71179]]

EBSA's written notice of referral to the IRS.
    (d) Exception for Bulk VFC Program Applicants. An applicant is 
eligible to submit a bulk application under the VFC Program, even if 
one or more of the plans named in the application (``named plans'') is 
Under Investigation, and to receive a no action letter covering each of 
the named plans provided: (1) the applicant is a service provider that 
is seeking the relief afforded by the Program only on its own behalf; 
(2) the applicant was providing services to each of the named plans at 
the time of the transaction being corrected; (3) the application 
includes at least ten named plans; (4) all named plans participated in 
the transaction being corrected; and (5) the corrective action was not 
taken as a result of an investigation of any named plan. A 
determination by EBSA that the corrective action was taken as a result 
of an investigation of any named plan results in the no action letter 
specifically excluding such plan.
    Example. A bank provides investment management services to pension 
plans. As part of these services, it bought bonds on behalf of its plan 
clients directly from a broker dealer's inventory. The bank 
independently discovered that the broker dealer is an affiliate of the 
bank and consequently, a party in interest to the plans (PII). No 
available class exemption permitted these purchases. The bank's review 
showed it had bought bonds for thirty-three (33) of its plan clients 
from the PII broker dealer. The bank, as a service provider to the 
plans, may submit a bulk application correcting the transaction in 
compliance with section 7.4(a) of the Program provided the application 
names all 33 plans that participated in the transaction and the bank is 
seeking relief only on its own behalf under the Program. Assuming the 
applicant has complied with the terms of the VFC Program, EBSA will 
issue a no action letter to the service provider, which includes the 
name of each of the participating plans.

Section 5. General Rules for Acceptable Corrections

    (a) Fair Market Determinations. Many corrections require that the 
current or fair market value (FMV) of an asset be determined as of a 
particular date, usually either the date the plan originally acquired 
the asset or the date of the correction, or both. In order to be 
acceptable as part of a VFC Program correction, the valuation must meet 
the conditions in (1) through (4) below. Other corrections require that 
a fair market interest rate be determined as of a particular date, 
usually the date the loan was made. In order to be acceptable as part 
of a VFC Program correction, this determination must be made by an 
independent commercial lender, which meets the conditions in (5) below:
    (1) If there is a generally recognized market for the property 
(e.g., the New York Stock Exchange), the FMV of the asset is the 
average value of the asset on such market on the applicable date, 
unless the plan document specifies another objectively determined value 
(e.g., the closing price).
    (2) If there is no generally recognized market for the asset, the 
FMV of that asset must be determined in accordance with generally 
accepted appraisal standards by a qualified, independent appraiser and 
reflected in a written appraisal report signed by the appraiser.
    (3) An appraiser is ``qualified'' if the appraiser has met the 
education, experience, and licensing requirements that are generally 
recognized for appraisal of the type of asset being appraised.
    (4) An appraiser is ``independent'' if the appraiser is not one of 
the following, does not own or control any of the following, and is not 
owned or controlled by, or affiliated with, any of the following:
    (i) The prior owner of the asset, if the asset was purchased by the 
plan;
    (ii) The purchaser of the asset, if the asset was, or is now being, 
sold by the plan;
    (iii) Any other owner of the asset, if the plan is not the sole 
owner;
    (iv) a fiduciary of the plan (except to the extent the appraiser 
becomes a fiduciary when retained to perform this appraisal for the 
plan);
    (v) a party in interest with respect to the plan (except to the 
extent the appraiser becomes a party in interest when retained to 
perform this appraisal for the plan); or
    (vi) the VFC Program applicant.
    (5) a commercial lender is ``independent'' if it is not one of the 
following, does not own or control any of the following, and is not 
owned or controlled by, or affiliated with any of the following:
    (i) a person or entity who was involved in securing or maintaining 
the loan, or in determining or modifying the terms of the loan at any 
time during the life of the loan;
    (ii) a fiduciary of the plan (except to the extent the commercial 
lender becomes a fiduciary when retained to provide this service for 
the plan);
    (iii) a party in interest with respect to the plan (except to the 
extent the commercial lender becomes a party in interest when retained 
to provide this service for the plan); or
    (iv) the VFC Program applicant.
    (b) Correction Amount. (1) In general. For purposes of the VFC 
Program, the correction amount is the amount that must be paid to the 
plan as a result of the Breach in order to make the plan whole. In most 
instances, the correction amount will be a combination of the Principal 
Amount involved in the transaction (see paragraph (b)(2) of this 
section), the Lost Earnings amount, which is earnings that would have 
been earned on the Principal Amount for the period of the transaction 
(see paragraph (b)(6) of this section, and also see paragraph (b)(3) of 
this section for a special rule for Loss Date under the SCC), and any 
interest on Lost Earnings. However, in circumstances when the 
Restoration of Profits amount (see paragraph (b)(7) of this section) 
exceeds the Lost Earnings amount and any interest on Lost Earnings, the 
correction amount will be a combination of the Principal Amount and the 
Restoration of Profits amount. The responsible fiduciary, plan sponsor 
or other Plan Official, must pay the correction amount and any costs of 
correction. No part of the correction amount or costs of correction can 
be paid from plan assets, including charges against participant 
accounts or plan forfeiture accounts.
    (2) Principal Amount. ``Principal Amount'' is the amount that would 
have been available to the plan for investment or distribution on the 
date of the Breach, had the Breach not occurred. The Principal Amount, 
when applicable, must be determined for each transaction by reference 
to section 7 of the VFC Program. Generally, the Principal Amount is the 
base amount on which Lost Earnings and, if applicable, Restoration of 
Profits is calculated. The Principal Amount shall include any 
transaction costs associated with entering into the transaction that 
constitutes the Breach, which were paid by the plan.
    (3) Loss Date. (i) In general ``Loss Date'' is the date that the 
plan lost the use of the Principal Amount.
    (ii) Special rule under the SCC. ``Loss Date'' is the Date of 
Withholding or Receipt.
    (4) Date of Withholding or Receipt. ``Date of Withholding or 
Receipt'' is the date the amount would otherwise have been payable to 
the participant in cash in the case of amounts withheld by an employer 
from a participant's wages, or the day on which the participant 
contribution or loan payment is received by the employer in the case of 
amounts that a participant or beneficiary pays to an employer. Date of 
Withholding or Receipt is not the same date as the date on which 
contributions

[[Page 71180]]

or loan repayments could reasonably have been segregated from the 
employer general assets.
    Example 1. An employer pays its employees' wages on the 1st and the 
15th of each month. Participant contributions to a pension plan are 
withheld from employees' wages on these dates. The employer determined 
that it could reasonably take two business days to segregate these 
withholdings from its general assets for transmittal to the plan. The 
``Date of Withholding or Receipt'' is the 1st and 15th of each month. 
For purposes of a Program application to correct delinquent participant 
contributions, without taking into account any non-business days, the 
``Loss Date'' would be the 3rd and 17th of each month.
    Example 2. Assuming the same facts as Example 1, except the 
delinquent participant contributions are being corrected using the SC 
Component. The ``Date of Withholding or Receipt'' is the 1st and 15th 
of each month. For purposes of using the SCC to correct delinquent 
participant contributions, the ``Loss Date'' would be the 1st and 15th 
of each month.
    (5) Recovery Date. ``Recovery Date'' is the date that the Principal 
Amount is restored to the plan.
    (6) Lost Earnings. (i) General. ``Lost Earnings'' is intended to 
approximate the amount that would have been earned by the plan on the 
Principal Amount, but for the Breach. For purposes of this Program, 
Lost Earnings shall be calculated in accordance with this paragraph.
    (ii) Initial Calculation. Lost Earnings shall be calculated by: (A) 
determining the applicable corporate underpayment rate(s) established 
under section 6621(a)(2) of the Code \62\ for each quarter (or portion 
thereof) for the period beginning with the Loss Date and ending with 
the Recovery Date; (B) determining, by reference to IRS Revenue 
Procedure 95-17,\63\ the applicable factor(s) for such quarterly 
underpayment rate(s) for each quarter (or portion thereof) of the 
period beginning with the Loss Date and ending with the Recovery Date; 
and (C) multiplying the Principal Amount by the first applicable factor 
to determine the amount of earnings for the first quarter (or portion 
thereof). If the Loss Date and Recovery Date are within the same 
quarter, the initial calculation is complete. If the Recovery Date is 
not in the same quarter as the Loss Date, the applicable factor for 
each subsequent quarter (or portion thereof) must be applied to the sum 
of the Principal Amount and all earnings as of the end of the 
immediately preceding quarter (or portion thereof), until Lost Earnings 
have been calculated for the entire period, ending with the Recovery 
Date.
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    \62\ These underpayment rates are displayed on EBSA's website 
and will be updated when necessary.
    \63\ Rev. Proc. 95-17, 1995-1 C.B. 556 (Feb. 8, 1995). These 
factors, which are displayed on EBSA's website in a tabular format, 
incorporate daily compounding of an interest rate over a set period 
of time.
---------------------------------------------------------------------------

    (iii) Payment of Lost Earnings after Recovery Date. If Lost 
Earnings are not paid to the plan on the Recovery Date along with the 
Principal Amount, payment of Lost Earnings shall include interest on 
the amount of Lost Earnings. Such interest shall be calculated in the 
same manner as Lost Earnings described in paragraph (b)(6)(ii) above, 
for the period beginning on the Recovery Date and ending on the date 
the Lost Earnings are paid to the plan.
    (iv) Special Rule for Transactions Causing Large Losses. If the 
amount of Lost Earnings (determined in accordance with paragraph 
(b)(6)(ii) above) and any interest added to such Lost Earnings 
(determined in accordance with paragraph (b)(6)(iii) above), exceed 
$100,000, the amount of Lost Earnings and interest, if any, to be paid 
to the plan shall be determined in accordance with paragraphs 
(b)(6)(ii) and (iii) above, substituting the applicable underpayment 
rates under section 6621(c)(1) of the Code \64\ in lieu of the rates 
under section 6621(a)(2).
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    \64\ These underpayment rates are displayed on EBSA's website 
and will be updated when necessary.
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    (v) Method of Calculation for VFC Program Applications. For 
purposes of calculating Lost Earnings and interest, if any, a Plan 
Official may either (A) use the Online Calculator described in 
paragraph (b)(8) below, or (B) perform a manual calculation in 
accordance with subparagraphs (i) through (iv) of this paragraph 
(b)(6). A Plan Official using the Online Calculator or performing a 
manual calculation shall include as part of the VFC Program application 
sufficient information to verify the correctness of the amounts to be 
paid to the plan.
    (vi) Method of Calculation under the SCC. For purposes of 
calculating Lost Earnings and interest, if any, the self-corrector must 
use the Online Calculator described in paragraph (b)(8) below.
    (7) Restoration of Profits. (i) General. If the Principal Amount 
was used for a specific purpose such that a profit on the use of the 
Principal Amount is determinable, the Plan Official must calculate the 
Restoration of Profits amount and compare it to the Lost Earnings 
amount to determine the correction amount (see paragraph (b)(1) of this 
section). If the Restoration of Profits amount exceeds Lost Earnings 
and interest, if any, the Restoration of Profits amount must be paid to 
the plan instead of Lost Earnings. ``Restoration of Profits'' is a 
combination of two amounts: (A) the amount of profit made on the use of 
the Principal Amount by the fiduciary or party in interest who engaged 
in the Breach, or by a person who knowingly participated in the Breach, 
and (B) if the profit is returned to the plan on a date later than the 
date on which the profit was realized (i.e., received or determined), 
the amount of interest earned on such profit from the date the profit 
was realized to the date on which the profit is paid to the plan. The 
amount of such interest shall be determined in accordance with 
paragraph (b)(7)(ii) below. There is no requirement to calculate a 
Restoration of Profits amount for corrections of delinquent participant 
contributions including loan repayments, if any, under section 7.1 of 
the Program.
    (ii) Calculation of Interest. Interest shall be calculated by: (A) 
determining the applicable corporate underpayment rate(s) established 
under section 6621(a)(2) of the Code for each quarter (or portion 
thereof) for the period beginning with the date the profit was realized 
(i.e., received or determined) and ending with the date on which the 
profit is paid to the plan; (B) determining, by reference to IRS 
Revenue Procedure 95-17, the applicable factor(s) for such quarterly 
underpayment rate(s) for each quarter (or portion thereof) of the 
period beginning with the date the profit was realized and ending with 
the date on which the profit is paid to the plan; and (C) multiplying 
the first applicable factor by the profit on the Principal Amount, 
referred to in paragraph (b)(7)(i)(A) above, to determine the amount of 
interest for the first quarter (or portion thereof). If the date the 
profit was realized and the date the profit is paid to the plan are 
within the same quarter, the initial calculation is complete. If the 
date the profit was realized is not in the same quarter as the date the 
profit was paid to the plan, the applicable factor for each subsequent 
quarter (or portion thereof) must be applied to the sum of the profit 
on the Principal Amount, referred to in paragraph (b)(7)(i)(A) above, 
and all interest as of the end of the immediately preceding quarter (or 
portion thereof), until interest has been calculated for the entire 
period, ending with the date the profit is paid to the plan.

[[Page 71181]]

    (iii) Special Rule for Transactions Resulting in Large 
Restorations. If the amount of Restoration of Profits (determined in 
accordance with paragraph (b)(7)(i) above) exceeds $100,000, the amount 
of any interest on the Restoration of Profits to be paid to the plan 
shall be determined in accordance with paragraph (b)(7)(ii), above, 
substituting the applicable underpayment rates under section 6621(c)(1) 
of the Code in lieu of the rates under section 6621(a)(2).
    (iv) Method of Calculation for VFC Program Applications. For 
purposes of calculating the interest amount for Restoration of Profits, 
pursuant to paragraphs (b)(7)(ii) and (iii) above, a Plan Official may 
either (A) use the Online Calculator described in paragraph (b)(8) 
below, or (B) perform a manual calculation in accordance with 
subparagraphs (ii) and (iii) of this paragraph (b)(7). A Plan Official 
using the Online Calculator or performing a manual calculation shall 
include as part of the VFC Program application sufficient information 
to verify the correctness of the amounts to be paid to the plan.
    (8) Online Calculator. ``Online Calculator'' is an internet based 
compliance assistance tool provided on EBSA's website that permits 
applicants and self-correctors to calculate the amount of Lost 
Earnings, any interest on Lost Earnings, and the interest amount for 
Restoration of Profits, if applicable, for certain transactions. The 
Online Calculator will be updated as necessary.
    (i) Lost Earnings and Interest. To calculate Lost Earnings, 
applicants or self-correctors must input the (A) Principal Amount, (B) 
Loss Date, (C) Recovery Date, and, if the final payment will occur 
after the Recovery Date, (D) the date of such final payment. The Online 
Calculator selects the applicable factors under Revenue Procedure 95-17 
after referencing the underpayment rates over the relevant time period. 
The Online Calculator then automatically applies the factors to provide 
applicants and self-correctors with the amount of Lost Earnings and 
interest, if any, that must be paid to the plan.
    (ii) Interest Amount for Restoration of Profits. To calculate the 
interest amount on the profit, applicants must input (A) the amount of 
profit, (B) the date the amount of profit was realized (i.e. received 
or determined), and (C) the date of payment of the Restoration of 
Profits amount. The Online Calculator selects the applicable factors 
under Revenue Procedure 95-17 after referencing the underpayment rates 
over the relevant time period. The Online Calculator then automatically 
applies the factors to provide applicants with the interest amount on 
the profit that must be paid to the plan.
    (9) The principles of paragraph (b) of this section are illustrated 
by example in Appendix D.
    (c) Costs of Correction. (1) The fiduciary, plan sponsor or other 
Plan Official, must pay the costs of correction. The costs of 
correction cannot be paid from plan assets, including charges against 
participant accounts or plan forfeiture accounts.
    (2) The costs of correction include, where appropriate, such 
expenses as closing costs, prepayment penalties, or sale or purchase 
costs associated with correcting the transaction.
    (3) The principle of paragraph (c)(1) of this section is 
illustrated in the following example and in paragraph (d) below:
    Example. The plan fiduciaries did not obtain a required independent 
appraisal in connection with a transaction described in section 7. In 
connection with correcting the transaction, the plan fiduciaries now 
propose to have the appraisal performed as of the date of purchase. The 
plan document permits the plan to pay reasonable and necessary 
expenses; the fiduciaries have objectively determined that the cost of 
the proposed appraisal is reasonable and is not more expensive than the 
cost of an appraisal contemporaneous with the purchase. The plan may 
therefore pay for this appraisal. However, the plan may not pay any 
costs associated with recalculating participant account balances to 
take into account the new valuation. There would be no need for these 
additional calculations or any increased appraisal cost if the plan's 
assets had been valued properly at the time of the purchase. Therefore, 
the cost of recalculating the plan participants' account balances is 
not a reasonable plan expense but is part of the costs of correction.
    (d) Distributions. Plans will have to make supplemental 
distributions to former employees, beneficiaries receiving benefits, or 
alternate payees, if the original distributions were too low because of 
the Breach. In these situations, the Plan Official or plan 
administrator must determine who received distributions from the plan 
during the time period affected by the Breach, recalculate the account 
balances, and determine the amount of the underpayment to each affected 
individual. The applicant must demonstrate proof of payment to 
participants and beneficiaries whose current location is known to the 
plan and/or applicant. For individuals whose location is unknown, 
applicants must demonstrate that they have segregated adequate funds to 
pay the missing individuals and that the applicant has commenced the 
process of locating the missing individuals using methods involving 
nominal expense such as certified mail and electronic search 
technologies as well as checking related plan records and with any 
designated plan beneficiary. If these methods are unsuccessful, the 
applicant should consider the use of commercial locator services, 
credit reporting agencies, information brokers and investigation 
databases as well as analogous computer services depending on the 
amount of underpayment in relation to the cost of the services. The 
costs of such efforts are part of the costs of correction. See Missing 
Participants--Best Practices for Pension Plans for more information on 
fiduciary best practices that, based on EBSA's experience working with 
plans have proven effective at minimizing and mitigating the problem of 
missing or nonresponsive participants (available at www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance).
    (e) De Minimis Exception. Where correction under the Program 
requires distributions in amounts less than $35 to former employees, 
their beneficiaries and alternate payees, who neither have account 
balances with, nor have a right to future benefits from the plan, and 
the applicant demonstrates in its submission that the cost of making 
the distribution to each such individual exceeds the amount of the 
payment to which such individual is entitled in connection with the 
correction of the transaction that is the subject of the application, 
the applicant need not make distributions to such individuals who would 
receive less than $35 each as part of the correction. However, the 
applicant must pay to the plan as a whole the total of such de minimis 
amounts not distributed to such individuals.
    Example. Employer X sponsors Plan Y. Employer X submits an 
application under the VFC Program to correct a failure to timely 
forward participant contributions to Plan Y. Employer X had paid the 
delinquent contributions six months late but had not paid Lost Earnings 
on the delinquency. The correction under the VFC Program, therefore, 
required only payment of Lost Earnings for the six-month delinquency. 
During the six-month period 25 employees separated from service and 
rolled over their plan accounts to individual retirement accounts. The 
amount of Lost Earnings due to 20 of those former employees is less 
than $35,

[[Page 71182]]

and Employer X demonstrates that the cost of making the distribution to 
those former employees is $42 per individual. Employer X need not make 
distributions to those 20 former employees. However, the total amount 
of distributions that would have been due to those former employees 
must be paid to Plan Y. The payment to Plan Y may be used for any 
purpose that payments or credits, which are not allocated directly to 
participant accounts, are used.\65\ Employer X must make distributions 
to the five former employees who are entitled to receive distributions 
of more than $35.
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    \65\ For example, the Department has taken the position that 
where a plan document is silent as to the payment of reasonable 
administrative expenses, the plan may pay reasonable administrative 
expenses. Where a plan document provides that the employer will pay 
any such expenses, and if the employer has reserved the right to 
amend the plan document, ERISA would not prevent the employer from 
amending the plan to require, prospectively, that the relevant 
expenses be paid by the plan. The Department does not believe that 
ERISA would permit a fiduciary to implement a plan amendment that 
attempted to retroactively relieve the employer of an obligation to 
pay plan expenses.
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Section 6. VFC Program Application and Self-Correction Component 
Procedures

6.1 VFC Program Application Procedures

    (a) In general. Each application must adhere to the requirements 
set forth below. Failure to do so may render the application invalid.
    (b) Applicant. The application must be prepared by a Plan Official 
or an authorized representative (e.g., attorney, accountant, or other 
service provider). If a representative of the Plan Official is 
submitting the application, the application must include a statement 
signed by the Plan Official that the representative is authorized to 
represent the Plan Official. Any fees paid to such representative for 
services relating to the preparation and submission of the application 
may not be paid from plan assets, including charges to participants 
accounts or plan forfeiture accounts.
    (c) Contact person. Each application must include the name, address 
(street and email) and telephone number of a contact person. The 
contact person must be familiar with the contents of the application 
and have authority to respond to inquiries from EBSA.
    (d) Detailed narrative. The applicant must provide to EBSA a 
detailed narrative describing the Breach and the corrective action. The 
narrative must include:
    (1) a list of all persons materially involved in the Breach and its 
correction (e.g., fiduciaries, service providers, borrowers);
    (2) the plan sponsor's nine-digit number (EIN), plan number, and 
address of the plan sponsor and administrator;
    (3) the date the plan's most recent Form 5500 was filed; or, in the 
case of a bulk VFC Program application, for each plan named in the 
application, either the date the most recent Form 5500 was filed or the 
plan sponsor's nine-digit number (EIN);
    (4) an explanation of the Breach, including the date it occurred;
    (5) an explanation of how the Breach was corrected, by whom and 
when; and
    (6)(i) if the applicant performs a manual calculation in accordance 
with paragraphs (b)(6)(i) through (iv) of section 5 or paragraphs 
(b)(7)(i) through (iii), specific calculations demonstrating how 
Principal Amount and Lost Earnings or, if applicable, Restoration of 
Profits were computed;
    (ii) if the applicant uses the Online Calculator in accordance with 
paragraph (b)(8) of section 5, the data elements required to be input 
into the Online Calculator under paragraphs (b)(8)(i) and/or (ii) of 
section 5, as applicable (to satisfy this requirement, applicants may 
submit a copy of the page(s) that results from the ``View Printable 
Results'' function used after inputting data elements and completing 
use of the Online Calculator); and
    (iii) an explanation of why payment of Lost Earnings or Restoration 
of Profits was chosen to correct the Breach.
    (e) Supporting documentation. The applicant must also include:
    (1) copies of the relevant portions of the plan document and any 
other pertinent documents (such as the adoption agreement, trust 
agreement, or insurance contract); \66\
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    \66\ Applicants must supply complete copies of the plan 
documents and other pertinent documents if requested by EBSA during 
its review of the application.
---------------------------------------------------------------------------

    (2) documentation that supports the narrative description of the 
transaction and its correction;
    (3) documentation establishing the Lost Earnings amount;
    (4) documentation establishing the amount of Restoration of 
Profits, if applicable;
    (5) all documents described in section 7 with respect to the 
transaction involved; and
    (6) proof of payment of Principal Amount and Lost Earnings or 
Restoration of Profits.
    Applicants using the Online Calculator may satisfy the requirements 
of paragraph (e)(3) above, with respect to Lost Earnings, and paragraph 
(e)(4) above, as to the amount of interest, if any, payable with 
respect to the profit amount, by complying with the requirements of 
paragraph (d)(6)(ii) of this section. Except for proof of payment, as 
described in paragraph (e)(6) above, applicants correcting participant 
loan transactions in section 7.3 are not required to submit the other 
documentation described above unless requested by EBSA.
    (f) Examples of supporting documentation. (1) Examples of 
documentation supporting the description of the transaction and 
correction are leases, appraisals, notes and loan documents, service 
provider contracts, invoices, settlement documents, deeds, perfected 
security interests, and amended annual reports.
    (2) Examples of acceptable proof of payment include copies of 
canceled checks, executed wire transfers, a signed, dated receipt from 
the recipient of funds transferred to the plan (such as a financial 
institution), and bank statements for the plan's account.
    (g) Penalty of Perjury Statement. Each application must include the 
following statement: ``Under penalties of perjury I certify that I am 
not Under Investigation (as defined in section 3(b)(3) of the VFC 
Program) and that I have reviewed this application, including all 
supporting documentation, and to the best of my knowledge and belief 
the contents are true, correct, and complete.''
    (1) Applicants in general. The Penalty of Perjury Statement must be 
signed and dated by a plan fiduciary with knowledge of the transaction 
that is the subject of the application and the authorized 
representative of the applicant, if any. In addition, each Plan 
Official applying under the VFC Program must sign and date the Penalty 
of Perjury Statement. The statement must accompany the application and 
any subsequent additions to the application. Use of the Penalty of 
Perjury Statement included with the Model Application Form in Appendix 
E will satisfy the requirements of paragraph (g) of this section.
    (2) Bulk Applicants. The Penalty of Perjury Statement must be 
signed and dated by the bulk applicant with knowledge of the 
transaction that is the subject of the application and the authorized 
representative of the bulk applicant, if any. The statement must 
accompany the application and any subsequent additions to the 
application. Use of the Penalty of Perjury Statement included with the 
Model Application Form in Appendix E will satisfy the requirements of 
paragraph (g) of this section.
    (h) Checklist. The checklist in Appendix B must be completed, 
signed,

[[Page 71183]]

dated and submitted with the application. Use of the checklist included 
with the Model Application Form in Appendix E also will satisfy the 
requirements of paragraph (h) of this section.
    (i) Where to apply. The application shall be submitted to the 
appropriate EBSA Regional Office listed in Appendix C. Applicants 
should check with the relevant EBSA Regional Office whether the office 
accepts email submissions of applications and supporting documentation.
    (j) Submission of Additional Documentation. If EBSA determines that 
required information is missing from the application or that additional 
documentation is needed to complete EBSA's review, EBSA will request 
such documentation in writing from the applicant or authorized 
representative. If EBSA does not receive the requested documentation 
within a time period specified in writing by the EBSA reviewer, EBSA 
may suspend its review of the application and consider appropriate 
action. EBSA will notify the applicant or authorized representative in 
writing regarding such suspension. If EBSA does not receive the 
requested documentation within a reasonable time after providing notice 
of the suspension, EBSA will issue a rejection letter.
    (k) Recordkeeping. The applicant must maintain copies of the 
application and any subsequent correspondence with EBSA for the period 
required by section 107 of ERISA.

6.2 VFC Program Self-Correction Component Procedures

    (a) In general. Each self-corrector must adhere to the requirements 
set forth below. Failure to do so may render the self-correction 
invalid.
    (b) Self-corrector. The SCC notice must be submitted by the self-
corrector who is a Plan Official or an authorized representative (e.g., 
attorney, accountant, or other service provider). If a representative 
of the Plan Official is submitting the SCC notice, the plan 
administrator must retain a statement signed by the Plan Official that 
the representative is authorized to represent the Plan Official. Use of 
the model authorization included in the SCC Retention Record Checklist 
in Appendix F will satisfy this requirement. Any fees paid to such 
representative for services relating to the correction under the SCC 
may not be paid from plan assets.
    (c) Submission of SCC notice. The self-corrector must notify EBSA 
of participation in the SC Component by submitting the SCC notice 
through the online VFC Program web tool in accordance with paragraph 
7.1(b)(2)(iii).\67\ EBSA will acknowledge receipt of a properly 
completed and submitted SCC notice in an email addressed to the self-
corrector.
---------------------------------------------------------------------------

    \67\ The online VFC Program web tool will be located on EBSA's 
website.
---------------------------------------------------------------------------

    (d) SCC Retention Record Checklist. The self-corrector must 
complete the SCC Retention Record Checklist in Appendix F, prepare or 
collect the documents listed in this Appendix, and provide copies of 
the completed checklist and required documentation to the plan 
administrator.
    (e) Penalty of Perjury Statement. The plan administrator must 
retain the following statement: ``Under penalties of perjury I certify 
that I am not Under Investigation (as defined in section 3(b)(3) of the 
VFC Program) and that I have reviewed the SCC notice acknowledgment and 
summary, the checklist, and all the required documentation, and to the 
best of my knowledge and belief the contents are true, correct, and 
complete.'' The statement must be signed and dated by a plan fiduciary 
with knowledge of the transaction that is the subject of the self-
correction and the authorized representative of the plan sponsor, if 
any. In addition, each Plan Official who is seeking the relief afforded 
under the Program must sign and date the Penalty of Perjury Statement. 
Use of the Penalty of Perjury Statement included in Appendix F will 
satisfy the requirements of paragraph (e) of this section.
    (f) Recordkeeping. The plan administrator must retain a copy of the 
SCC Retention Record Checklist in Appendix F along with copies of the 
required documentation, the authorization form, if any, and a signed 
Penalty of Perjury Statement, for the period required by section 107 of 
ERISA.

Section 7. Description of Eligible Transactions and Corrections Under 
the VFC Program

    EBSA has identified certain Breaches and methods of correction that 
are suitable for the VFC Program. Any Plan Official may correct a 
Breach listed in this section in accordance with section 5 and the 
applicable correction method. The correction methods set forth are 
strictly construed and are the only acceptable correction methods under 
the VFC Program and the SC Component for the identified transactions 
described in this section.

7.1 Delinquent Remittance of Funds

(a) Delinquent Participant Contributions and Loan Repayments to Pension 
Plans under VFC Program Applications
    (1) Description of Transaction. An employer receives directly from 
participants, or withholds from employees' paychecks, certain amounts 
for either participants' contribution to a pension plan or for 
repayment of participants' plan loans. Instead of forwarding such 
contributions or loan repayments to the plan for investment in 
accordance with the provisions of the plan and by reference to the 
principles of the Department's regulation at 29 CFR 2510.3-102, the 
employer retains such amounts for a longer period of time.
    (2) Correction of Transaction. (i) Unpaid Participant Contributions 
or Loan Repayments. Pay to the plan the Principal Amount plus Lost 
Earnings on the Principal Amount as described in section 5(b). The Loss 
Date for such contributions or repayments is the date on which each 
contribution reasonably could have been segregated from the employer's 
general assets. In no event shall the Loss Date for such contributions 
or repayments be later than the applicable maximum time period 
described in 29 CFR 2510.3-102.\68\ Any penalties, late fees or other 
charges shall be paid by the employer and not from such contributions 
or loan repayments.
---------------------------------------------------------------------------

    \68\ The Department amended paragraph (a)(1) of 29 CFR 2510.3-
102 to extend the application of the regulation to amounts paid by a 
participant or beneficiary or withheld by an employer from a 
participant's wages for purposes of repaying a participant's loan 
(regardless of plan size). 75 FR 2068 (2010).
---------------------------------------------------------------------------

    (ii) Late Participant Contributions or Loan Repayments. If 
participant contributions or loan repayments were remitted to the plan 
outside of the time periods described above, the only correction 
required is to pay to the plan Lost Earnings as described in section 
5(b). Any penalties, late fees or other charges shall be paid by the 
employer and not from participant contributions or loan repayments.
    (iii) For this transaction, the Principal Amount is the amount of 
delinquent participant contributions or loan repayments retained by the 
employer.
    (iv) Example. The principles of paragraph (a)(2) of this section 
are illustrated by example in Appendix D.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) A statement from a Plan Official identifying the earliest date 
on which the participant contributions and/or repayments reasonably 
could have been

[[Page 71184]]

segregated from the employer's general assets, along with the 
supporting documentation on which the Plan Official relied in reaching 
this conclusion;
    (ii) If restored participant contributions and/or repayments 
(exclusive of Lost Earnings) either total $50,000 or less, or exceed 
$50,000 and were remitted to the plan within 180 calendar days from the 
date such amounts were received by the employer, or the date such 
amounts otherwise would have been payable to the participants in cash 
(regarding amounts withheld by an employer from employees' paychecks), 
submit:
    (A) A narrative describing the applicant's contribution and/or 
repayment remittance practices before and after the period of unpaid or 
late contributions and/or repayments including any steps taken to 
prevent future delinquencies, and
    (B) Summary documents demonstrating the amount of unpaid or late 
contributions and/or repayments; and
    (iii) If restored participant contributions and/or repayments 
(exclusive of Lost Earnings) exceed $50,000 and were remitted to the 
plan more than 180 calendar days after the date such amounts were 
received by the employer, or the date such amounts otherwise would have 
been payable to the participants in cash (regarding amounts withheld by 
an employer from employees' paychecks), submit:
    (A) A narrative describing the applicant's contribution and/or 
repayment remittance practices before and after the period of unpaid or 
late contributions and/or repayments including any steps taken to 
prevent future delinquencies;
    (B) For participant contributions and/or repayments received from 
participants, a copy of the accounting records which identify the date 
and amount of each contribution received; and
    (C) For participant contributions and/or repayments withheld from 
employees' paychecks, a copy of the payroll documents showing the date 
and amount of each withholding.
    (b) Delinquent Participant Contributions and Loan Repayments to 
Pension Plans under the Self-Correction Component
    (1) Description of Transaction. (i) An employer receives directly 
from participants, or withholds from employees' paychecks, certain 
amounts for either participants' contribution to a pension plan or for 
repayment of participants' plan loans. Instead of forwarding such 
contributions or loan repayments to the plan for investment in 
accordance with the provisions of the plan and by reference to the 
principles of the Department's regulation at 29 CFR 2510.3-102, the 
employer retains such amounts for a longer period of time. \69\
---------------------------------------------------------------------------

    \69\ See 29 CFR 2510.3-102(a)(2), 75 FR 2068 (2010).
---------------------------------------------------------------------------

    (ii) For this transaction: (A) the amount of Lost Earnings 
resulting from the correction of the delinquent participant 
contributions or loan repayments is less than or equal to $1,000, 
excluding any excise tax amounts paid to the plan under the related 
class exemption PTE 2002-51; and
    (B) the delinquent participant contributions or loan repayments 
were remitted to the plan within 180 calendar days from the date such 
amounts were received by the employer, or the date such amounts 
otherwise would have been payable to the participants in cash 
(regarding amounts withheld by an employer from employees' paychecks).
    (2) Correction of Transaction. (i) Unpaid Participant Contributions 
or Loan Repayments. Pay to the plan the Principal Amount plus Lost 
Earnings on the Principal Amount as described in section (5)(b). The 
Loss Date for such contributions or repayments is the Date of 
Withholding or Receipt in accordance with section 5(b)(3)(ii). All 
calculations must be made using the Online Calculator in accordance 
with section 5(b)(6)(vi). Any penalties, late fees or other charges 
shall be paid by the employer and not from participant contributions or 
loan repayments.
    (ii) Principal Amount. For this transaction, the Principal Amount 
is the amount of delinquent participant contributions or loan 
repayments retained by the employer.
    (iii) SCC Notice. The self-corrector must input the required 
information in the fields provided in the SCC notice and submit the 
notice to EBSA through the online VFC Program web tool.\70\ The 
required information includes certain data elements listed below:
---------------------------------------------------------------------------

    \70\ The online VFC Program web tool will be located on EBSA's 
website.
---------------------------------------------------------------------------

    (A) name and email address of the self-corrector;
    (B) plan name;
    (C) plan sponsor's nine-digit number (EIN) and the plan's three-
digit number (PN);
    (D) Principal Amount;
    (E) amount of Lost Earnings and the date paid to the plan;
    (F) Loss Date (Date(s) of Withholding or Receipt); and
    (G) number of participants affected by the correction.
    (3) Documentation. The self-corrector must complete the SCC 
Retention Record Checklist in Appendix F, prepare or collect the 
documents listed in this Appendix, and provide copies of the completed 
checklist and required documentation to the plan administrator.
(c) Delinquent Participant Contributions to Insured Welfare Plans
    (1) Description of Transaction. Benefits are provided exclusively 
through insurance contracts issued by an insurance company or similar 
organization licensed to do business in any state or through a health 
maintenance organization (HMO) defined in section 1310(c) of the Public 
Health Service Act, 42 U.S.C. 300e- 9(c). An employer receives directly 
from participants or withholds from employees' paychecks certain 
amounts that the employer forwards to an insurance provider for the 
purpose of providing group health or other welfare benefits. The 
employer fails to forward such amounts in accordance with the terms of 
the plan (including the provisions of any insurance contract) or the 
requirements of the Department's regulation at 29 CFR 2510.3-102. There 
are no instances in which claims have been denied under the plan, nor 
has there been any lapse in coverage, due to the failure to transmit 
participant contributions on a timely basis.
    (2) Correction of Transaction. (i) Pay to the insurance provider or 
HMO the Principal Amount, as well as any penalties, late fees, or other 
charges necessary to prevent a lapse in coverage due to such failure. 
Any penalties, late fees or other such charges shall be paid by the 
employer and not from participant contributions.
    (ii) For this transaction, the Principal Amount is the amount of 
delinquent participant contributions retained by the employer.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) A statement from a Plan Official: (A) identifying the earliest 
date on which the participant contributions reasonably could have been 
segregated from the employer's general assets, along with the 
supporting documentation on which the Plan Official relied in reaching 
this conclusion; (B) attesting that there are no instances in which 
claims have been denied under the plan for nonpayment, nor has there 
been any lapse in coverage; and (C) attesting that any penalties, late 
fees or other such charges have been paid by the employer and not from 
participant contributions;

[[Page 71185]]

    (ii) Copies of the insurance contract or contracts for the group 
health or other welfare benefits for the plan;
    (iii) If restored participant contributions either total $50,000 or 
less, or exceed $50,000 and were remitted to the insurance provider 
within 180 calendar days from the date such amounts were received by 
the employer, or the date such amounts otherwise would have been 
payable to the participants in cash (regarding amounts withheld by an 
employer from employees' paychecks), submit:
    (A) a narrative describing the applicant's contribution practices 
before and after the period of unpaid or late contributions, and
    (B) summary documents demonstrating the amount of unpaid or late 
contributions; and
    (iv) If restored participant contributions exceed $50,000 and were 
remitted to the insurance provider more than 180 calendar days after 
the date such amounts were received by the employer, or the date such 
amounts otherwise would have been payable to the participants in cash 
(regarding amounts withheld by an employer from employees' paychecks), 
submit:
    (A) a narrative describing the applicant's contribution remittance 
practices before and after the period of unpaid or late contributions 
including any steps taken to prevent future delinquencies,
    (B) for participant contributions received directly from 
participants, a copy of the accounting records which identify the date 
and amount of each contribution received, and
    (C) for participant contributions withheld from employees' 
paychecks, a copy of the payroll documents showing the date and amount 
of each withholding.
(d) Delinquent Participant Contributions to Welfare Plan Trusts
    (1) Description of Transaction. An employer receives directly from 
participants or withholds from employees' paychecks certain amounts 
that the employer forwards to a trust maintained to provide, through 
insurance or otherwise, group health or other welfare benefits. The 
employer fails to forward such amounts in accordance with the terms of 
the plan or the requirements of the Department's regulation at 29 CFR 
2510.3-102. There are no instances in which claims have been denied 
under the plan, nor has there been any lapse in coverage, due to the 
failure to transmit participant contributions on a timely basis.
    (2) Correction of Transaction. (i) Unpaid Contributions. Pay to the 
trust (A) the Principal Amount, and, where applicable, any penalties, 
late fees, or other charges necessary to prevent a lapse in coverage 
due to the failure to make timely payments, and (B) Lost Earnings on 
the Principal Amount as described in section 5(b). The Loss Date for 
such contributions is the date on which each contribution would become 
plan assets under 29 CFR 2510.3-102. Any penalties, late fees or other 
charges shall be paid by the employer and not from participant 
contributions.
    (ii) Late Contributions. If participant contributions were remitted 
to the trust outside of the time period required by the regulation, the 
only correction required is to pay to the trust the Lost Earnings as 
described in section 5(b). Any penalties, late fees or other such 
charges shall be paid by the employer and not from participant 
contributions.
    (iii) For this transaction, the Principal Amount is the amount of 
delinquent participant contributions retained by the employer.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) A statement from a Plan Official: (A) identifying the earliest 
date on which the participant contributions reasonably could have been 
segregated from the employer's general assets, along with the 
supporting documentation on which the Plan Official relied in reaching 
this conclusion, and (B) attesting that there are no instances in which 
claims have been denied under the plan for nonpayment, nor has there 
been any lapse in coverage;
    (ii) If restored participant contributions (exclusive of Lost 
Earnings) either total $50,000 or less, or exceed $50,000 and were 
remitted to the trust within 180 calendar days from the date such 
amounts were received by the employer, or the date such amounts 
otherwise would have been payable to the participants in cash 
(regarding amounts withheld by an employer from employees' paychecks), 
submit:
    (A) a narrative describing the applicant's contribution practices 
before and after the period of unpaid or late contributions including 
any steps taken to prevent future delinquencies, and
    (B) summary documents demonstrating the amount of unpaid or late 
contributions; and
    (iii) If restored participant contributions (exclusive of Lost 
Earnings) exceed $50,000 and were remitted to the trust more than 180 
calendar days after the date such amounts were received by the 
employer, or the date such amounts otherwise would have been payable to 
the participants in cash (regarding amounts withheld by an employer 
from employees' paychecks), submit:
    (A) a narrative describing the applicant's contribution remittance 
practices before and after the period of unpaid or late contributions,
    (B) for participant contributions received directly from 
participants, a copy of the accounting records which identify the date 
and amount of each contribution received, and
    (C) for participant contributions withheld from employees' 
paychecks, a copy of the payroll documents showing the date and amount 
of each withholding.

7.2 Loans

    (a) Loan at Fair Market Interest Rate to a Party in Interest With 
Respect to the Plan
    (1) Description of Transaction. A plan made a loan to a party in 
interest at an interest rate no less than that for loans with similar 
terms (for example, the amount of the loan, amount and type of 
security, repayment schedule, and duration of loan) to a borrower of 
similar creditworthiness. The loan was not exempt from the prohibited 
transaction provisions of Title I of ERISA.
    (2) Correction of Transaction. Pay off the loan in full, including 
any prepayment penalties. An independent commercial lender must also 
confirm in writing that the loan was made at a fair market interest 
rate for a loan with similar terms to a borrower of similar 
creditworthiness.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit a narrative describing the process used to 
determine the fair market interest rate at the time the loan was made, 
validated in writing by an independent commercial lender.
    (b) Loan at Below-Market Interest Rate to a Party in Interest With 
Respect to the Plan
    (1) Description of Transaction. A plan made a loan to a party in 
interest with respect to the plan at an interest rate that, at the time 
the loan was made, was less than the fair market interest rate for 
loans with similar terms (for example, the amount of loan, amount and 
type of security, repayment schedule, and duration of the loan) to a 
borrower of similar creditworthiness. The loan was not exempt from the 
prohibited transaction provisions of Title I of ERISA.
    (2) Correction of Transaction. (i) Pay off the loan in full, 
including any prepayment penalties. Pay to the plan the Principal 
Amount, plus the greater of (A) the Lost Earnings as described in

[[Page 71186]]

section 5(b), or (B) the Restoration of Profits, if any, as described 
in section 5(b).
    (ii) For purposes of this transaction, each loan payment has a 
Principal Amount equal to the excess of the loan payment that would 
have been received if the loan had been made at the fair market 
interest rate (from the beginning of the loan until the Recovery Date) 
over the loan payment actually received under the loan terms during 
such period. Under the VFC Program, the fair market interest rate must 
be determined by an independent commercial lender.
    Example. The plan made to a party in interest a $150,000 mortgage 
loan, secured by a first Deed of Trust, at a fixed interest rate of 4% 
per annum. The loan was to be fully amortized over 30 years. The fair 
market interest rate for comparable loans, at the time this loan was 
made, was 7% per annum. The party in interest or Plan Official must 
repay the loan in full plus any applicable prepayment penalties. The 
party in interest or Plan Official also must pay the difference between 
what the plan would have received through the Recovery Date had the 
loan been made at 7% and what, in fact, the plan did receive from the 
commencement of the loan to the Recovery Date, plus Lost Earnings on 
that amount as described in section 5(b).
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) A narrative describing the process used to determine the 
interest rate at the time the loan was made;
    (ii) A copy of the independent commercial lender's fair market 
interest rate determination(s); and
    (iii) A copy of the independent fiduciary's dated, written approval 
of the fair market interest rate determination(s), except for below-
market interest rate loans of $10,000 or less.
    (c) Loan at Below-Market Interest Rate to a Person Who Is Not a 
Party in Interest With Respect to the Plan
    (1) Description of Transaction. A plan made a loan to a person who 
is not a party in interest with respect to the plan at an interest rate 
which, at the time the loan was made, was less than the fair market 
interest rate for loans with similar terms (for example, the amount of 
loan, amount and type of security, repayment schedule, and duration of 
the loan) to a borrower of similar creditworthiness.
    (2) Correction of Transaction. (i) Pay to the plan the Principal 
Amounts from the inception of the loan until the Recovery Date, plus 
Lost Earnings on the series of Principal Amounts through the Recovery 
Date, as described in section 5(b).
    (ii) In addition, the applicant or other party must pay to the plan 
the present value of the Principal Amounts from the Recovery Date to 
the maturity date of the loan, as determined by an independent 
commercial lender. The borrower must continue to pay to the plan the 
outstanding loan balance according to the repayment schedule for the 
duration of the loan. Alternatively, instead of the applicant or other 
party paying the present value of the Principal Amounts, the borrower 
may pay to the plan the outstanding loan balance amortized over the 
remaining payment schedule for the duration of the loan at the interest 
rate that would have been applicable if the loan had been made at the 
fair market interest rate.
    (iii) For purposes of this transaction, each loan payment has a 
Principal Amount equal to the excess of the loan payment that would 
have been received if the loan had been made at the fair market 
interest rate (from the inception of the loan until the Recovery Date) 
over the loan payment actually received under the loan terms during 
such period. Under the VFC Program, the fair market interest rate must 
be determined by an independent commercial lender.
    (iv) The principles of paragraph (c)(2) of this section are 
illustrated in the following example:
    Example. The plan made a $150,000 mortgage loan, secured by a first 
Deed of Trust, at a fixed interest rate of 4% per annum. The loan was 
to be fully amortized over 30 years. The fair market interest rate for 
comparable loans, at the time this loan was made, was 7% per annum. The 
applicant or other person must pay the excess of what the plan would 
have received through the Recovery Date had the loan been made at 7% 
over what, in fact, the plan did receive from the commencement of the 
loan to the Recovery Date (the Principal Amounts from the loan's 
inception until the Recovery Date), plus Lost Earnings on that amount 
as described in section 5(b). The applicant must also pay on the 
Recovery Date the present value of the difference of what the plan 
would have received between the 7% and the 4% interest rate for the 
remaining payments on the loan for the duration of the time the plan is 
owed repayments on the loan (the Principal Amounts from the Recovery 
Date until the loan's maturity date). The borrower must continue to 
repay the outstanding loan balance based on the loan's repayment 
schedule.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) A narrative describing the process used to determine the 
interest rate at the time the loan was made;
    (ii) A copy of the independent commercial lender's fair market 
interest rate determination(s); and
    (iii) If applicable, a copy of the loan repayment schedule for the 
re-amortized loan repayments.
    (d) Loan at Below-Market Interest Rate Solely Due to a Delay in 
Perfecting the Plan's Security Interest
    (1) Description of Transaction. For purposes of the VFC Program, if 
a plan made a purportedly secured loan to a person who is not a party 
in interest with respect to the plan, but there was a delay in 
recording or otherwise perfecting the plan's interest in the loan 
collateral, the loan will be treated as an unsecured loan until the 
plan's security interest is perfected.
    (2) Correction of Transaction. (i) Pay to the plan the Principal 
Amounts through the date the loan became fully secured, plus Lost 
Earnings on the series of Principal Amounts, as described in section 
5(b).
    (ii) Record or perfect the plan's interest in the loan collateral.
    (iii) In addition, if the delay in perfecting the loan's security 
caused a permanent change in the risk characteristics of the loan, the 
fair market interest rate for the remaining term of the loan must be 
determined by an independent commercial lender. In that case, the 
correction amount includes an additional payment to the plan. The 
applicant must pay to the plan the present value of the Principal 
Amounts from the date the loan is fully secured to the maturity date of 
the loan, as determined by an independent commercial lender. The 
borrower must continue to pay to the plan the outstanding loan balance 
according to the repayment schedule for the duration of the loan. 
Alternatively, instead of the applicant paying the present value of the 
Principal Amounts, the borrower may pay to the plan the outstanding 
loan balance amortized over the remaining payment schedule for the 
duration of the loan at the interest rate that would have been 
applicable if the loan had been made at the fair market interest rate 
that would have been applicable for a loan with the changed risk 
characteristics.
    (iv) For purposes of this transaction, each loan payment has a 
Principal Amount equal to the excess of the loan payment that would 
have been received if the loan had been made at the fair market 
interest rate for an unsecured loan (from the inception of the loan 
until the Recovery Date) over the loan payment actually received under 
the

[[Page 71187]]

loan terms during such period. Under the VFC Program, the fair market 
interest rate must be determined by an independent commercial lender.
    (v) The principles of paragraph (d)(2) of this section are 
illustrated in the following examples:
    Example 1. The plan made a mortgage loan, which was supposed to be 
secured by a Deed of Trust. The plan's Deed was not recorded for six 
months, but, when it was recorded, the Deed was in first position. The 
interest rate on the loan was the fair market interest rate for a 
mortgage loan secured by a first-position Deed of Trust. The loan is 
treated as an unsecured, below-market loan for the six months prior to 
the recording of the Deed of Trust.
    Example 2. Assume the same facts as in Example 1, except that, as a 
result of the delay in recording the Deed, the plan ended up in second 
position behind another lender. The risk to the plan is higher and the 
interest rate on the note is no longer commensurate with that risk. The 
loan is treated as a below-market loan (based on the lack of security) 
for the six months prior to the recording of the Deed of Trust and as a 
below-market loan (based on secondary status security) from the time 
the Deed is recorded until the end of the loan.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) A narrative describing the process used to determine the fair 
market interest rate for the period that the loan was unsecured and, if 
applicable, for the remaining term of the loan;
    (ii) A copy of the independent commercial lender's fair market 
interest rate determination(s); and
    (iii) If applicable, a copy of the loan repayment schedule for the 
re-amortized loan repayments.

7.3 Participant Loans

(a) Loans Failing to Comply With Plan Provisions for Amount, Duration 
or Level Amortization
    (1) Description of Transaction. A plan extended a loan to a plan 
participant who is a party in interest with respect to the plan based 
solely on their status as an employee of any employer whose employees 
are covered by the plan, as defined in section 3(14)(H) of ERISA. The 
loan was a prohibited transaction that failed to qualify for ERISA's 
statutory exemption for plan loan programs because the loan terms did 
not comply with applicable plan provisions, which incorporated the 
requirements of section 72(p) of the Code concerning:
    (i) the amount of the loan,
    (ii) the duration of the loan, or
    (iii) the level amortization of the loan repayment.
    (2) Correction of Transaction. Plan Officials must make a voluntary 
correction of the loan with IRS approval under the Voluntary Correction 
Program of the IRS' Employee Plans Compliance Resolution System 
(EPCRS).
    (3) Documentation. The applicant is not required to submit any of 
the supporting documentation listed in section 6.1(e) unless otherwise 
requested by EBSA, except that the applicant must provide (i) proof of 
payment, as described in paragraph (e)(6) of section 6.1, and (ii) a 
copy of the IRS compliance statement.
(b) Default Loans
    (1) Description of Transaction. A plan extended a loan to a plan 
participant who is a party in interest with respect to the plan based 
solely on their status as an employee of any employer whose employees 
are covered by the plan, as defined in section 3(14)(H) of ERISA. At 
origination, the loan qualified for ERISA's statutory exemption for 
plan loan programs because the loan complied with applicable plan 
provisions, which incorporated the requirements of section 72(p) of the 
Code. During the loan repayment period, the Plan Official responsible 
for loan administration failed to properly withhold a number of loan 
repayments from the participant's wages and included the amount of such 
repayments in the participant's wages based on administrative or 
systems processing errors. The failure to withhold is a Breach causing 
the loan to become non-compliant with applicable plan provisions, which 
incorporated the requirements of section 72(p) of the Code.
    (2) Correction of Transaction. Plan Officials must make a voluntary 
correction of the loan with IRS approval under the Voluntary Correction 
Program of the IRS' EPCRS.
    (3) Documentation. The applicant is not required to submit any of 
the supporting documentation listed in section 6.1(e) unless otherwise 
requested by EBSA, except that the applicant must provide (i) proof of 
payment, as described in paragraph (e)(6) of section 6.1, and (ii) a 
copy of the IRS compliance statement.

7.4 Purchases, Sales and Exchanges

    (a) Purchase of an Asset (Including Real Property) by a Plan from a 
Party in Interest
    (1) Description of Transaction. A plan purchased an asset with cash 
from a party in interest with respect to the plan, in a transaction to 
which no prohibited transaction exemption applies.
    (2) Correction of Transaction. (i) The plan may sell the asset back 
to the party in interest who originally sold the asset to the plan \71\ 
or to a person who is not a party in interest. Whether the asset is 
sold to a person who is not a party in interest with respect to the 
plan or is sold back to the original seller, the plan must receive the 
higher of (A) the FMV of the asset at the time of resale, without a 
reduction for the costs of sale, plus restoration to the plan of the 
party in interest's investment return from the proceeds of the sale, to 
the extent they exceed the plan's net profits from owning the property; 
or (B) the Principal Amount, plus the greater of (1) Lost Earnings on 
the Principal Amount as described in section 5(b), or (2) the 
Restoration of Profits, if any, as described in section 5(b).
---------------------------------------------------------------------------

    \71\ The resale of the same property to the party in interest 
from whom the asset was purchased is a reversal of the original 
prohibited transaction. The resale is not a new prohibited 
transaction and therefore does not require an exemption.
---------------------------------------------------------------------------

    (ii) As an alternative to the correction described in paragraph 
(a)(2)(i) above, the plan may retain the asset and receive (A) the 
greater of (1) Lost Earnings less any earnings received on the asset up 
to the Recovery Date or (2) the Restoration of Profits, if any, as 
described in section 5(b), on the Principal Amount, but only to the 
extent that such Lost Earnings or Restoration of Profits exceeds the 
difference between the FMV of the asset as of the Recovery Date and the 
original purchase price; and (B) the amount by which the Principal 
Amount exceeded the FMV of the asset (at the time of the original 
purchase), plus the greater of (1) Lost Earnings or (2) Restoration of 
Profits, if any, as described in section 5(b), on such excess; provided 
an independent fiduciary determines that the plan will realize a 
greater benefit from this correction than it would from the resale of 
the asset described in paragraph (a)(2)(i) above.
    (iii) As a cash settlement alternative, when the plan no longer 
owns the asset and the transaction cannot be reversed or the asset 
cannot be retained as described respectively in paragraphs (a)(2)(i) 
and (ii) above, the plan may accept in cash the amounts specified in 
(A) plus (B) where (A) is--the greater of (1) Lost Earnings less any 
earnings received on the asset up to the Recovery Date or (2) the 
Restoration of Profits, if any, as described in section 5(b), on the 
Principal Amount, and (3) with the resulting amount from (1) or (2) 
reduced by any profit if the asset were resold or matured at a gain, or 
increased by any

[[Page 71188]]

loss including Lost Earnings on such loss if either the asset was 
resold at a loss or the plan otherwise ceased to own the asset (e.g., 
maturity; destruction); and (B) is--the amount by which the Principal 
Amount exceeded the FMV of the asset (at the time of the original 
purchase), plus the greater of (1) Lost Earnings or (2) Restoration of 
Profits, if any, as described in section 5(b), on such excess. If the 
plan sold the asset, the asset must have been sold upon the advice of 
an independent fiduciary and not in anticipation of applying under the 
VFC Program.
    (iv) For this transaction, the Principal Amount is the plan's 
original purchase price.
    (v) The principles of paragraph (a)(2) of this section are 
illustrated in the following examples:
    Example 1. A plan purchased a parcel of real property from the plan 
sponsor. The plan does not lease the property to any person. Instead, 
the plan uses the property as an office. The plan paid $120,000 for the 
property and $5,000 in transaction costs. As part of the correction, 
the Plan Official obtains two appraisals from a qualified, independent 
appraiser in order to determine the FMV of the property at the time of 
the purchase and at the time of the correction (the ``Recovery Date''). 
The FMV of the property at the time of purchase was $100,000 ($20,000 
less than the plan paid for the property). As of the Recovery Date, the 
appraiser values the property at $110,000. To correct the transaction, 
the plan sponsor repurchases the property for $120,000 with no 
reduction for the costs of sale and reimburses the plan for the $5,000 
in initial costs of sale. The plan sponsor also must pay the plan the 
greater of the plan's Lost Earnings or the sponsor's investment return 
on these amounts. The determination of an independent fiduciary is not 
required because the applicant is correcting the transaction by selling 
the asset back to the party in interest pursuant to paragraph (a)(2)(i) 
of this section.
    Example 2. On February 1, 2002, a plan purchased from a party in 
interest a parcel of commercial real estate for $120,000 and incurred 
$5,000 in costs of sale. The plan initially uses the property as an 
office. At the same time, it is discovered that the original purchase 
was a prohibited transaction, the plan enters into a lucrative lease 
with an unrelated party for use of the property to begin January 1 of 
the following year. Due to commercial developments in adjacent 
properties, the Plan Official believes that the property will increase 
in value and that the plan would be able to obtain substantially 
increasing rental payments for the use of the property. As part of the 
correction, the Plan Official obtains two appraisals from a qualified, 
independent appraiser in order to determine the FMV of the asset at the 
time of the purchase and at the time of the correction (the ``Recovery 
Date''). The FMV of the property at the time of purchase was $120,000 
(the same as the original purchase price). As of the Recovery Date, the 
property is valued at $150,000. Lost Earnings are calculated through 
September 30, 2005, the anticipated Recovery Date. The Online 
Calculator determined that Lost Earnings is $26,098.23 on the Principal 
Amount of $125,000 (purchase price plus transaction costs). There were 
no determinable profits. The increase in the FMV, $30,000, is greater 
than Lost Earnings or Restoration of Profits. Because the property is 
rapidly appreciating in value, and because the Plan Official expects to 
realize significant rental income from the property, the Plan Official 
would like to correct by retaining the property pursuant to paragraph 
(a)(2)(ii) of this section rather than selling the asset back to the 
party in interest pursuant to paragraph (a)(2)(i) of this section. The 
Plan Official must obtain a determination by an independent fiduciary 
that the plan will realize a greater benefit by retaining the asset 
than by selling the asset back to the party in interest. Because the 
original purchase price was the same as the FMV, and the increase in 
the FMV is greater than any earnings or investment return on the 
original purchase price, the only cash payment to the plan involved in 
this correction is the $5,000 in costs of sale, plus Lost Earnings.
    Example 3: The plan purchased bonds from a party in interest on 
November 30, 2011 (the ``Loss Date'') at a face value of $100,000 with 
a yield of 2% interest annually. The purchase was at FMV and the bonds' 
maturity date was November 30, 2012. The plan received $102,000 on 
November 30, 2012 (the ``Recovery Date''). In January 2013, the plan 
trustee realized that the original purchase was a prohibited 
transaction because the seller is a party in interest. There were no 
determinable profits. Under these facts, because the plan no longer 
owns the asset, the transaction cannot be reversed under paragraph 
(a)(2)(i) above. Similarly, the plan cannot use the correction under 
paragraph (a)(2)(ii) above. A Plan Official may correct the transaction 
under paragraph (a)(2)(iii) by paying to the plan on January 7, 2013 
(the ``Final Payment Date'') an amount of cash equal to the Lost 
Earnings as calculated using the Online Calculator less the interest 
paid on the bonds ($3,055.55 - $2,000).
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) Documentation of the plan's purchase of the asset, including 
the date of the purchase, the plan's purchase price, and the identity 
of the seller;
    (ii) A narrative describing the relationship between the original 
seller of the asset and the plan;
    (iii) The qualified, independent appraiser's report addressing the 
FMV of the asset purchased by the plan, both at the time of the 
original purchase and at the recovery date;
    (iv) If applicable, a report of the independent fiduciary's 
determination that the plan will realize a greater benefit by receiving 
the correction amount described in paragraph (a)(2)(ii) of this section 
than by reselling the asset pursuant to paragraph (a)(2)(i) of this 
section; and
    (v) In a transaction involving a cash settlement correction under 
section 7.4(a)(2)(iii) where the plan sold the asset, a statement by a 
Plan Official that the asset was sold upon the advice of an independent 
fiduciary and not in anticipation of applying under the VFC Program.
    (b) Sale of an Asset (Including Real Property) by a Plan to a Party 
in Interest
    (1) Description of Transaction. A plan sold an asset for cash to a 
party in interest with respect to the plan, in a transaction to which 
no prohibited transaction exemption applies.
    (2) Correction of Transaction. (i) The plan may repurchase the 
asset from the party in interest \72\ at the lower of (A) the price for 
which it originally sold the property or (B) the FMV of the property as 
of the Recovery Date plus restoration to the plan of the party in 
interest's net profits from owning the property, to the extent they 
exceed the plan's investment return from the proceeds of the sale.
---------------------------------------------------------------------------

    \72\ The repurchase of the same property from the party in 
interest to whom the asset was sold is a reversal of the original 
prohibited transaction. The repurchase is not a new prohibited 
transaction and therefore does not require an individual prohibited 
transaction exemption.
---------------------------------------------------------------------------

    (ii) As an alternative to the correction described in paragraph 
(b)(2)(i) above, the plan may receive the Principal Amount plus the 
greater of (A) Lost Earnings as described in section 5(b) or (B) the 
Restoration of Profits, if any, as described in section 5(b), provided 
an independent fiduciary determines that the plan will realize a 
greater benefit from this correction than it would from the repurchase 
of the asset described in paragraph (b)(2)(i), or provided a Plan

[[Page 71189]]

Official determines that the asset cannot be repurchased (e. g., 
maturity, destruction).
    (iii) For this transaction, the Principal Amount is the amount by 
which the FMV of the asset (at the time of the original sale) exceeds 
the original sale price.
    (iv) The principles of paragraph (b)(2) of this section are 
illustrated in the following examples:
    Example 1. A plan sold a parcel of unimproved real property to the 
plan sponsor. The sponsor did not make any profit on the use of the 
property. As part of the correction, the Plan Official obtains an 
appraisal of the property reflecting the FMV of the property as of the 
date of sale from a qualified, independent appraiser. The appraiser 
values the property at $130,000, although the plan sold the property to 
the plan sponsor for $120,000. The plan did not incur any transaction 
costs during the original sale. As of the Recovery Date, the appraiser 
values the property at $140,000. The plan corrects the transaction by 
repurchasing the property at the original sale price of $120,000, with 
the party in interest assuming the costs of the reversal of the sale 
transaction. The determination of an independent fiduciary is not 
required because the applicant is correcting the transaction by 
repurchasing the property from the party in interest pursuant to 
paragraph (b)(2)(i) of this section.
    Example 2. Assume the same facts as in Example 1, except that the 
appraiser values the property as of the Recovery Date at $100,000, and 
the plan fiduciaries believe that the property will continue to 
decrease in value based on environmental studies conducted in adjacent 
areas. Based on the determination of an independent fiduciary that the 
plan will realize a greater benefit by receiving the Principal Amount 
(FMV of the asset at the time of the original sale less the original 
sales price equals $10,000) plus the greater of Lost Earnings or 
Restoration of Profits, as described in section 5(b), the transaction 
is corrected by cash settlement pursuant to paragraph (b)(2)(ii) of 
this section, rather than by repurchasing the asset.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) Documentation of the plan's sale of the asset, including the 
date of the sale, the sales price, and the identity of the original 
purchaser;
    (ii) A narrative describing the relationship of the purchaser to 
the asset and the relationship of the purchaser to the plan;
    (iii) The qualified, independent appraiser's report addressing the 
FMV of the property at the time of the sale from the plan and as of the 
Recovery Date; and
    (iv) If applicable, a report of the independent fiduciary's 
determination that the plan will realize a greater benefit by receiving 
the correction amount described in paragraph (b)(2)(ii) of this section 
than by repurchasing the asset pursuant to paragraph (b)(2)(i) of this 
section, or if the asset cannot be repurchased, a written explanation 
of such circumstance from the Plan Official making this determination.
(c) Sale and Leaseback of Real Property to Employer
    (1) Description of Transaction. The plan sponsor, or an affiliate 
of the plan sponsor, sold a parcel of real property to the plan, which 
then was leased back to the sponsor or affiliate, in a transaction that 
is not otherwise exempt.
    (2) Correction of Transaction. (i) The transaction must be 
corrected by the sale of the parcel of real property back to the plan 
sponsor or affiliate of the plan sponsor, or to a person who is not a 
party in interest with respect to the plan.\73\ The plan must receive 
the higher of (A) FMV of the asset at the time of resale, without a 
reduction for the costs of sale; or (B) the Principal Amount, plus the 
greater of (1) Lost Earnings on the Principal Amount as described in 
section 5(b), or (2) the Restoration of Profits, if any, as described 
in section 5(b).
---------------------------------------------------------------------------

    \73\ If the plan purchased the property from the plan sponsor or 
an affiliate of the plan sponsor, the sale of the same property back 
to the plan sponsor or affiliate is a reversal of the prohibited 
transaction. The sale is not a new prohibited transaction and 
therefore does not require an individual prohibited transaction 
exemption, as long as the plan did not make improvements while it 
owned the property.
---------------------------------------------------------------------------

    (ii) For purposes of this transaction, the Principal Amount is the 
plan's original purchase price.
    (iii) If the plan has not been receiving rent at FMV, as determined 
by a qualified, independent appraisal, the sale price of the real 
property should not be based on the historic below-market rent that was 
paid to the plan.
    (iv) In addition to the correction amount in subparagraph (1), if 
the plan was not receiving rent at FMV, as determined by a qualified, 
independent appraiser, the Principal Amount also includes the 
difference between the rent actually paid and the rent that should have 
been paid at FMV. The plan sponsor or an affiliate of the plan sponsor 
must pay to the plan this additional Principal Amount, plus the greater 
of (A) Lost Earnings or (B) Restoration of Profits resulting from the 
plan sponsor's or affiliate's use of the Principal Amount, as described 
in section 5(b).
    (v) The principles of paragraph (c)(2) of this section are 
illustrated in the following example:
    Example. The plan purchased at FMV from the plan sponsor an office 
building that served as the sponsor's primary business site. 
Simultaneously, the plan sponsor leased the building from the plan at 
below the market rental rate. The Plan Official obtains from a 
qualified, independent appraiser an appraisal of the property 
reflecting the FMV of the property and rent. To correct the 
transaction, the plan sponsor purchases the property from the plan at 
the higher of the appraised value at the time of the resale or the 
original sales price and also pays the Lost Earnings. Because the rent 
paid to the plan was below the market rate, the sponsor must also make 
up the difference between the rent paid under the terms of the lease 
and the amount that should have been paid, plus Lost Earnings on this 
amount, as described in section 5(b).
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) Documentation of the plan's purchase of the real property, 
including the date of the purchase, the plan's purchase price, and the 
identity of the original seller;
    (ii) Documentation of the plan's sale of the asset, including the 
date of sale, the sales price, and the identity of the purchaser;
    (iii) A narrative describing the relationship of the original 
seller to the plan and the relationship of the purchaser to the plan;
    (iv) A copy of the lease;
    (v) Documentation of the date and amount of each lease payment 
received by the plan; and
    (vi) The qualified, independent appraiser's report addressing both 
the FMV of the property at the time of the original sale and at the 
Recovery Date, and the FMV of the lease payments.
(d) Purchase of an Asset (Including Real Property) by a Plan From a 
Person Who Is Not a Party in Interest With Respect to the Plan at a 
Price More Than Fair Market Value
    (1) Description of Transaction. A plan acquired an asset from a 
person who is not a party in interest with respect to the plan, without 
determining the asset's FMV. As a result, the plan paid more than it 
should have for the asset.

[[Page 71190]]

    (2) Correction of Transaction. The Principal Amount is the 
difference between the actual purchase price and the asset's FMV at the 
time of purchase. The plan must receive the Principal Amount plus the 
Lost Earnings, as described in section 5(b).
    (i) The principles of paragraph (d)(2) of this section are 
illustrated in the following example:
    Example. A plan bought unimproved land without obtaining a 
qualified, independent appraisal. Upon discovering that the purchase 
price was $10,000 more than the appraised FMV, the Plan Official pays 
the plan the Principal Amount of $10,000, plus Lost Earnings as 
described in section 5(b).
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) Documentation of the plan's original purchase of the asset, 
including the date of the purchase, the purchase price, and the 
identity of the seller;
    (ii) A narrative describing the relationship of the seller to the 
plan; and
    (iii) A copy of the qualified, independent appraiser's report 
addressing the value at the time of the plan's purchase.
(e) Sale of an Asset (Including Real Property) By a Plan to a Person 
Who Is Not a Party in Interest With Respect to the Plan at a Price Less 
Than Fair Market Value
    (1) Description of Transaction. A plan sold an asset to a person 
who is not a party in interest with respect to the plan, without 
determining the asset's FMV. As a result, the plan received less than 
it should have from the sale.
    (2) Correction of Transaction. The Principal Amount is the amount 
by which the FMV of the asset as of the Recovery Date exceeds the price 
at which the plan sold the property. The plan must receive the 
Principal Amount plus Lost Earnings as described in section 5(b).
    (i) The principles of paragraph (e)(2) of this section are 
illustrated in the following example:
    Example. A plan sold unimproved land without taking steps to ensure 
that the plan received FMV. Upon discovering that the sale price was 
$10,000 less than the FMV, the Plan Official pays the plan the 
Principal Amount of $10,000 plus Lost Earnings as described in section 
5(b).
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) Documentation of the plan's original sale of the asset, 
including the date of the sale, the sale price, and the identity of the 
buyer;
    (ii) A narrative describing the relationship of the buyer to the 
plan; and
    (iii) A copy of the qualified, independent appraiser's report 
addressing the value at the time of the plan's sale.
(f) Holding of an Illiquid Asset Previously Purchased by a Plan
    (1) Description of Transaction. A plan is holding an asset 
previously purchased from (i) a party in interest with respect to the 
plan in an acquisition for which relief was available under a statutory 
or administrative prohibited transaction exemption, (ii) a party in 
interest with respect to the plan at no greater than FMV at that time 
in an acquisition to which no prohibited transaction exemption applied, 
(iii) a person who was not a party in interest with respect to the plan 
in an acquisition in which a plan fiduciary failed to appropriately 
discharge their fiduciary duties, or (iv) a person who was not a party 
in interest with respect to the plan in an acquisition in which a plan 
fiduciary appropriately discharged their fiduciary duties. Currently, a 
plan fiduciary determines that such asset is an illiquid asset because: 
(A) the asset failed to appreciate, failed to provide a reasonable rate 
of return, or caused a loss to the plan; (B) the sale of the asset is 
in the best interest of the plan; and (C) following reasonable efforts 
to sell the asset to a person who is not a party in interest with 
respect to the plan, the asset cannot immediately be sold for its 
original purchase price, or its current FMV, if greater. Examples of 
assets that may meet this definition include, but are not limited to, 
restricted and thinly traded stock, limited partnership interests, real 
estate and collectibles. In the case of an illiquid asset that is a 
parcel of real estate, no party in interest may own real estate that is 
contiguous to the plan's parcel of real estate on the Recovery Date.
    (2) Correction of Transaction. (i) The transaction may be corrected 
by the sale of the asset to a party in interest, provided the plan 
receives the higher of (A) the FMV of the asset at the time of resale, 
without a reduction for the costs of sale; or (B) the Principal Amount, 
plus Lost Earnings as described in section 5(b). The Plan Official may 
cause the plan to sell the asset to a party in interest. This 
correction provides relief for both the original purchase of the asset, 
if required, and the sale of the illiquid asset by the plan to a party 
in interest; relief from the prohibited transaction excise tax also is 
provided if the Plan Official satisfies the applicable conditions of 
the VFC Program class exemption.
    (ii) For this transaction, the Principal Amount is (A) the amount 
that would have been available had the Breach not occurred, or (B) the 
plan's original purchase price if the original purchase was not a 
prohibited transaction or imprudent.
    (iii) The principles of paragraph (f)(2) of this section are 
illustrated in the following examples:
    Example 1. A plan purchases undeveloped real property from a party 
in interest with respect to the plan for $60,000 in June 1999. In April 
2004, Plan Officials determine that the property is an illiquid asset. 
A qualified, independent appraiser appraises the property at a current 
FMV of $20,000. The plan sponsor pays the plan the Principal Amount of 
$60,000 plus Lost Earnings as described in section 5(b), and Plan 
Officials transfer the property from the plan to the plan sponsor. The 
Plan Officials also comply with the applicable terms of the related 
exemption.
    Example 2. A plan purchases a limited partnership interest for 
$60,000 in June 1999 from an unrelated party after plan fiduciaries 
properly fulfill their fiduciary duties with respect to the purchase. 
In April 2004, Plan Officials determine that the interest is an 
illiquid asset because the interest has failed to generate a reasonable 
rate of return. A qualified, independent appraiser appraises the 
interest at a current FMV of $80,000. The plan sponsor pays the plan 
the FMV of $80,000 without a reduction for the costs of the sale, which 
is greater than the Principal Amount plus Lost Earnings, and Plan 
Officials transfer the interest from the plan to the plan sponsor. The 
Plan Officials also comply with the applicable terms of the related 
exemption.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) Documentation of the plan's original purchase of the asset, 
including the date of the purchase, the plan's purchase price, the 
identity of the original seller, and a description of the relationship, 
if any, between the original seller and the plan;
    (ii) The qualified, independent appraiser's report addressing the 
FMV of the asset purchased by the plan at the recovery date;
    (iii) A narrative describing the plan's efforts to sell the asset 
to persons who are not parties in interest with respect to the plan and 
any documentation of such efforts to sell the asset;

[[Page 71191]]

    (iv) A statement from a Plan Official attesting that: (A) the asset 
failed to appreciate, failed to provide a reasonable rate of return, or 
caused a loss to the plan; (B) the sale of the asset is in the best 
interest of the plan; (C) the asset is an illiquid asset; and (D) the 
plan made reasonable efforts to sell the asset to persons who are not 
parties in interest with respect to the plan without success; and
    (v) In the case of an illiquid asset that is a parcel of real 
estate, a statement from a Plan Official attesting that no party in 
interest owns real estate that is contiguous to the plan's parcel of 
real estate on the Recovery Date.

7.5 Benefits

(a) Payment of Benefits Without Properly Valuing Plan Assets on Which 
Payment is Based
    (1) Description of Transaction. A defined contribution pension plan 
pays benefits based on the value of the plan's assets. If one or more 
of the plan's assets are not valued at current value, the benefit 
payments are not correct. If the plan's assets are overvalued, the 
current benefit payments will be too high. If the plan's assets are 
undervalued, the current benefit payments will be too low.
    (2) Correction of Transaction. (i) Establish the correct value of 
the improperly valued asset for each plan year, starting with the first 
plan year in which the asset was improperly valued. In the case of 
undervalued plan assets, restore to the plan for distribution to the 
affected plan participants, or restore directly to the plan 
participants, the amount by which all affected participants were 
underpaid distributions to which they were entitled under the terms of 
the plan, plus Lost Earnings as described in section 5(b) on the 
underpaid distributions. In the case of overvalued plan assets, restore 
to the plan the amount which exceeded the paid distribution amount to 
which all affected participants were entitled under the terms of the 
plan, plus Lost Earnings as described in section 5(b) on the overpaid 
distributions. File amended Annual Report Forms 5500, as detailed 
below.
    (ii) To correct the valuation defect, a Plan Official must 
determine the FMV of the improperly valued asset per section 5(a) for 
each year in which the asset was valued improperly.
    (iii) Once the FMV has been determined, the participant account 
balances for each year must be adjusted accordingly.
    (iv) The Annual Report Forms 5500 must be amended and refiled for 
(A) the last three plan years or (B) all plan years in which the value 
of the asset was reported improperly, whichever is less.
    (v) The Plan Official or plan administrator must determine who 
received distributions from the plan during the time the asset was 
valued improperly. For distributions that were too low, the amount of 
the underpayment is treated as a Principal Amount for each individual 
who received a distribution. The Principal Amount and Lost Earnings 
must be paid to the affected individuals. For distributions that were 
too high, the total of the overpayments constitutes the Principal 
Amount for the plan. The Principal Amount plus the Lost Earnings, as 
described in section 5(b), must be restored to the plan or to any 
participants who received distributions that were too low.
    (vi) The principles of paragraph (a)(2) of this section are 
illustrated in the following examples:
    Example 1. On December 31, 1995, a profit sharing plan purchased a 
20-acre parcel of real property for $500,000, which represented a 
portion of the plan's assets. The plan has carried the property on its 
books at cost, rather than at FMV. One participant left the company on 
January 1, 1997, and received a distribution, which included the 
participant's portion of the value of the property. The separated 
participant's account balance represented 2% of the plan's assets. As 
part of the correction for the VFC Program, a qualified, independent 
appraiser has determined the FMV of the property for 1996, 1997, and 
1998. The FMV as of December 31, 1996, was $400,000. Therefore, this 
participant was overpaid by $2,000 (($500,000-$400,000) multiplied by 
2%). The Plan Officials corrected the transaction by paying to the plan 
the $2,000 Principal Amount plus Lost Earnings as described in section 
5(b).
    The plan administrator also filed an amended Form 5500 for plan 
years 1996 and 1997, to reflect the proper values. The plan 
administrator will include the correct asset valuation in the 1998 Form 
5500 when that form is filed.
    Example 2. Assume the same facts as in Example 1, except that the 
property had appreciated in value to $600,000 as of December 31, 1996. 
The separated participant would have been underpaid by $2,000. The 
correction consists of locating the participant and distributing to the 
participant the $2,000 Principal Amount plus Lost Earnings as described 
in section 5(b), as well as filing the amended Forms 5500.
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) A copy of the qualified, independent appraiser's report for 
each plan year in which the asset was revalued;
    (ii) A written statement confirming the date that amended Annual 
Report Forms 5500 with correct valuation data were filed;
    (iii) If losses are restored to the plan, proof of payment to the 
plan and copies of the adjusted participant account balances; and
    (iv) If supplemental distributions are made, proof of payment to 
the individuals entitled to receive the supplemental distributions or 
to the plan if paid pursuant to the de minimis exception in section 
5(e).

7.6 Plan Expenses

(a) Duplicative, Excessive, or Unnecessary Compensation Paid by a Plan
    (1) Description of Transaction. A plan used plan assets to pay 
compensation, including commissions or fees, to a service provider 
(such as an attorney, accountant, recordkeeper, actuary, financial 
adviser, or insurance agent), and the compensation was:
    (i) excessive in amount for the services provided to the plan;
    (ii) duplicative, in that a plan paid two or more providers for the 
same service; or
    (iii) unnecessary for the operation of the plan, in that the 
services were not helpful and appropriate in carrying out the purposes 
for which the plan is maintained.
    (2) Correction of Transaction. (i) Restore to the plan the 
Principal Amount, plus the greater of (A) Lost Earnings or (B) 
Restoration of Profits resulting from the use of the Principal Amount, 
as described in section 5(b).
    (ii) (A) For the transactions described in paragraph (a)(1)(i) 
above, the Principal Amount is the difference between (1) the amount of 
compensation paid by the plan to the service provider and (2) the 
reasonable market value of such services.
    (B) For the transactions described in paragraph (a)(1)(ii) above, 
the Principal Amount is the difference between (1) the total amount of 
compensation paid to the service providers and (2) the least amount of 
compensation paid to one of the service providers for the duplicative 
services.
    (C) For the transactions described in paragraph (a)(1)(iii) above, 
the Principal Amount is the amount of compensation paid by the plan to 
the service provider for the unnecessary services.

[[Page 71192]]

    (iii) The principles of paragraph (a)(2) of this section are 
illustrated in the following examples:
    Example 1. Excessive compensation. A plan hired an investment 
adviser who advised the plan's trustees about how to invest the plan's 
entire portfolio. In accordance with the plan document, the trustees 
instructed the adviser to limit the plan's investments to equities and 
bonds. In exchange for the services, the plan paid the investment 
adviser 3% of the value of the portfolio's assets. If the trustees had 
inquired, they would have learned that comparable investment advisers 
charged 1% of the value of the assets for the type of portfolio that 
the plan maintained. To correct the transaction, the plan must be paid 
the Principal Amount of 2% of the value of the plan's assets, plus the 
higher Lost Earnings or Restoration of Profits, as described in section 
5(b).
    Example 2. Unnecessary Compensation. A plan paid a travel agent to 
arrange a fishing trip for the plan's investment adviser as a way of 
rewarding the adviser because the plan's investment return for the year 
exceeded the plan's investment goals by 10%. An internal auditor 
discovered the charge on the plan's record books. To correct the 
transaction, the plan must be paid the Principal Amount, which is the 
total amount paid to the travel agent, plus the higher of Lost Earnings 
or Restoration of Profits as described in section 5(b).
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit the following documents:
    (i) For the transactions described in paragraph (a)(1)(i) above, a 
written estimate of the reasonable market value of the services and the 
estimator's qualifications; and
    (ii) The cost of the services at issue during the period that such 
services were provided to the plan.
(b) Expenses Improperly Paid by a Plan
    (1) Description of Transaction. A plan used plan assets to pay 
expenses, including commissions or fees, which should have been paid by 
the plan sponsor, to a service provider (such as an attorney, 
accountant, recordkeeper, actuary, financial adviser, or insurance 
agent) for:
    (i) services provided in connection with the administration and 
maintenance of the plan (``plan expenses'' \74\) in circumstances where 
a plan provision requires that such plan expenses be paid by the plan 
sponsor, or
---------------------------------------------------------------------------

    \74\ See Advisory Opinion 2001-01A (Jan. 18, 2001).
---------------------------------------------------------------------------

    (ii) services provided in connection with the establishment, 
design, or termination of the plan (``settlor expenses'' \75\), which 
relate to the activities of the plan sponsor in its capacity as 
settlor.
---------------------------------------------------------------------------

    \75\ See id.
---------------------------------------------------------------------------

    (2) Correction of Transaction. (i) Restore to the plan the 
Principal Amount, plus the greater of (A) Lost Earnings or (B) 
Restoration of Profits resulting from the use of the Principal Amount, 
as described in section 5(b).
    (ii) The Principal Amount is the entire amount improperly paid by 
the plan to the service provider for expenses that should have been 
paid by the plan sponsor.
    (iii) The principles of paragraph (b)(2) of this section are 
illustrated in the following example:
    Example. Employer X, the plan sponsor of Plan Y, is considering 
amending its defined contribution plan to add a 5% matching 
contribution. Employer X operates in a competitive industry, and a 
human resources consultant has recommended, among other improvements, 
that Employer X provide a competitive matching contribution to help 
attract and retain a highly qualified workforce. Employer X hired an 
actuary to estimate the cost of providing this matching contribution 
over the next ten years. In exchange for these services, the plan paid 
the actuary $10,000. Several months after the actuary's bill has been 
paid, a Plan Official realizes that one of Employer X's employees 
erroneously paid the bill from the defined contribution plan's assets. 
The bill should have been paid by Employer X because the bill related 
to settlor expenses incurred by Employer X in analyzing whether to add 
a matching contribution to the plan. To correct the transaction, the 
plan must be paid the Principal Amount ($10,000), plus Lost Earnings or 
Restoration of Profits, as described in section 5(b).
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit copies of the plan's accounting records which show 
the date and amount of expenses paid by the plan to the service 
provider.
(c) Payment of Dual Compensation to a Plan Fiduciary
    (1) Description of Transaction. A plan used plan assets to pay 
compensation to a fiduciary for services rendered to the plan when the 
fiduciary already receives full-time pay from an employer or an 
association of employers, whose employees are participants in the plan, 
or from an employee organization whose members are participants in the 
plan. The plan's payments to the plan fiduciary are not reimbursements 
of expenses properly and actually incurred by the fiduciary in the 
performance of their fiduciary duties.
    (2) Correction of Transaction. (i) Restore to the plan the 
Principal Amount, plus the greater of (A) Lost Earnings or (B) 
Restoration of Profits resulting from the fiduciary's use of the 
Principal Amount, as described in section 5(b).
    (ii) The Principal Amount is the amount of compensation paid to the 
fiduciary by the plan.
    (iii) The principles of paragraph (c)(2) of this section are 
illustrated in the following example:
    Example. A union sponsored a health plan funded through 
contributions by employers. The union president receives $50,000 per 
year from the union in compensation for services as union president. 
The president is appointed as a trustee of the health plan while 
retaining the position as union president. In exchange for acting as 
plan trustee, the union president is paid a salary of $200 per week by 
the plan while still receiving the $50,000 salary from the union. Since 
$50,000 is full-time pay, the plan's weekly salary payments are 
improper. To correct the transaction, the plan must be paid the 
Principal Amount, which is the $200 weekly salary amount for each week 
that the salary was paid, plus the higher of Lost Earnings or 
Restoration of Profits, as described in section 5(b).
    (3) Documentation. In addition to the documentation required by 
section 6.1, submit copies of the plan's accounting records which show 
the date and amount of compensation paid by the plan to the identified 
fiduciary.

Appendix A--Sample VFC Program No Action Letter

Applicant (Plan Official)
Address

Dear Applicant (Plan Official):

    Re: VFC Program Application No. xx-xxxxxx

    The Department of Labor, Employee Benefits Security 
Administration (EBSA), administers and enforces Title I of the 
Employee Retirement Income Security Act of 1974 (ERISA). EBSA 
established a Voluntary Fiduciary Correction (VFC) Program to 
encourage the voluntary correction of breaches of fiduciary 
responsibility and the restoration of losses to the plan 
participants and beneficiaries.
    You submitted a VFC Program application identifying the 
following transactions as breaches, or potential breaches, of the 
fiduciary duty provisions in Part 4 of Title I of ERISA. You also 
submitted documentation to EBSA under the VFC Program on the 
corrective action you have taken. Your application was assigned the 
application number indicated above.

[[Page 71193]]

    [Briefly recap the transaction and correction. Example: Failure 
to deposit participant contributions to the XYZ Corp. 401(k) plan 
within the time frames required by ERISA from (date) to (date). All 
participant contributions were deposited by (date) and lost earnings 
on the delinquent contributions were deposited and allocated to 
participants' plan accounts on (date).]
    Based on your representations and the corrective actions taken, 
in accordance with the terms and limitations set forth in the VFC 
Program, EBSA will not recommend that the Solicitor of Labor 
initiate legal action against you, and EBSA will not seek to impose 
civil penalties under section 502(l) or section 502(i) of ERISA with 
respect to the transactions described above.
    EBSA's decision is conditioned on the representations in your 
VFC Program application being complete and accurate. The decision 
does not preclude EBSA from conducting an investigation of any 
potential violations of criminal law in connection with the 
transaction identified in the application or seeking appropriate 
relief from any other person. EBSA's decision is binding on EBSA 
only, and does not bar other governmental agencies, plan 
fiduciaries, participants or beneficiaries, and other interested 
persons from seeking separate or additional remedies.
    [If the transaction is a prohibited transaction for which no 
exemptive relief is available, add the following language: The 
Secretary of Labor is required by section 3003(c) of ERISA, 29 
U.S.C. 1203(c), to transmit to the Secretary of the Treasury 
information indicating that a prohibited transaction has occurred. 
Accordingly, this matter will be referred to the Internal Revenue 
Service.]
    If you have any questions about this letter, you may contact the 
Regional VFC Program Coordinator at (insert applicable address and 
telephone number).

Appendix B--VFC Program Application Checklist (Required)

    Use this checklist to make sure you are submitting a complete 
application. Indicate ``Yes'', ``No'' or ``N/A'' next to each item. 
A ``No'' answer or the failure to include a completed checklist will 
delay review of the application until all required items are 
received. The applicant must sign and date the checklist and include 
it with the application. Check with the relevant Regional Office 
whether it accepts email submissions of VFC Program applications.
__1. Have you reviewed the eligibility, definitions, transaction and 
correction, and documentation sections of the VFC Program?
__2. Have you included the name, address (street or email) and 
telephone number of a contact person familiar with the contents of 
the application?
__3. Have you provided the EIN, Plan Number, and address (street and 
email) of the plan sponsor and plan administrator?
__4. Have you provided the date that the most recent Form 5500 was 
filed by the plan (or for a bulk application as described in section 
4(d), the nine-digit employer identification number for each plan 
sponsor of a named plan)?
__5. Have you enclosed a signed and dated certification under 
penalty of perjury for the plan fiduciary with knowledge of the 
transactions and for each applicant and the applicant's 
representative, if any? In the case of a bulk application, have you 
enclosed a signed and dated certification under penalty of perjury 
for the bulk applicant based on knowledge of the transactions and 
for the bulk applicant's representative, if any?
____6. Have you enclosed relevant portions of the plan document and 
any other pertinent documents (such as the adoption agreement, trust 
agreement, or insurance contract) with the relevant sections 
identified?
__7. If applicable, have you provided written notification to EBSA 
of any current investigation or examination of the plan, or of the 
applicant or plan sponsor in connection with an act or transaction 
directly related to the plan by the PBGC, any state attorney 
general, or any state insurance commissioner?
__8. If applicable (under section 4(b)(2) of the Program), have you 
included the following items?
__a. Contact information for the law enforcement agency notified of 
the criminal activity;
__b. A statement from the applicant asserting no involvement in the 
potential criminal activity; and
__c. A statement as to whether a claim relating to the criminal 
activity has been made under an ERISA section 412 fidelity bond.
__9. Where applicable, have you enclosed a copy of an appraiser's 
report?
__10. Where applicable, have you enclosed a copy of an independent 
fiduciary's approval?
__11. Have you enclosed supporting documentation, including:
__a. A detailed narrative of the Breach, including the date it 
occurred;
__b. Documentation that supports the narrative description of the 
transaction;
__c. An explanation of how the Breach was corrected, by whom and 
when, with supporting documentation;
__d. A list of all persons materially involved in the Breach and its 
correction (e.g., fiduciaries, service providers, borrowers, 
lenders);
__e. Specific calculations demonstrating how Principal Amount and 
Lost Earnings or Restoration of Profits were computed, or, if the 
Online Calculator was used, a copy of the ``Print Viewable Results'' 
page(s) after completing use of the Online Calculator;
__f. Proof of payment of principal amount;
__g. Proof of payment of lost earnings or restoration of profits to 
the plan; and

    Caution: The correction amount and the costs of correction 
cannot be paid from plan assets, including by charges against 
participant accounts or plan forfeiture accounts.

__h. If application concerns delinquent participant contributions or 
loan repayments, a statement from a Plan Official identifying the 
earliest date on which participant contributions/loan repayments 
reasonably could have been segregated from the employer's general 
assets and supporting documentation on which the Plan Official 
relied?
__12. If you are an eligible applicant and wish to avail yourself of 
excise tax relief under the VFC Program Class Exemption:
__a. Have you made proper arrangements to provide within 60 calendar 
days after submission of this application a copy of the VFC Program 
Class Exemption notice to all interested persons and to the EBSA 
Regional Office to which the application is filed; or
__b. If you are relying on the exception to the notice requirement 
in section IV.C. of the VFC Program Class Exemption because the 
amount of the excise tax otherwise due would be less than or equal 
to $100.00, have you provided to the appropriate EBSA Regional 
Office a copy of a completed IRS Form 5330 or other written 
documentation containing the information required by IRS Form 5330 
and proof of payment?
__13. In calculating Lost Earnings, have you elected to use:
__a. The Online Calculator; or
__b. A manual calculation performed in accordance with section 5(b) 
of the VFC Program?
__14. If the application involves payments to participants and 
beneficiaries:
__a. Have you enclosed a description demonstrating proof of payment 
to participants and beneficiaries whose current location is known to 
the plan and/or applicant in accordance with section 5(d) of the VFC 
Program?
__b. For individuals who need to be located, have you demonstrated 
how adequate funds have been segregated to pay missing individuals 
and included a description of the process that you commenced to 
locate missing individuals in accordance with section 5(d)?
__15. For purposes of the three transactions involving participant 
contributions covered under section 7.1, has the plan implemented 
measures to ensure that such transactions do not recur?
Signature of Applicant and Date Signed:
-----------------------------------------------------------------------
Name of Applicant:
-----------------------------------------------------------------------
Title/Relationship to the Plan:
-----------------------------------------------------------------------
Name of Plan, EIN and Plan Number:
-----------------------------------------------------------------------
Contact information: Phone; email
-----------------------------------------------------------------------

Paperwork Reduction Act Notice

    The information identified on this form is required for a valid 
application for the Voluntary Fiduciary Correction Program of the 
U.S. Department of Labor's Employee Benefits Security Administration 
(EBSA). You must complete this form and submit it as part of the 
application in order to receive the relief offered under the Program 
with respect to a breach of fiduciary responsibility under Part 4 of 
Title I of ERISA. EBSA will use this information to determine that 
you have satisfied the requirements of the Program. EBSA estimates 
that completing and submitting this form will require an average of 
2 to 4 minutes. This collection of information is currently approved 
under OMB Control Number 1210-0118. You are not required to respond 
to a collection of information unless it displays a currently valid 
OMB Control Number.

[[Page 71194]]

Appendix C--EBSA Regional Offices

    Submit your VFC Program application to the appropriate EBSA 
Regional Office. Verify current telephone numbers and addresses on 
EBSA's website, www.dol.gov/ebsa/ before you submit your 
application. Check with the relevant Regional Office whether it 
accepts email submissions of VFC Program applications.

Atlanta Regional Office, 61 Forsyth Street SW, Suite 7B54, Atlanta, 
GA 30303, telephone (404) 302-3900, fax (404) 302-3975; 
jurisdiction: Alabama, Florida, Georgia, Mississippi, North 
Carolina, South Carolina, Tennessee, Puerto Rico.
Boston Regional Office, J.F.K. Federal Building, 15 New Sudbury 
Street, Room 575, Boston, MA 02203, telephone (617) 565-9600, fax: 
(617) 565-9666; jurisdiction: Connecticut, Maine, Massachusetts, New 
Hampshire, central and western New York, Rhode Island, Vermont.
Chicago Regional Office, John C. Kluczynski Federal Building, 230 
South Dearborn Street, Suite 2160, Chicago, IL 60604, telephone 
(312) 353-0900, fax (312) 353-1023; jurisdiction: northern Illinois, 
northern Indiana, Wisconsin.
Cincinnati Regional Office, 1885 Dixie Highway, Suite 210, Ft. 
Wright, KY 41011-2664, telephone (859) 578-4680, fax (859) 578-4688; 
jurisdiction: southern Indiana, Kentucky, Michigan, Ohio.
Dallas Regional Office, 525 South Griffin Street, Rm. 900, Dallas, 
TX 75202-5025, telephone (972) 850-4500, fax (214) 767-1055; 
jurisdiction: Arkansas, Louisiana, New Mexico, Oklahoma, Texas.
Kansas City Regional Office, 2300 Main Street, Suite 1100, Kansas 
City, MO 64108, telephone (816) 285-1800, fax (816) 285-1888; 
jurisdiction: Colorado, southern Illinois, Iowa, Kansas, Minnesota, 
Missouri, Montana, Nebraska, North Dakota, South Dakota, Wyoming.
Los Angeles Regional Office, 35 N. Lake Ave., Suite 300, Pasadena, 
CA 91101, telephone (626) 229-1000, fax (626) 229-1098; 
jurisdiction: 10 southern counties of California, Arizona, Hawaii, 
American Samoa, Guam, Wake Island.
New York Regional Office, 201 Varick Street, Room 746, New York, NY 
10014, telephone (212) 607-8600, fax (212) 607-8611; jurisdiction: 
southeastern New York, northern New Jersey.
Philadelphia Regional Office, 1835 Market Street, 21st Floor, 
Mailstop EBSA/21, Philadelphia, PA 19103, telephone (215) 861-5300, 
fax (215) 861-5347; jurisdiction: Delaware, Maryland, southern New 
Jersey, Pennsylvania, Virginia, Washington, DC, West Virginia.
San Francisco Regional Office, 90 7th Street, Suite 11-300, San 
Francisco, CA 94103, telephone (415) 625-2481, fax (415) 625-2450; 
jurisdiction: Alaska, 48 northern counties of California, Idaho, 
Nevada, Oregon, Utah, Washington.

Appendix D --Lost Earnings Example (Manual Calculation)

Delinquent Participant Contributions

    Company A pays its employees every other Friday. Each pay date, 
participant contributions total $10,000, which reasonably can be 
segregated from Company A's general assets by ten business days 
following each pay date. Company A should have remitted participant 
contributions for the pay date ending March 2, 2001 to the plan by 
March 16, 2001, the Loss Date, but actually remitted them on April 
13, 2001, the Recovery Date. In early 2004, a Plan Official 
discovers that participant contributions for this pay period were 
not remitted on a timely basis. To comply with the Program, the Plan 
Official decided to repay all Lost Earnings on January 30, 2004.
Based on the above facts:

 Principal Amount is $10,000
 Loss Date is March 16, 2001
 Recovery Date is April 13, 2001
 Number of Days Late is 28 (Recovery Date less Loss Date)

    The basic formula for computing earnings using the applicable 
factors under IRS Revenue Procedure 95-17 is: Dollar Amount * IRS 
factor
    Step 1. The Plan Official must calculate Lost Earnings, based on 
the Principal Amount, that should have been paid on the Recovery 
Date.
    The first period of time is from March 16, 2001 to March 31, 
2001 (15 days). The Code underpayment rate is 9%. Using Revenue 
Procedure 95-17, the factor for 15 days at 9% is 0.003705021 from 
table 23.

$10,000 * 0.003705021 = $37.05

    The plan is due $10,037.05 as of March 31, 2001. The second 
period of time is April 1, 2001 through April 13, 2001 (13 days). 
The Code underpayment rate is 8%. Using Revenue Procedure 95-17, the 
factor for 13 days at 8% is 0.002853065 from table 21.

    $10,037.05 * 0.002853065 = $28.64

    Therefore, Lost Earnings of $65.69 ($37.05 plus $28.64) must be 
paid to the plan.
    Step 2. If Lost Earnings are paid to the plan after the Recovery 
Date, the Plan Official must calculate the amount of interest on the 
Lost Earnings (determined in Step 1) that must also be paid to the 
plan. This calculation is shown by the following chart: (The 
``Interest'' column is the previous time period's ``Amnt. Due'' 
multiplied by the Factor. ``Amnt. Due'' is the previous ``Amnt. 
Due'' plus ``Interest''. The calculation in the first row is based 
on the $65.69 Lost Earnings.)

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Underpmnt.
                        1st Day                               To         Days       rate      Rev. Proc.      Factor         Interest        Amnt. due
                                                                                  (percent)     table
--------------------------------------------------------------------------------------------------------------------------------------------------------
4/14/01................................................      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 amount of interest on 
$65.69 (Lost Earnings on the Principal Amount) accrued between April 
13, 2001, the Recovery Date, when the Principal Amount $10,000 was 
paid to the plan, and January 30, 2004, the date chosen to repay 
Lost Earnings.
    Therefore, the Plan Official must pay $77.33 to the plan on 
January 30, 2004, as Lost Earnings ($65.69) plus interest on Lost 
Earnings ($11.64) for the pay period ending March 2, 2001, in 
addition to the Principal Amount ($10,000) that was paid on April 
13, 2001. This total corresponds with the final Total Due in the 
above chart (emphasized).

Appendix E--Model Application Form (Optional)

Voluntary Fiduciary Correction Program Application Form

    This application form provides a recommended format for your VFC 
Program application. Please make sure you have attached all 
documents identified on the VFC Program Checklist (for example, 
proof of

[[Page 71195]]

payment). If you choose to use a different format to submit the 
required information for your VFC Program Application, your 
application must still include a completed copy of the VFC Program 
Checklist. Submit your application to the appropriate EBSA Regional 
Office. Check with the relevant Regional Office whether it accepts 
email submissions of VFC Program applications. For full application 
procedures, consult www.dol.gov/ebsa/.

Applicant Name(s) and Address(es) (street and email)

List separately:-------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

List Transaction(s) Corrected

    Check which transaction(s) listed in the VFC Program you have 
corrected:

__Delinquent Participant Contributions and Loan Repayments to 
Pension Plans
__Delinquent Participant Contributions to Insured Welfare Plans
__Delinquent Participant Contributions to Welfare Plan Trusts
__Loan at Fair Market Interest Rate to a Party in Interest
__Loan at Below-Market Interest Rate to a Party in Interest
__Loan at Below-Market Interest Rate to a Non-Party in Interest
__Loan at Below-Market Interest Rate Due to Delay in Perfecting 
Plan's Security Interest
__Loans Failing to Comply with Plan Provisions for Amount, Duration 
or Level Amortization
__Default Loans
__Purchase of an Asset by a Plan from a Party in Interest
__Sale of an Asset by a Plan to a Party in Interest
__Sale and Leaseback of Real Property to Employer
__Purchase of Asset by a Plan from a Non-Party in Interest at More 
Than Fair Market Value
    Sale of an Asset by a Plan to a Non-Party in Interest at Less 
Than Fair Market Value
__Holding of an Illiquid Asset Previously Purchased by a Plan
__Payment of Benefits Without Properly Valuing Plan Assets on Which 
Payment is Based
__Duplicative, Excessive, or Unnecessary Compensation Paid by a Plan
__Expenses Improperly Paid by a Plan
__Payment of Dual Compensation to a Plan Fiduciary

Correction Amount

Principal Amount: $______
    Date Paid _/_/_
Lost Earnings/Restoration of Profit: $______
    Date Paid _/_/_

Narrative and Calculations

    List:
    (1) All persons materially involved in the Breach and its 
correction (e.g., fiduciaries, service providers):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
    (2) An explanation of the Breach, including the date(s) it 
occurred (attach separate sheets if necessary):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
    (3) An explanation of how the Breach was corrected, by whom, and 
when (attach separate sheets if necessary):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
    (4) For a correction of Delinquent Participant Contributions or 
Loan Repayments, provide a statement from a Plan Official 
identifying the earliest date on which participant contributions/
loan repayments reasonably could have been segregated from the 
employer's general assets (attach supporting documentation on which 
Plan Official relied).
    Number of days used to determine the date on which participant 
contributions/loan repayments withheld from employees' pay could 
reasonably have been segregated from the employer's general assets:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
    Description of how this date was determined, including the 
applicant's current contribution and/or repayment remittance 
practices:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

    (5) For a correction of Delinquent Participant Contributions or 
Loan Repayments, provide a narrative describing any changes to the 
applicant's contribution and/or repayment remittance practices after 
the period of unpaid or late contributions and/or repayments, 
including any steps taken to prevent future delinquencies: (attach 
separate sheets if necessary)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
    (6) Specific calculations demonstrating how Principal Amount and 
Lost Earnings or Restoration of Profits were calculated (attach 
separate sheets if necessary): If the Online Calculator was used, 
you only need to indicate this and attach a copy of the ``View 
Printable Results'' page.
__Online Calculator--``View Printable Results'' page attached.
__Manual calculation--see attached calculations, which must follow 
the method used in subparagraphs (i) through (iv) of section 
5(b)(6). See Appendix D for a sample.

Supplemental Information

    (1) Plan Sponsor Name:
-----------------------------------------------------------------------
EIN:-------------------------------------------------------------------
Address:---------------------------------------------------------------
(2)(a) Plan Name:------------------------------------------------------
-----------------------------------------------------------------------
Plan Number:-----------------------------------------------------------
    (2)(b) For Bulk Applicants (attach additional sheets identifying 
this information for each Plan named in the application involved in 
the transaction):
Plan Name:-------------------------------------------------------------
Plan Sponsor EIN or date the most recent Form 5500 was filed:----------
    (3) Plan Administrator Name:
-----------------------------------------------------------------------
EIN:-------------------------------------------------------------------
Address:---------------------------------------------------------------
    (4) Name of Authorized Representative: (Submit written 
authorization signed by the Plan Official.)
Address:---------------------------------------------------------------
Telephone:-------------------------------------------------------------
    (5) Name of Contact Person:
-----------------------------------------------------------------------
Address:---------------------------------------------------------------
Telephone:-------------------------------------------------------------
Email:-----------------------------------------------------------------
    (6) Date of Most Recent Annual Report Form 5500 Filing, if 
applicable: _/_/_ for Plan Year Ending: _/_/_
    (7) Is Applicant Seeking Relief From Excise Tax Under PTE 2002-
51?

__Yes--Either:
    __Submit a copy of the notice to interested parties within 60 
calendar days of this application and indicate date of the notice if 
not on the notice itself; or
    __If you are relying on the exception to the notice requirement 
contained in section IV.C. of PTE 2002-51, provide a copy of a 
completed IRS Form 5330 or other written documentation and proof of 
payment.
__No.

    (8) Proof of Payment:

__Canceled check
__Executed wire transfer
__Signed, dated receipt from the recipient of funds transferred to 
the plan (such as a financial institution)
__Bank statements for the plan's account
__Other:---------------------------------------------------------------

    Caution: The correction amount and the costs of correction 
cannot be paid from plan assets, including by charges against 
participant accounts or plan forfeiture accounts.
    (9) Disclosure of a current investigation or examination of the 
plan by an agency, to comply with section 3(b)(3)(v):

__PBGC
__Any state attorney general
State: ______
__Any state insurance commissioner
State: ______
__Other federal governmental agency:-----------------------------------
__Contact person for the agency identified:----------------------------

    (10) Be sure to include the required VFC Program Application 
Checklist and all other documentation identified as being enclosed. 
The checklist is available at http://www.dol.gov/ebsa/calculator/2006vfcpchecklist.html.
(11) In order to help us improve our service, please indicate how you 
learned about the VFC Program:-----------------------------------------

Authorization of Representative

    I have authorized (insert name of authorized representative) to 
represent me concerning this VFC Program application.
Name of Plan Official
-----------------------------------------------------------------------
Signature of Plan Official

[[Page 71196]]

-----------------------------------------------------------------------
Date-------------------------------------------------------------------

Penalty of Perjury Statement

    The following statement must be signed and dated by a plan 
fiduciary, or bulk applicant, with knowledge of the transaction that 
is the subject of the application and by the authorized 
representative, if any. Each Plan Official applying under the VFC 
Program must also sign and date the statement, which must accompany 
any subsequent additions to the application.
    ``Under penalties of perjury I certify that I am not Under 
Investigation (as defined in section 3(b)(3) of the VFC Program) and 
that I have reviewed this application, including all supporting 
documentation, and to the best of my knowledge and belief the 
contents are true, correct, and complete.''
-----------------------------------------------------------------------
Name and Title
Signature--------------------------------------------------------------
Date-------------------------------------------------------------------
-----------------------------------------------------------------------
Name and Title
Signature--------------------------------------------------------------
Date-------------------------------------------------------------------

Paperwork Reduction Act Notice

    The information identified on this form is required for a valid 
application for the Voluntary Fiduciary Correction Program of the 
U.S. Department of Labor's Employee Benefits Security Administration 
(EBSA). You are not required to use this form; however, you must 
supply the information identified in order to receive the relief 
offered under the Program with respect to a breach of fiduciary 
responsibility under Part 4 of Title I of ERISA. EBSA will use this 
information to determine whether you have satisfied the requirements 
of the Program. EBSA estimates that assembling and submitting this 
information will require an average of 7 hours. This collection of 
information is currently approved under OMB Control Number 1210-
0118. You are not required to respond to a collection of information 
unless it displays a currently valid OMB Control Number.

VFC Program Application Checklist (Required)

    Use this checklist to make sure you are submitting a complete 
application. Indicate ``Yes'', ``No'' or ``N/A'' next to each item. 
A ``No'' answer or the failure to include a completed checklist will 
delay review of the application until all required items are 
received. The applicant must sign and date the checklist and include 
it with the application. Check with the relevant Regional Office 
whether it accepts email submissions of VFCP applications.

__1. Have you reviewed the eligibility, definitions, transaction and 
correction, and documentation sections of the VFC Program?
__2. Have you included the name, address (street or email) and 
telephone number of a contact person familiar with the contents of 
the application?
__3. Have you provided the EIN, Plan Number, and address (street and 
email) of the plan sponsor and plan administrator?
__4. Have you provided the date that the most recent Form 5500 was 
filed by the plan (or for a bulk application as described in section 
4(d), the nine-digit employer identification number for each plan 
sponsor of a named plan)?
__5. Have you enclosed a signed and dated certification under 
penalty of perjury for the plan fiduciary with knowledge of the 
transactions and for each applicant and the applicant's 
representative, if any? In the case of a bulk application, have you 
enclosed a signed and dated certification under penalty of perjury 
for the bulk applicant based on knowledge of the transactions and 
for the bulk applicant's representative, if any?
__6. Have you enclosed relevant portions of the plan document and 
any other pertinent documents (such as the adoption agreement, trust 
agreement, or insurance contract) with the relevant sections 
identified?
__7. If applicable, have you provided written notification to EBSA 
of any current investigation or examination of the plan, or of the 
applicant or plan sponsor in connection with an act or transaction 
directly related to the plan by the PBGC, any state attorney 
general, or any state insurance commissioner?
__8. If applicable (under section 4(b)(2) of the Program), have you 
included the following items?
__a. Contact information for the law enforcement agency notified of 
the criminal activity;
__b. A statement from the applicant asserting no involvement in the 
potential criminal activity; and
__c. A statement as to whether a claim relating to the criminal 
activity has been made under an ERISA section 412 fidelity bond.
__9. Where applicable, have you enclosed a copy of an appraiser's 
report?
__10. Where applicable, have you enclosed a copy of an independent 
fiduciary's approval?
__11. Have you enclosed supporting documentation, including:
__a. A detailed narrative of the Breach, including the date it 
occurred;
__b. Documentation that supports the narrative description of the 
transaction;
__c. An explanation of how the Breach was corrected, by whom and 
when, with supporting documentation;
__d. A list of all persons materially involved in the Breach and its 
correction (e.g., fiduciaries, service providers, borrowers, 
lenders);
__e. Specific calculations demonstrating how Principal Amount and 
Lost Earnings or Restoration of Profits were computed, or, if the 
Online Calculator was used, a copy of the ``Print Viewable Results'' 
page(s) after completing use of the Online Calculator;
__f. Proof of payment of principal amount;
__g. Proof of payment of lost earnings or restoration of profits to 
the plan; and

__Caution: The correction amount and the costs of correction cannot 
be paid from plan assets, including by charges against participant 
accounts or plan forfeiture accounts.

__h. If application concerns delinquent participant contributions or 
loan repayments, a statement from a Plan Official identifying the 
earliest date on which participant contributions/loan repayments 
reasonably could have been segregated from the employer's general 
assets and supporting documentation on which the Plan Official 
relied?
__12. If you are an eligible applicant and wish to avail yourself of 
excise tax relief under the VFC Program Class Exemption:
__a. Have you made proper arrangements to provide within 60 calendar 
days after submission of this application a copy of the VFC Program 
Class Exemption notice to all interested persons and to the EBSA 
Regional Office to which the application is filed; or
__b. If you are relying on the exception to the notice requirement 
in section IV.C. of the VFC Program Class Exemption because the 
amount of the excise tax otherwise due would be less than or equal 
to $100.00, have you provided to the appropriate EBSA Regional 
Office a copy of a completed IRS Form 5330 or other written 
documentation containing the information required by IRS Form 5330 
and proof of payment?
__13. In calculating Lost Earnings, have you elected to use:
__a. The Online Calculator; or
__b. A manual calculation performed in accordance with section 5(b) 
of the VFC Program?
__14. If the application involves payments to participants and 
beneficiaries:
__a. Have you enclosed a description demonstrating proof of payment 
to participants and beneficiaries whose current location is known to 
the plan and/or applicant in accordance with section 5(d) of the VFC 
Program?
__b. For individuals who need to be located, have you demonstrated 
how adequate funds have been segregated to pay missing individuals 
and included a description of the process that you commenced to 
locate missing individuals in accordance with section 5(d)?
__15. For purposes of the three transactions involving participant 
contributions covered under section 7.1, has the plan implemented 
measures to ensure that such transactions do not recur?

Signature of Applicant and Date Signed:
-----------------------------------------------------------------------
Name of Applicant:-----------------------------------------------------
Title/Relationship to the Plan:----------------------------------------
Name of Plan, EIN and Plan Number:-------------------------------------
Contact information: Phone; email--------------------------------------

Paperwork Reduction Act Notice

    The information identified on this form is required for a valid 
application for the Voluntary Fiduciary Correction Program of the 
U.S. Department of Labor's Employee Benefits Security Administration 
(EBSA). You must complete this form and submit it as part of the 
application in order to receive the relief offered under the Program 
with respect to a breach of fiduciary responsibility under Part 4 of 
Title I of ERISA. EBSA will use this information to determine that 
you have satisfied the requirements of the Program. EBSA estimates 
that completing and submitting this form will require an average of 
2 to 4 minutes. This collection of information is currently approved 
under OMB Control Number 1210-0118. You are not required to respond 
to a collection of

[[Page 71197]]

information unless it displays a currently valid OMB Control Number.

Appendix F: SCC Retention Record Checklist

Delinquent Participant Contributions or Loan Repayments

    A self-corrector must complete this checklist, prepare or 
collect the listed documents and provide a copy of the completed 
checklist and the required documentation to the plan administrator 
(generally the plan sponsor/employer) to obtain relief under the 
SCC.

__Did you attach a brief statement explaining why the employer 
retained the participant contributions or loan repayments instead of 
timely forwarding such amounts to the plan (the Breach).
__Did you attach proof of payment, such as canceled checks, executed 
wire transfers, bank statements for the plan's account, or other 
documents showing the actual date the plan received the corrective 
payment(s)? If you paid the total amount of delinquent contributions 
and loan repayments (Principal Amount) separately from the total 
amount of earnings (Lost Earnings) that would have been earned on 
the Principal Amount but for the delinquency, make sure to attach 
proof of payment of both amounts. (Caution--Plan Assets, including 
charges to participant accounts or plan forfeiture accounts, cannot 
be used to pay the correction amount or the costs of correction);
__Did you attach other documents (if any) to support proof of 
payment, such as offsetting overpayments or annotations that provide 
a clear record of the correction?
__Did you attach a copy of the page(s) that results from the ``View 
Printable Results'' function of the Online Calculator? Self-
correctors must use the Online Calculator to determine Lost Earnings 
and print a copy of the ``View Printable Results'' page.
__Did you attach a statement describing policies and procedures (if 
any) that the employer put into place to prevent future 
delinquencies of participant contributions or loan repayments?
__Did you attach a copy of the SCC Notice Acknowledgement and 
Summary page that you received from EBSA after submission of the SCC 
notice?
__Did a plan fiduciary and each plan official seeking relief 
complete the following Penalty of Perjury Statement and provide the 
signed statement to the plan administrator?

    Penalty of Perjury Statement--The following statement must be 
signed and dated by a plan fiduciary with knowledge of the 
transaction that is the subject of the SCC notice and by the 
authorized representative, if any. Each plan official who is seeking 
the relief afforded under the SCC must also sign and date the 
statement, which must be retained by the plan administrator.

    Under penalties of perjury I certify that I am not Under 
Investigation (as defined in VFC Program section 3(b)(3)) and that I 
have reviewed the SCC notice acknowledgement and summary, the 
checklist and all the required documentation, and to the best of my 
knowledge and belief the contents are true, correct, and complete.

Name and Title---------------------------------------------------------
Signature--------------------------------------------------------------
Date-------------------------------------------------------------------
Name and Title---------------------------------------------------------
Signature--------------------------------------------------------------
Date-------------------------------------------------------------------
__Did a plan official complete the following authorization, if an 
authorized preparer was used to submit the SCC notice?

Authorization of Plan Official

I have authorized __________ to submit the VFCP SCC notice.

Name of Plan Official--------------------------------------------------
Signature--------------------------------------------------------------
Date-------------------------------------------------------------------

Paperwork Reduction Act Notice

    The information identified on this form is required for a valid 
use of the Self-Correction Component for Delinquent Participant 
Contributions or Loan Repayments of the Voluntary Fiduciary 
Correction Program of the U.S. Department of Labor's Employee 
Benefits Security Administration (EBSA). You must complete this form 
and provide a copy of the completed checklist and the required 
documentation to the plan administrator to receive the relief under 
the Self-Correction Component of the Program with respect to the 
breach of fiduciary responsibility under Part 4 of Title I of ERISA 
associated with the delinquent participant contributions or loan 
repayments. EBSA may request a copy of this information to determine 
that you have satisfied the requirements of the Self-Correction 
Component of the Program. EBSA estimates assembling this information 
will require an average of 4 hours and completing this form will 
require an average of 2 to 4 minutes. This collection of information 
is currently approved under OMB Control Number 1210-0118. You are 
not required to respond to a collection of information unless it 
displays a currently valid OMB Control Number.

    Signed at Washington, DC, this 7th day of November, 2022.
Lisa M. Gomez
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2022-24703 Filed 11-18-22; 8:45 am]
BILLING CODE 4510-29-P