PLANSPONSOR - May/June 2024 - 39

FIDUCIARY FORUM
Filing a VFC
Application?
What plan sponsors should know in advance
T
he Department of Labor established the Voluntary Fiduciary
Correction Program to allow plan sponsors to self-correct
certain fiduciary violations of the Employee Retirement
Income Security Act that otherwise might result in civil penalties
under the act, as well as under certain excise tax provisions of the
Internal Revenue Code.
There are over 19 categories of prohibited transactions for
which plan sponsors may obtain relief. These categories range
from delinquent participant contributions,
to purchase/sale of assets by plans to/from
parties in interest, to improper payment of
expenses using plan assets.
In 2019, the DOL implemented changes
to the VFCP, which included: 1) additional
transactions eligible for correction; 2) additional
correction methodologies; 3) simplified
methods of calculating corrections; and
4) the development of an online calculator.
When considering whether to file a VFC
of the date EBSA staff contacted the plan, the applicant, or the plan
sponsor. " Note that there must be clear notice provided to the plan,
applicant or plan sponsor to be considered " under investigation. "
Plan fiduciaries should ensure that, prior to filing an appli...
it's important
for sponsors
to understand
what can
application, it's important for sponsors to
understand what can happen if the application
is denied. First of all, it will be denied if
either the DOL finds the application incomplete or unacceptable,
or if the Employee Benefits Security Administration deems it to
contain evidence of a potential criminal violation. In either case,
what this means is the plan and/or plan sponsor can be referred
for investigation, and if the issues set forth in the application are
discovered by the DOL during investigation, civil monetary penalties
under ERISA Sections 502(l) and 502(i), as well as criminal
penalties, if applicable, can be assessed.
Plan fiduciaries should also be aware that plans under
investigation by the DOL are ineligible for self-correction. In
2019, the agency modified the definition of " under investigation, "
based on Section 3(b)(3) of DOL regulations, to mean " if:
(i) EBSA is conducting an investigation of the plan; [or] (ii) EBSA
is conducting an investigation of the potential applicant or plan
sponsor in connection with an act or transaction directly related to
the plan. ... 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, or the plan sponsor in connection
with a participant complaint, unless the participant complaint
concerns the transaction described in the application and the plan
has not received the correction amount due under the Program as
happen if the
application
is denied.
cation, they have not been provided with a notice from EBSA.
We recently assisted with a denied application due to an investigation
that was already pending when the VFC application
was filed. Neither the plan nor plan sponsor were notified of
the investigation prior to the application's
filing, and, the sponsor received no notice
until five months later. EBSA had received
a participant complaint and commenced an
investigation before the filing. The sponsor
was unaware and moved forward with the
VFC application.
Had EBSA contacted the sponsor and/
or plan regarding the investigation-or even
a potential investigation-before the application
was filed, it would have been denied.
Since there was no notice, the VFC application
was accepted pending further information.
The filing of the VFC application did
not stop the investigation, but any issues found during the investigation
that relate to the transaction the sponsor hoped to selfcorrect
will be referred to a VFCP coordinator. This was welcome
news to our sponsor client who had gone to great expense to selfcorrect
and file the VFC application.
Pursuant to VFCP Section 2(b) " ... 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
application and (2) that the corrective action was, in fact, taken. "
The VFCP can be a great tool for sponsors to self-correct prohibited
transactions and avoid being subject to certain civil penalties
under ERISA and/or excise taxes under the IRC. Still, sponsors
must also be aware of the consequences of filing the application
and ensure that the application complies with the requirements.
Summer Conley and Heather Bader are partners in the
Los Angeles office of Faegre Drinker Biddle & Reath LLP.
Both are in the firm's employee benefits and executive
compensation practice group, with Conley serving as the
practice group leader. Bader co-leads the firm's financial
services industry team.
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