Operating and administrating an employee benefit plan and program requires a lot of attention in order to comply with the complex rules of the Employee Retirement Income Security Act (“ERISA”). However, even the best efforts and controls do not always eliminate the potential for errors to occur. The Voluntary Fiduciary Correction Program, commonly referred to as the VFCP, is a program that is designed to encourage the voluntary and timely correction of possible fiduciary breaches by allowing the avoidance of potential ERISA civil actions initiated by the Department of Labor and the assessment of civil penalties under ERISA. Any plan fiduciary, plan sponsor, party in interest or other person in a position to correct a breach is eligible for this program as long as the violation is covered under the VFCP and the violation is fully and accurately corrected.
The program covers many different transactions. Some of the most commonly violated transactions that it covers include: delinquent contributions, various transactions with parties in interest, participant loan transactions, improper payment of expenses by the plan and many others.
The correction process is relatively straight-forward and easy to follow:
- Once the violation has been identified, determine if it falls within the transactions covered by the VFCP and follow the process for correcting the violation.
- Repay to the plan the principal amount along with any lost earnings.
- Pay any expenses associated with correcting the transaction such as appraisal costs, fees for recalculating participant accounts.
- Make any distributions required to former employees or beneficiaries.
- File an application with the EBSA office with all required supporting documentation. (The VFCP provides a model application. This model application is not required to be used, but it is highly encouraged by the EBSA.)
The documentation required includes the following:
- Copy of relevant portions of plan documents
- Documents supporting transactions and applicable corrections
- Documentation of lost earnings
- Documentation of restored profits
- Proof of payment of required amounts
- Signed checklist
- Penalty-of-perjury statement
The purpose of all these steps is to ensure that the plan, the participants and beneficiaries are all restored to the condition they would have been in had the violation not occurred. Following this program is the best way to help avoid any additional penalties or taxes associated with not adhering to ERISA.
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