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Voluntary Fiduciary Correction Program

**U.S. Department of Labor      Employee Benefits Security Administration      May 2006 **

On April 19, 2006, the Department of Labor published in      the Federal Register       a 2006 Update of the Voluntary Fiduciary Correction Program (VFCP), which      simplified and expanded the original VFCP published in 2002. The VFCP is      designed to encourage employers to voluntarily comply with the Employee      Retirement Income Security Act (ERISA) by self-correcting certain      violations of the law. Many workers can benefit from the VFCP as a result      of the increased retirement security associated with restoration of plan      assets and payment of additional benefits. It also will help plan      officials understand the law. The 2006 Update of the VFCP describes how to      apply, the 19 categories of transactions covered, acceptable methods for      correcting violations, and examples of potential violations and corrective      actions. The Department issued the Update in response to public and      internal comments on the preliminary revision of the VFCP published in      April 2005. The 2006 Update of the VFCP was effective May 19, 2006.

The Department also provides applicants conditional      relief from payment of excise taxes for certain VFCP transactions under a      class exemption related to the VFCP, which is discussed in more detail      below. The amended class exemption was also effective on May      19, 2006.

**Who Is Eligible**

Anyone who may be liable for fiduciary violations under      ERISA, including employee benefit plan sponsors, officials, and parties in      interest, may voluntarily apply for relief from enforcement actions,      provided they comply with the criteria and satisfy the procedures outlined      in the VFCP.

**VFCP Criteria**

Persons using the VFCP must fully and accurately      correct violations. Incomplete or unacceptable applications may be      rejected. If rejected, applicants may be subject to enforcement action,      including assessment of civil monetary penalties under Sections 502(l) and      502(i) of ERISA.

**How To Apply**

Applicants do not need to consult or negotiate with      EBSA to use the VFCP. They merely need to follow the procedures outlined      in the notice published in the April 19, 2006, Federal Register.      Violations can be fully and correctly resolved in four easy steps:
-  Identify any violations and          determine whether they fall within the transactions covered by the          VFCP;
-  Follow the process for correcting          specific violations (e.g., improper loans or incorrect valuation of          plan assets);
-  Calculate and restore any losses or          profits with interest, if applicable, and distribute any supplemental          benefits to participants; and
-  File an application with the          appropriate EBSA regional office that includes documentation showing          evidence of corrective action taken.

**Covered Transactions**

The VFCP provides descriptions of 19 categories of      transactions and their methods of correction. Corrective remedies are      prescribed for the following fiduciary violations involving employee      benefit plans:
-  Delinquent Participant Contributions          and Participant Loan Repayments to Pension Plans
-  Delinquent Participant Contributions          to Insured Welfare Plans
-  Delinquent Participant Contributions          to Welfare Plan Trusts
-  Fair Market Interest Rate Loans With          Parties in Interest
-  Below Market Interest Rate Loans          With Parties in Interest
-  Below Market Interest Rate Loans          With Non-Parties in Interest
-  Below Market Interest Rate Loans Due          to Delay in Perfecting Security Interest
-  Participant Loans Failing to Comply          with Plan Provisions for Amount, Duration, or Level Amortization
-  Defaulted Participant Loans
-  Purchase of Assets by Plans from          Parties in Interest
-  Sale of Assets by Plans to Parties          in Interest
-  Sale and Leaseback of Property to          Sponsoring Employers
-  Purchase of Assets from Non-Parties          in Interest at More Than Fair Market Value
-  Sale of Assets to Non-Parties in          Interest at Less Than Fair Market Value
-  Holding of an Illiquid Asset          Previously Purchased by Plan
-  Benefit Payments Based on Improper          Valuation of Plan Assets
-  Payment of Duplicate, Excessive, or          Unnecessary Compensation
-  Improper Payment of Expenses by Plan
-  Payment of Dual Compensation to Plan          Fiduciaries

**Acceptable Corrections**

The VFCP provides rules for making acceptable      corrections involving the transactions listed above. Applicants generally      must:
-  Conduct valuations of plan assets          using generally recognized markets for the assets or obtain written          appraisal reports from qualified professionals that are based on          generally accepted appraisal standards;
-  Restore to the plan the principal          amount involved, plus the greater of lost earnings, starting on the          date of the loss and extending to the recovery date, or profits          resulting from the use of the principal amount, starting on the date          of the loss and extending to the date the profit is realized;
-  Pay the expenses associated with          correcting transactions, such as appraisal costs or fees associated          with recalculating participant account balances; and
-  Make supplemental distributions when          appropriate to former employees, beneficiaries, or alternate payees,          and provide proof of the payments.

**VFCP Documentation**

Under the VFCP, applicants must provide supporting      documentation to the appropriate regional office of EBSA. Required      documentation generally includes:
-  Copy of relevant portions of plan          and related documents;
-  Documents supporting transactions,          such as leases and loan documents, and applicable corrections;
-  Documentation of lost earnings          amounts;
-  Documentation of restored profits,          if applicable;
-  Proof of payment of required          amounts;
-  Specific documents required for          relevant transactions, as outlined in Section 7 of the VFCP;
-  Signed checklist; and
-  Penalty of perjury statement.

The VFCP also provides a model application form. While      use of this model application form is entirely voluntary, EBSA encourages      its use to avoid common application errors that frequently result in      processing delays or rejections.

**Restitution To Plans**

Applicants must restore the plan, participants, and      beneficiaries to the condition they would have been in had the breach not      occurred. The VFCP includes an online      calculator to assist applicants by automatically calculating      correction amounts that must be paid to the plan. Plans must then file,      where necessary, amended returns to reflect corrected transactions or      valuations.

Applicants also must provide proof of payment to      participants and beneficiaries, or properly segregate the affected assets      in cases where the plan is unable to identify the location of missing      individuals. Payment of the correction amount may be made directly to the      plan where distributions to separated participants would be less than $20      and the cost of correction exceeds the distributions owed.

**Excise Tax Exemption**

The Department has adopted an amendment      to PTE 2002-51 to expand the relief under the exemption to additional      transactions included in the 2006 Update of the VFCP. The class exemption      provides relief from certain excise tax provisions of the Internal Revenue      Code if the terms of the Program and exemption are met.

Prior to the 2006 amendment, the exemption covered most      transactions involving:
-  Failure to timely remit participant          contributions to plans;
-  Loans made at fair market interest          rate by plans with parties in interest;
-  Purchases or sales of assets between          plans and parties in interest at fair market value;
-  Sales of real property to plans by          employers and leaseback of the property at fair market value and fair          market rental value, respectively.

The amended exemption continues to provide excise tax      relief for these four transactions, and also provides relief for two      additional transactions:
-  Prohibited transaction violations          involved in the purchase of an asset by a plan when the asset has been          determined to be illiquid, and/or the subsequent sale of the illiquid          asset by the plan.;
-  Use of plan assets to pay expenses to a service provider for services          that are characterized as “settlor expenses,” provided such          payments were not expressly prohibited in the plan documents.

Additionally, for de minimis situations involving      delinquent participant contributions and/or the failure to transmit      participant loan repayments, the Department has eliminated the notice      requirement.

Please refer to the class exemption to determine if you      meet all the terms.

**Contacts For Additional Information**

For additional information, VFCP applicants may contact      the appropriate EBSA regional      office at our toll-free number: 866.444.3272 and request the      VFCP coordinator.

This fact sheet has been developed by the U.S. Department of Labor,      Employee Benefits Security Administration, Washington, DC 20210. It will      be made available in alternate formats upon request: Voice phone:      202.693.8664; Text telephone: 202.501.3911. In addition, the information in this fact      sheet constitutes a small entity compliance guide for purposes of the      Small Business Regulatory Enforcement Fairness Act of 1996.    
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