Q: What is the VFCP?
A: The VFCP, offered through the Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA), is a way to voluntarily correct certain fiduciary breaches (or potential breaches). Only specific types of fiduciary breaches are eligible for relief on the VFCP all of which deal with transactions that raise valuation issues and/or prohibited transaction issues under Title I of ERISA.
Q: Why use the VFCP?
A: Through the VFC program, you can obtain a “no action” letter from the DOL under which the DOL agrees not to initiate a civil investigation under Title I of ERISA regarding your responsibility for any transaction described in the no action letter. In addition, you are relieved of any civil penalties under ERISA §502(l) (which imposes a 20% penalty on the “applicable recovery amount” in a civil action brought by the DOL or in a settlement with the DOL) and the civil penalties under IRC §502(i) for certain prohibited transactions.
Q: What are the requirements to obtain relief through the VFCP?
A: VFCP relief is available through an application process that must meet the following requirements:
- A plan official must apply for relief.
- The eligibility requirements must me be met.
- An application must be filed with the DOL following the process outlined and published by the DOL.
- The application must involve a type of breach that is eligible for VFCP relief.
Q: Who is a “plan official”?
A: A “plan official” is defined as a plan fiduciary, the plan sponsor, a party-in-interest with respect to the plan, or any other person who is in a position to correct a breach (e.g., a non-party-in-interest who engaged in a transaction with a plan fiduciary, and who financially assists the plan fiduciary in completing the corrective action).
Q: What are the eligibility requirements for relief through the VFCP?
A: Neither the plan nor the applicant can be under investigation. In addition, the application may not contain any evidence of potential criminal violations.
Q: What transactions are eligible for correction under the VFCP?
A: The following 18 transactions are eligible for correction under the VFCP:
- Delinquent participant contributions (including 401(k) contributions) and delinquent loan repayments to employee pension benefit plans.
- Delinquent participant contributions to an insured welfare plan.
- Delinquent participant contributions to a welfare plan trust.
- Loan at fair market interest to a party-in-interest.
- Below-market loan to a party-in-interest.
- Below-market loan to a person who is not a party-in-interest.
- Below-market loan solely due to a delay in perfecting a plan’s security interest.
- Participant loans failing to comply with plan provisions for amount, duration, or level amortization.
- Participant loans in default.
- Purchase of an asset (including real property) by the plan from a party-in-interest.
- Sale of an asset (including real property) by the plan to a party-in-interest.
- Sale and leaseback of real property to an employer.
- Purchase by the plan of an asset (including real property) from a person who is not a party-in-interest for a price above fair market value.
- Sale of an asset (including real property) by a plan to a person who is not a party-in-interest for a price below fair market value.
- Holding of an illiquid asset previously purchased by the 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 the plan.
- Payment of dual compensation to a plan fiduciary.
Hall Benefits Law, LLC
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