Voluntary Fiduciary Correction Program Under the Employee Retirement Income Security Act of 1974, 17516-17547 [05-6627]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 70, Number 65 (Wednesday, April 6, 2005)]
[Notices]
[Pages 17516-17547]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-6627]



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Part II





Department of Labor





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Employee Benefits Security Administration



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Voluntary Fiduciary Correction Program Under the Employee Retirement 
Income Security Act of 1974; Notice

Federal Register / Vol. 70, No. 65 / Wednesday, April 6, 2005 / 
Notices

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

RIN 1210-AB03


Voluntary Fiduciary Correction Program Under the Employee 
Retirement Income Security Act of 1974

AGENCY: Employee Benefits Security Administration, DOL.

ACTION: Adoption of amended and restated Voluntary Fiduciary Correction 
Program.

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SUMMARY: This Notice contains an update, which amends and restates the 
Employee Benefits Security Administration's Voluntary Fiduciary 
Correction Program (the VFC Program or Program). The VFC Program 
permits certain persons to avoid potential civil actions and civil 
penalties under the Employee Retirement Income Security Act (ERISA) by 
voluntarily taking steps to correct violations that would ordinarily 
give rise to such actions and penalties. Based on its experience since 
adoption of the VFC Program in March 2002, 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. EBSA is 
inviting comments from interested persons on the revisions to the VFC 
Program described in this document. At the same time, EBSA is making 
the simplified and expanded Program available immediately to those who 
wish to rely on the revisions in seeking VFC Program relief.

DATES: This Notice is effective April 6, 2005.
    Written comments on the Notice should be received by EBSA on or 
before June 6, 2005.

ADDRESSES: Comments on the amendments to the VFC Program (preferably at 
least three copies) should be addressed to the Office of Regulations 
and Interpretations, Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-5669, 200 Constitution Avenue NW., 
Washington, DC 20210, Attn: Voluntary Fiduciary Correction Program. 
Comments also may be submitted electronically to e-ori@dol.gov or to 
https://www.regulations.gov.
    All comments received will be available for public inspection at 
the Public Disclosure Room, N-1513, Employee Benefits Security 
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: For Questions Regarding the VFC 
Program Amendments: Contact Kristen L. Zarenko, Office of Regulations 
and Interpretations, Employee Benefits Security Administration, (202) 
693-8510.
    For General Questions Regarding the VFC Program: Contact Caroline 
Sullivan, Office of Enforcement, Employee Benefits Security 
Administration, (202) 693-8463. (These are not toll-free numbers.)
    For Questions Regarding Specific Applications Under the VFC 
Program: Contact the appropriate EBSA Regional Office listed in 
Appendix C.

SUPPLEMENTARY INFORMATION:

A. Background

    The Voluntary Fiduciary Correction Program was adopted by EBSA of 
the Department of Labor (Department) on a permanent basis in March 2002 
(the original VFC Program).\1\ The VFC Program is designed to encourage 
employers and plan fiduciaries to voluntarily comply with ERISA and 
allows those potentially liable for certain specified fiduciary 
violations under ERISA to voluntarily apply for relief from enforcement 
actions and certain penalties, provided they meet the VFC Program's 
criteria and follow the procedures outlined in the VFC Program. Many 
workers have also benefited from the VFC Program as a result of the 
restoration of plan assets and payment of promised benefits.
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    \1\ 67 FR 15062 (March 28, 2002). 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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    The VFC Program describes: how to apply for relief; the specific 
transactions covered;\2\ acceptable methods for correcting violations; 
and examples of potential violations and corrective actions. Eligible 
applicants that satisfy the terms and conditions of the VFC Program 
receive a ``no-action letter'' from EBSA and are not subject to civil 
monetary penalties. In 2002, the original VFC Program was further 
expanded to include a class exemption (PTE 2002-51) providing excise 
tax relief for four specific VFC Program transactions.\3\
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    \2\ 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.D.1. of the Program. EBSA encourages potential applicants 
to discuss eligibility and similar issues with the appropriate 
regional VFC Program coordinator.
    \3\ PTE 2002-51 published at 67 FR 70623 (Nov. 25, 2002).
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    While the original VFC Program has been very successful in 
encouraging and facilitating the correction of violations of ERISA's 
fiduciary responsibility and prohibited transaction rules, EBSA 
believes, based on its own experience to date, as well as comments from 
employee benefit plan practitioners, that changes to the Program are 
needed to further encourage utilization of the Program. These changes 
will improve administration of the Program by EBSA's Regional Offices 
by which the revised VFC Program will continue to be administered. To 
this end, EBSA is publishing in this Notice an updated and revised VFC 
Program containing several changes (the revised VFC Program), discussed 
below, on which EBSA is inviting public comment. As also discussed 
below, EBSA is making the revised VFC Program effective on publication 
of this Notice in order to enable employers, plan fiduciaries and 
others to avail themselves of the simplified processes and new covered 
transactions during the interim period until the adoption of final 
changes to the Program.
    EBSA also is proposing amendments to PTE 2002-51 to accommodate a 
new transaction contained in the revised VFC Program. These amendments 
also appear in the Notice section of today's Federal Register. It is 
important to note that the excise tax relief afforded by the amendments 
to PTE 2002-51 is not available until such amendments are adopted in 
final form and, therefore, the amendments cannot be relied upon for 
relief during the interim period of the revised Program.

B. Overview of VFC Program Changes

    Except as discussed below, the revised VFC Program, as set forth 
herein, is unchanged from the Program adopted in 2002. The Program is 
set forth in its entirety in this Notice to facilitate both utilization 
and review by interested persons. The following is an overview of 
changes applicable to the revised VFC Program.

1. Model Application Form

    To encourage use of the Program, EBSA is making available a model 
VFC Program application form. This model form is set forth in Appendix 
E of this Notice. EBSA also will be making the model form available to 
the public on its Web site.\4\ While use of the model form

[[Page 17517]]

is wholly voluntary, EBSA encourages applicants to consider using the 
form in order to avoid common application errors that frequently result 
in processing delays or rejections. Moreover, EBSA believes that use of 
the model form will enable the Regional Offices to provide a more 
expedient and consistent review of VFC Program applications.
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    \4\ The model form will be accessible to applicants on EBSA's 
Web site at https://www.dol.gov/ebsa.
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    In brief, the model form provides an outline for applicants of the 
information and supplemental documentation that must be included with 
the application to help ensure that the applications are correct and 
complete. The model form includes the Program's mandatory checklist, 
which is also separately set forth in Appendix B of this Notice. Use of 
the model form, however, is not a substitute for an applicant's careful 
review of Program conditions and requirements. For example, all 
applications must include a completed penalty of perjury statement.

2. Reduced Documentation

    As part of its effort to streamline and simplify the VFC Program, 
EBSA reviewed the supporting documents required to be filed as part of 
the application process. On the basis of this review, EBSA concluded 
that document requirements could be reduced in certain instances 
without compromising EBSA's review of applications. In particular, EBSA 
has made the following changes to the documentation requirements.
    Section 6 of the Program has been revised to eliminate the 
requirement that applicants provide certain information relating to the 
plan's fidelity bond.
    With regard to the correction of delinquent participant 
contributions or loan repayments under Section 7.A.1. of the Program, 
the Program is being revised to permit applicants correcting breaches 
that involve (i) amounts below $50,000, or (ii) amounts greater than 
$50,000 that were remitted within 180 calendar days after receipt by 
the employer to provide summary documentation. EBSA believes that 
introducing more simplified documentation requirements in certain cases 
rather than the detailed information and copies of accounting and 
payroll records required under the original VFC Program will streamline 
the application process, increase the efficiency of EBSA's reviewers, 
and be less burdensome for applicants making smaller corrections. Based 
on EBSA's experience to date, the majority of VFC Program applicants, 
under the revised Program, would be able to avail themselves of this 
reduced documentation requirement.

3. Simplification of Correction Amount

    In the course of EBSA's administration of the VFC Program, a number 
of applicants expressed concern about the complexities attendant to 
calculating amounts required for transaction corrections under the 
Program. In an effort to address applicant concerns and facilitate 
corrections for purposes of the revised Program, EBSA is simplifying 
the definitions of both Lost Earnings and Restoration of Profits set 
forth in Section 5(b) of the Program.\5\ Additionally, EBSA is also 
providing a new Internet tool on its Web site, the Online Calculator, 
to automatically perform Program calculations. Use of the Online 
Calculator is discussed in detail below.
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    \5\ The Department notes that the Program's correction criteria 
represent EBSA enforcement policy with respect to applications under 
the Program and are provided for informational purposes to the 
public, but are not intended to confer enforceable rights on any 
person correcting a violation.
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    The Program has always required that Plan Officials determine the 
correction amount to be restored to the plan based on either the losses 
to the plan resulting from a breach or the profits gained from improper 
use of plan assets, as required by section 409 of ERISA. The correction 
amount generally consists of two components: (1) Principal Amount and 
(2) Lost Earnings or Restoration of Profits. In broad terms, the 
Principal Amount is the amount of plan assets that would have been 
available to the plan if the breach had not occurred. Plan Officials 
must always restore the Principal Amount to the plan.
(a) Lost Earnings Component
    Under the original VFC Program, Plan Officials generally calculated 
Lost Earnings by comparing two hypothetical amounts that a plan might 
have earned on the Principal Amount between the date of the breach (the 
Loss Date) and the date the Principal Amount is restored to the plan 
(the Recovery Date), as well as any interest on such earnings because 
of payment of Lost Earnings after the Recovery Date. The first earnings 
amount assumed that the Principal Amount had been appropriately 
invested under ERISA, while the second assumed that the Principal 
Amount had earned interest at a rate defined in section 6621 of the 
Internal Revenue Code (Code). Utilizing this approach, Plan Officials 
were then required to restore the higher of these two hypothetical 
amounts to the plan.
    In an effort to simplify this component of the correction amount, 
EBSA is revising the method of calculating Lost Earnings and interest, 
if any, to use factors provided under IRS Revenue Procedure 95-17.\6\ 
These factors, which are displayed on EBSA's Web site in a tabular 
format, incorporate daily compounding of an interest rate over a set 
period of time.
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    \6\ Rev. Proc. 95-17, 1995-1 C.B. 556 (Feb. 8, 1995).
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    First, applicants must determine 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 
Loss Date and ending with the Recovery Date. These rates are displayed 
on EBSA's Web site and will be updated when necessary. Second, 
applicants must select the applicable factor(s) under IRS Revenue 
Procedure 95-17 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. Third, applicants multiply 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, this initial 
calculation is complete. However, 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.
    In situations when the Lost Earnings amount is paid to the plan 
after the Recovery Date, applicants must calculate an amount of 
interest that the Lost Earnings would have earned during the time 
period between the Recovery Date and such payment date. This 
calculation also has been simplified to use the factors provided under 
IRS Revenue Procedure 95-17. Applicants must use the same method as in 
calculating Lost Earnings, but referencing the period beginning on the 
Recovery Date and ending with the payment date and applying the first 
applicable factor to Lost Earnings instead of the Principal Amount. 
Under the original Program, the Plan Official would have had to 
calculate and compare two assumed amounts of interest that would have 
been earned if the Lost Earnings amount had been restored to the plan 
on the Recovery

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Date and then pay the greater of these two amounts.
    If the sum of Lost Earnings and any interest on Lost Earnings 
exceeds $100,000, applicants must then re-determine the amount of Lost 
Earnings and any interest on Lost Earnings using the same method 
discussed above, but substituting the applicable underpayment rates 
under section 6621(c)(1) of the Code for the rates previously used 
under section 6621(a)(2). These rates also are displayed on EBSA's Web 
site and will be updated when necessary.
    Applicants either may use the Online Calculator to facilitate the 
calculation of these Lost Earnings amounts, as explained below, or 
perform the calculation manually. In either case, information 
sufficient to verify the correctness of the amounts to be paid to the 
plan must be included as part of the VFC Program application.
(b) Restoration of Profits Component
    In a limited set of circumstances, Plan Officials are required to 
determine Restoration of Profits as a correction amount component. 
Under the original VFC Program, Plan Officials generally calculated 
Restoration of Profits when a breach involved the use of the Principal 
Amount by a fiduciary, plan sponsor or other Plan Official for a 
specific purpose resulting in an actual profit that could be 
determined. Plan Officials were required to compare this actual profit 
to a second amount that assumed that the Principal Amount had earned 
interest at a rate defined in section 6621 of the Code. The higher of 
these two amounts was defined as Restoration of Profits. Plan Officials 
were then required to compare this Restoration of Profits amount to the 
Lost Earnings amount and restore the higher amount to the plan.
    In an effort to simplify this component of the correction amount, 
EBSA is revising the Program to require the calculation of a 
Restoration of Profits amount only when the Principal Amount was used 
by a fiduciary, plan sponsor or other Plan Official for a specific 
purpose such that a profit resulting from the breach is determinable. 
EBSA's experience suggests that more commonly, the Principal Amount is 
commingled with other funds of the plan sponsor or a fiduciary, so that 
a profit from the use of the Principal Amount cannot definitively be 
determined. As a consequence, EBSA anticipates that applicants under 
the revised Program will be using the simplified Lost Earnings 
calculation more frequently than Restoration of Profits.
    Under the revised Program, Restoration of Profits is defined to 
incorporate two amounts: (i) The amount of profit made on the use of 
the Principal Amount, and (ii) if the profit is restored 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 restored to the plan. Under the original Program, Plan Officials 
would have had to calculate and compare two assumed amounts of interest 
and then include the greater of these two amounts in Restoration of 
Profits.
    EBSA is simplifying the determination of Restoration of Profits 
under the revised Program to use factors provided under IRS Revenue 
Procedure 95-17 in calculating the interest amount. First, applicants 
must determine 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. Second, applicants must select 
the applicable factor(s) under IRS Revenue Procedure 95-17 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. Third, 
applicants multiply the profit on the Principal Amount, referred to 
above, by the first applicable factor 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. However, 
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, 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 amount is paid to the plan.
    If the Restoration of Profits amount exceeds $100,000, applicants 
must then recalculate the interest amount for Restoration of Profits 
using the same method discussed above, but substituting the applicable 
underpayment rates under section 6621(c)(1) of the Code for the rates 
previously used under section 6621(a)(2).
    To more easily perform these interest amount calculations, 
applicants may use the Online Calculator. Applicants also may perform 
these calculations manually. In either case, information sufficient to 
verify the correctness of the amounts to be paid to the plan must be 
included as part of the VFC Program application.
    In situations when the Restoration of Profits amount can be 
determined, the revised VFC Program requires the Plan Official to 
restore Restoration of Profits to the plan as a component of the 
correction amount only if Restoration of Profits exceeds the Lost 
Earnings amount plus interest, if any.

4. Online Calculator

    To facilitate use of the Program, EBSA is providing an Online 
Calculator on its Web site, which is an Internet based compliance 
assistance tool that may be used by applicants to automatically 
calculate Lost Earnings and interest, if any, and the interest amount 
for Restoration of Profits. Use of the Online Calculator will provide 
accuracy, ensure consistency and expedite review of applications by 
EBSA. While EBSA anticipates that most applicants will use the Online 
Calculator under the revised Program, applicants also may perform a 
manual calculation, as explained above, using the applicable factors 
under IRS Revenue Procedure 95-17.
    In using the Online Calculator to determine Lost Earnings and 
interest, if any, applicants input four data elements: the (1) 
Principal Amount, (2) Loss Date, and (3) Recovery Date, and if the 
final payment will occur after the Recovery Date, (4) 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 with the amount of Lost 
Earnings and interest, if any, that must be paid to the plan.
    In using the Online Calculator to determine the interest amount for 
Restoration of Profits, applicants input three data elements: (1) The 
amount of profit, (2) the date the amount of profit was realized (i.e. 
received or determined), and (3) 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

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amount on the profit that must be paid to the plan.

5. New Covered Transactions

(a) Illiquid Assets
    On the basis of EBSA's review of the VFC Program, EBSA believes it 
is appropriate to revise the Program to include a correction of a 
transaction that permits the plan to divest, rather than continuing to 
hold in its portfolio, a previously purchased asset that is currently 
classified as illiquid. This new transaction is described in Section 
7.D.6. of the revised Program.
    Specifically, the new transaction covers circumstances where a plan 
is holding an illiquid asset and a plan fiduciary has determined that 
continued holding of such asset is not in the best interest of the plan 
or the plan's participants and beneficiaries, and following reasonable 
efforts to dispose of the asset, the only available purchaser is a 
party in interest. The revised Program describes three scenarios for 
the plan's acquisition of the illiquid asset, each of which results in 
the plan's holding of the illiquid asset, for which the correction is 
determined to be necessary. In the first scenario, the plan purchases 
an asset at a price not greater than fair market value at that time, 
but because the acquisition was from a related party, it was 
nonetheless a prohibited transaction. In the second scenario, the plan 
purchases an asset from an unrelated third party in an acquisition that 
was not a prohibited transaction under ERISA, but the plan fiduciary 
failed to appropriately discharge his or her fiduciary duties with 
respect to the purchase. For example, the fiduciary's purchase of a 
limited partnership interest from an unrelated third party was 
imprudent and inconsistent with the objectives contained in the plan's 
investment guidelines. In the third scenario, the plan purchases an 
asset from an unrelated third party in an acquisition that was not a 
prohibited transaction under ERISA, and the plan fiduciary 
appropriately discharged his or her fiduciary duties with respect to 
the purchase.
    Subsequent to an acquisition pursuant to one of the foregoing 
scenarios, the plan fiduciary concludes that the continued holding of 
the asset is not in the interest of the plan. To correct the 
transaction, the revised VFC Program requires the fiduciary to classify 
the asset as illiquid by making the following determinations: (1) That 
the asset has failed to appreciate, failed to provide a reasonable rate 
of return or has caused a loss to the plan; (2) that the sale of the 
asset is in the best interest of the plan; and (3) following reasonable 
efforts to sell the asset to a non-party in interest, that the asset 
cannot immediately be sold for its original purchase price, or its 
current fair market value, if greater. Illiquid assets, among other 
things, could include restricted and thinly traded stock, limited 
partnership interests, real estate and collectibles.
    The required correction permits the sale of the illiquid asset to a 
party in interest, provided the plan is returned to a financial 
position that is no worse than if the acquisition had never taken 
place. Accordingly, a plan must receive the higher of the fair market 
value of the asset on the date of the correction or its original 
purchase price, plus incidental costs. For purposes of the Class 
Exemption, corrective relief would, upon adoption of the amendments, 
extend to both the acquisition of the asset by the plan, if that 
acquisition would otherwise have been a prohibited transaction, and the 
disposition of the illiquid asset by sale to a party in interest, which 
would itself be a prohibited transaction but for the exemption.
(b) Participant Loans
    Often plans incorporate in their terms with respect to participant 
loan programs a provision that a participant loan will not exceed the 
limitations set by section 72(p) of the Code.\7\ The statutory 
exemption from the prohibited transaction provisions for participant 
loans provided by section 408(b)(1) of ERISA contains a requirement 
that a participant loan be made in accordance with plan terms regarding 
such loans. A violation of the prohibited transaction provisions of 
ERISA, therefore, would occur when the section 72(p) loan limitations 
are exceeded. According to practitioners, these loan violations 
commonly occur and lack an approved correction method for the fiduciary 
breach involved. EBSA recognizes that plan loans to participants can 
result in prohibited transactions through no fault of the borrowers. 
For example, a data processing system or record-keeping error could 
result in a loan that fails to comply with the plan's written loan 
provisions, and the borrower agrees to the loan terms unaware of the 
error. To facilitate correction of such transactions, EBSA is expanding 
the Program with the addition of two new categories of transactions 
involving plan loans to participants. These transactions are being 
added in Section 7.C.1. and 2. of the revised Program.
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    \7\ See Code section 72(p)(2)(A) and (B).
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    The new transactions describe situations when a plan extends a loan 
(i) to a participant who is a party in interest with respect to the 
plan based solely on his or her status as an employee, and (ii) either 
the amount or duration of the loan exceeds that permitted under the 
applicable plan provisions incorporating the limitations of section 
72(p) of the Code. These loans are prohibited transactions that fail to 
qualify for the statutory exemption in section 408(b)(1) of ERISA 
because the loans were not made in accordance with the specific plan 
loan provisions.
    To correct a loan that exceeded the amount limitation, the Program 
requires the participant to pay back to the plan the excess amount of 
the loan. For example, if on the date the loan was made, a participant 
should have received a loan no greater than $5,000, but the participant 
erroneously received a loan for $7,000, then the participant must pay 
$2,000 back to the plan on the date of correction. Then, Plan Officials 
must reform the loan to amortize the remaining principal balance as of 
the date of correction over the remaining duration of the original 
loan, making any required adjustments to the monthly repayment amount. 
Plan Officials otherwise must continue to enforce all other terms of 
the original loan agreement.
    To correct a loan that exceeded the duration limitation, the 
Program requires that Plan Officials reform the duration of the loan to 
complete repayment within the maximum term permitted under the plan 
loan provisions. For example, if a loan should have been for a term of 
five years, but the participant erroneously received a loan with 
scheduled repayments over ten years, Plan Officials must reform the 
loan. The reformed loan must be paid back within five years from the 
date of loan origination, and Plan Officials must make any necessary 
changes to the monthly repayment amount. If more than five years has 
passed since the date of loan origination, then this correction is not 
available. Plan Officials otherwise must continue to enforce all other 
terms of the original loan agreement.
    EBSA is aware that these plan loan transactions also have tax 
consequences; they require income tax reporting as a deemed 
distribution by the plan fiduciaries, which triggers income tax 
liabilities for participants. Informal discussion between EBSA and the 
staffs of the Internal Revenue Service (IRS) and Treasury Department 
have confirmed their intent to develop a coordinating Employee Plans

[[Page 17520]]

Compliance Resolution System \8\ (EPCRS) correction for these plan loan 
transactions under which certain tax consequences may be alleviated.
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    \8\ Rev. Proc. 2003-44, 2003-1 C.B. 1051.
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(c) Delinquent Participant Loan Repayments
    Subsequent to the publication of the original VFC Program, EBSA 
issued Advisory Opinion 2002-02A (May 17, 2002) relating to the time 
frames for repayment of participants' loans to pension plans. The 
Department then issued guidance in a question and answer format under 
the VFC Program stating that applicants could correct the failure to 
forward participant loan repayments to a plan in a timely fashion under 
the Program in the manner set forth in this Advisory Opinion. In 
conjunction with this guidance, the Department included, in its final 
class exemption providing relief for certain transactions described in 
the Program,\9\ explicit language to cover the failure to transmit 
participant loan repayments to a pension plan within a reasonable time 
after withholding or receipt by the employer. Consistent with the 
Department's prior guidance,\10\ EBSA is expanding the Program to 
explicitly include delinquent participant loan repayments as an 
eligible transaction in Section 7.A.1. of the Program.
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    \9\ See infra 1.
    \10\ See also Preamble to the final participant contribution 
regulation, 29 CFR 2510.3-102, published at 61 FR 41220, 41226 (Aug. 
7, 1996).
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6. Other Changes

    In addition to the revisions described above, EBSA is making the 
following changes in an effort to further refine the scope of the 
Program and facilitate its administration of the Program via the 
Regional Offices.
(a) Scope of the Term ``Under Investigation''
    Eligibility to participate in the revised Program pursuant to 
Section 4 (VFC Program Eligibility), paragraph (a), is conditioned on 
neither the plan nor the applicant being ``Under Investigation.'' For 
purposes of the revised VFC Program, EBSA has changed the definition of 
``Under Investigation'' in Section 3(b)(3). Upon review of the prior 
definition, EBSA concluded that in some respects the definition was too 
broad and in other respects too narrow. For example, the original VFC 
Program provided that a person would be considered ``Under 
Investigation'' only if he or she were subject to an investigation 
under either section 504 of ERISA by EBSA or any criminal statute 
involving a transaction affecting the plan. EBSA believes that if 
another Federal agency (e.g., IRS, SEC) is conducting an investigation 
involving the plan, applicant or plan fiduciary in connection with an 
act or transaction involving the plan, the acts or transaction at issue 
should be subject to closer scrutiny than might otherwise be the case 
in connection with the VFC Program, which is designed to deal with 
routine correction issues. Accordingly, the definition of ``Under 
Investigation'' includes investigations or examinations by other 
Federal agencies whether of a criminal or civil nature.
    EBSA further modified the ``Under Investigation'' definition to 
include notice of a Federal agency's intent to conduct an 
investigation, recognizing that the parties to the transaction may 
actually be on notice of an agency's intent to conduct an investigation 
well in advance of the beginning of the actual investigation. Again, 
EBSA believes that, while mere contact by an agency official generally 
is insufficient, communications notifying the parties of a Federal 
agency's intent to conduct an investigation or examination should, for 
purposes of eligibility for the VFC Program, be the same as if the 
investigation had started. It should be noted, however, that the plan, 
the applicant or plan sponsor will be considered ``Under 
Investigation'' only if the investigation or examination at issue is in 
connection with an act or transaction involving the plan. For example, 
if a plan sponsor is notified by a Federal agency of an investigation 
of the company regarding a Federal contract, such notification would 
not affect the plan's eligibility to participate in the VFC Program 
because the investigation does not involve the plan or an act or 
transaction involving the plan.
(b) Modification of Penalty of Perjury Statement
    For purposes of the revised VFC Program, EBSA also has modified the 
Penalty of Perjury Statement required by Section 6(g) of the Program. 
This amendment significantly simplifies the statement and more closely 
conforms the required representations to the revised Program's 
eligibility criteria. Under the revised Program, the statement will 
continue to require a declaration that the application and all 
supporting documents, based on knowledge and belief, are true, correct, 
and complete.
(c) Requests for Additional Documentation
    For purposes of the revised VFC Program, EBSA has added a provision 
to the Application Procedures set forth in Section 6(j) of the Program, 
Submission of Additional Documentation. This provision is intended to 
make clear that EBSA retains the right to make written requests for any 
supplemental documentation necessary for a complete examination and 
review of the application under the Program. If an applicant fails to 
respond with the requested documentation within the specified time 
period, EBSA may suspend further review of the application and consider 
what, if any, other action may be appropriate with respect to the 
identified violations. EBSA believes that this new provision will 
improve the efficiency of the Program and encourage timely 
communications among Program applicants and EBSA reviewers.

7. Miscellaneous Issues

(a) 502(l) Penalty If Application Is Rejected Or Closed As Incomplete
    If a person files an application under the VFC Program, but the 
corrective action falls short of a complete and acceptable correction, 
EBSA may reject the application and consider appropriate action, 
including assessment of a section 502(l) penalty. However, no section 
502(l) penalty would be imposed on the basis of any amounts restored to 
the plan prior to filing a Program application. The penalty would only 
apply to the additional recovery amount, if any, paid to the plan 
pursuant to a court order or a settlement agreement with the 
Department.
(b) Actions By Parties Other Than the Department
    Full correction under the VFC Program does not preclude any other 
person or governmental agency, including the IRS, from exercising any 
rights it may have with respect to the transactions that are the 
subject of the application. The IRS has indicated to the Department 
that the federal tax treatment of a breach 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 and that, based on its review of the revised Program, 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 constitute correction for purposes of section 4975 and a 
correction under the VFC Program

[[Page 17521]]

for a breach that also constitutes an operational plan qualification 
failure generally will constitute correction for purposes of the IRS's 
EPCRS program.

C. Notice 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 Notice, 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.
    At the same time, the Department has determined that the relief 
afforded by the revised VFC Program should be made available upon 
publication of the revised Program in the Federal Register in order to 
ensure that interested parties may avail themselves of the Program 
changes on the earliest possible date. EBSA does not believe that a 
delay in the implementation of the changes discussed herein would serve 
any useful purpose and is unnecessary, depriving potential applicants 
of the ability to take advantage of the clarified procedures and 
additional transactions included in the revised Program. As with the 
original VFC Program, implementation of the revised Program does not 
foreclose resolution of fiduciary breaches by other means, including 
entering into settlement agreements with the Department. The Department 
expects that the availability of the revised Program will encourage 
fiduciaries, which otherwise might not do so, to correct violations and 
reimburse plan losses. Alternatively, VFC Program applicants may pursue 
relief under the original VFC Program until such time as final changes 
are adopted by the Department.

D. Impact of Program Amendments

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f) of the Executive 
Order, a ``significant regulatory action'' is 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. OMB has 
determined that this action is not a ``significant regulatory action'' 
under Executive Order 12866, section 3(f). Accordingly, an assessment 
of the potential costs and benefits under section 6(a)(3) of that order 
is not required. In order to better inform the public, however, the 
Department has included below a brief analysis of the costs and 
benefits attributable to the updated and revised Program.
    The Department continues to believe that the benefits of the VFC 
Program substantially outweigh its costs, because participation is 
voluntary, the administrative cost of correcting a potential fiduciary 
breach through voluntary participation in the VFC Program is lower than 
the administrative cost of a correction in connection with a civil 
action and civil penalties, and the value and security of the assets of 
the plans participating in the VFC Program are preserved or increased. 
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. Costs to Plan Officials in applying 
under the VFC Program include the expenses related to making a 
correction in accordance with Program conditions, and completing the 
application to be submitted to the Department. Benefits for Plan 
Officials include the reduction of risk and savings of penalties that 
would otherwise be payable on the amount of assets recovered following 
a civil action, in addition to the savings of resources that might have 
been devoted to such a civil action.
    An additional benefit of the VFC Program accrues to participants 
and beneficiaries through the correction of violations and restoration 
of losses or profits that arise from the reversal of impermissible 
transactions, resulting in greater security of plan assets and future 
benefits.
    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 model 
application form, the reduced documentation requirements, 
simplification of the correction amount calculation, including the 
introduction of the Online Calculator and the factors provided under 
IRS Revenue Procedure 95-17, addition of new transaction categories, 
and other clarifying modifications 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 simplification of 
application and procedural requirements, or the potential increase in 
participation that will be associated with these revisions. However, 
based on the Department's experience to date, and comments from 
employee benefit plan practitioners, the availability of the model 
application form, streamlining of documentation requirements, and 
simplification of the correction amount calculation would make the 
Program substantially easier to use. The voluntary model form should 
offer an easily accessible outline for applicants to use in ensuring 
that their applications are complete, which will reduce or eliminate 
common application errors that result in processing delays and 
potential rejections.
    The reduction in the extent of documentation required for 
corrections involving delinquent contributions, in particular, should 
decrease the cost of participation for many Plan Officials because the 
vast majority of applications based on the delinquent remittance of 
participant funds have entailed breaches that involve amounts below 
$50,000, or amounts greater than $50,000 that were repaid within 180 
days. The delinquent remittance of participant contributions is also 
the most common type of violation corrected to date under the VFC 
Program. Where it applies, this reduction is substantial in that it 
permits the submission of summary information rather than the detailed 
accounting records previously required.
    Similarly, the modification of the method of calculating Lost 
Earnings or Restoration of Profits will simplify the correction in two 
significant ways. First, the revision in most cases eliminates the need 
for multiple calculations and a comparison of the two hypothetical 
amounts representing losses based on

[[Page 17522]]

actual rates and losses based on Code section 6621 rates. Second, the 
calculation of correction amounts will be facilitated considerably by 
the availability of the Online Calculator and the factors provided 
under IRS Revenue Procedure 95-17. As explained in detail above, the 
Online Calculator and IRS factors will be simpler, easier to use, and 
lessen the opportunity for errors. As noted, the Online Calculator and 
IRS factors will also facilitate calculations in connection with 
differences in Code section 6621 rates over time applicable to Lost 
Earnings, interest on Lost Earnings and interest for the Restoration of 
Profits. Further, the Online Calculator and IRS factors will facilitate 
these calculations for transactions causing large losses or resulting 
in large restorations where the Code section 6621(c)(1) large corporate 
underpayment rate must be used.
    Again, the Department anticipates that this simplification will 
have a sizeable aggregate effect. This is because the Online Calculator 
is expected to be particularly useful in the correction of violations 
involving the delinquent remittance of participant contributions. Not 
only is this the most common type of violation corrected to date, it is 
also a violation likely to involve multiple Loss Dates, further 
complicating the computation of correction amounts. The revised Program 
does retain flexibility for applicants by permitting manual 
calculations using the IRS factors.
    The Department previously estimated the average administrative cost 
of participation at about $3,000, consisting of about 39 hours of 
purchased professional services and Plan Official time for the 
correction and application. The actual cost is expected to be highly 
variable. However, if the model form, streamlined documentation, and 
simplification of correction amount calculation together served to 
reduce the average application time by eight to ten hours, spread over 
purchased professional services and Plan Officials, the average cost 
per applicant would be reduced to between $2,500 and $2,300. For the 
700 plans estimated to participate in the VFC Program annually, this 
would amount to an aggregate savings of about $400,000 to $500,000 per 
year. This cost contrasts with fiscal year 2004 corrections in 474 
cases restoring over $260 million.
    The Department is unable to estimate the increase in participation 
in the Program that may result from these revisions, largely because 
participation has continued to increase substantially. Participation 
roughly doubled between fiscal years 2003 and 2004. Many factors may 
contribute to this steady increase, such that it is not possible to 
observe a relationship between the administrative cost of participation 
in the Program and the decision to participate. Although the degree to 
which perceived complexities in the Program have discouraged 
participation is unknown, information provided by practitioners 
suggests that these changes will encourage greater participation.
    The inclusion in the Program of new covered transactions, involving 
certain loans to participants, the delinquent remittance of participant 
loan repayments, and the purchases and sales, of illiquid assets as 
determined under the VFC Program, along with the proposed prohibited 
transaction class exemption also published today that relates to the 
purchase and sale of illiquid assets, is also expected to make the 
relief available under the Program accessible to more Plan Officials 
and further increase participation. This assumption is based on both 
feedback from potential applicants, and on the experience of the 
Department in administering the Program. The Department has not 
ascertained a basis for estimating the volume of increased 
participation that might result from these new covered transactions and 
related prohibited transaction class exemption.
    The Department actively monitors the use of the Program, and will 
continue at this time to project annual Program utilization by about 
700 plans until the rate of participation has become more consistent.
    Beyond these administrative impacts, the Department has also 
considered the potential economic impacts of eliminating the 
requirement for the comparison of two hypothetical correction amounts 
for the calculation of correction amounts. Plan Officials were 
previously required to restore the higher of earnings as though the 
principal had been invested appropriately under ERISA, and earnings as 
though the principal had accrued interest at the rates specified in 
Code section 6621. The Department acknowledges that the correction 
amount under the revised Program may in some instances be lower than 
the higher of the former two hypothetical amounts.
    In eliminating dual calculation methods and offering the Online 
Calculator and IRS factors, the Department has attempted to strike a 
reasonable balance between the advantages of simplicity, which may 
include lower administrative costs and a greater likelihood of a timely 
correction, and the potentially greater precision of applying multiple 
rates of return based on the investment alternatives involved. The 
Department welcomes comments on the possible economic consequences of 
the revised provisions relating to the correction amount.

Paperwork Reduction Act

    The Information Collection Request (ICR) included in the 2002 
Program and PTE 2002-51 is currently approved by the Office of 
Management and Budget under control number 1210-0118. This approval is 
scheduled to expire on December 31, 2006. The amendments to the 
original VFC Program described earlier in this preamble may be expected 
to modify burden to some degree. However, with the exception of the 
change in the documentation requirements for the delinquent remittance 
of participant funds, these amendments do not in the Department's view 
constitute a substantive or material modification of the existing ICR. 
Accordingly, the Department has not addressed changes other than those 
made to Section 7.A.1.c. in a submission for the approval of a revision 
to the ICR in connection with these amendments, or with the proposed 
amendments to PTE 2002-51, published separately in this issue of the 
Federal Register.
    As noted, to facilitate applicants' use of the Program, the 
Department has developed an optional model application form (Appendix 
E). Potential applicants and practitioners have strongly encouraged 
EBSA to develop such a form to assist applicants to readily identify 
the Program requirements, and to verify that they have provided all of 
the information and supplementary documentation necessary for a valid 
application. Use of the form may help applicants avoid common errors 
that frequently result in processing delays or rejections.
    Although the model form may reduce burden, it follows the 
requirements set forth in the Program, and would not collect 
information not already required to be provided by an applicant under 
the existing Program. As such, the model application form will provide 
ready access to Program requirements previously set out in the text of 
the Program, and increase certainty about compliance with the 
application requirements, without altering the existing ICR.
    Completion and submission of the checklist (Appendix B) was 
required in the original program, and is revised in only its more user-
friendly format. Elements of the checklist now appear on a separate 
Appendix. It should be noted that the required checklist appears twice 
within the Appendices to the Program.

[[Page 17523]]

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 as the final item in the model 
application for ease of use for those who do choose to use the model 
application.
    The Department has also modified the VFC Program's application 
requirements by clarifying certain terms and representations to be made 
in the application, by describing the process by which the Department 
when necessary may request additional documentation, and eliminating 
previously required information related to the plan's fidelity bond. 
These modifications are also made with intention of making the Program 
easier and more efficient to use, but do not substantively or 
materially alter the existing ICR.
    In the Department's view, the amendments to Section 7.A.1.c. do 
constitute a substantive and material change to the existing ICR 
because they will substantially reduce burden. The revision of the 
currently approved ICR pertains to documentation requirements for 
Delinquent Participant Contributions and Delinquent Participant Loan 
Repayments to Pension Plans. Revised provision 7.A.1.c. eliminates 
under specific circumstances the requirement for the applicant to 
provide accounting and payroll records to document the date and amount 
of each contribution at issue. The Plan Official is relieved from 
providing the more detailed documentation if restored participant 
contributions and/or repayments (exclusive of Lost Earnings) total 
$50,000 or less, or exceed $50,000 and were remitted to the plan within 
180 days from the date such amounts were received by the employer or 
otherwise payable to the participant in cash. This program change is 
intended to reduce the burden of participation in the Program.
    This revision is expected to impact the burden of the currently 
approved information collection because the vast majority of violations 
corrected under the Program involve delinquent participant 
contributions that totaled $50,000 or less, or were remitted within 180 
days. Thus a burden reduction is expected for more than 90% of 
applicants.
    The information collection burden of the VFC Program and related 
PTE 2002-51 is estimated as follows. The estimates include updated 
assumptions for compensation rates and mailing costs, and an increase 
in the number of respondents over the number currently in OMB 
inventory. For each of 700 plans, 8 hours of time of Plan Officials at 
$68 per hour, and 5 hours of service provider time at $83 per hour will 
be required to meet information collection requirements. These 
components account for 5,600 burden hours and $290,500 in burden cost. 
Total burden cost includes $2 in mailing costs, for a total of 
$291,900.
    Assuming as many as one-half of applicants also make use of the 
class exemption when using the Program and that all work is performed 
by service providers, an additional cost burden of $29,000 arises from 
developing required notices to interested persons at $83 per hour, and 
mailing at first class rates for 10% of those notices and the notices 
to the Department, assuming an average of 136 participants per plan. It 
is assumed that the remaining notices are delivered electronically. 
Total cost burden for the information collection provisions of the 
exemption is $30,900. The total cost of the information collection 
provisions of the VFC Program and exemption before this revision is 
$322,800.
    The revision in Section 7.A.1.c is estimated to reduce the hours 
and costs required to comply with the Program's information collection 
request by about one-half. The burden associated with the exemption is 
unchanged.
    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor 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 
95) (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.
    Currently, EBSA is soliciting comments concerning the revision of 
the currently approved information collection request (ICR) included in 
this Amended and Restated Voluntary Fiduciary Correction Program. A 
copy of the ICR may be obtained by contacting the PRA addressee shown 
below.
    The Department has submitted a copy of the revised ICR to OMB in 
accordance with 44 U.S.C. 3507(d) for review of its information 
collections. The Department and OMB are particularly interested in 
comments that:
     Evaluate whether the proposed 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;
     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.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for the 
Employee Benefits Security Administration. Although comments may be 
submitted through June 6, 2005, OMB requests that comments be received 
within 30 days of publication of the Notice of Adoption of Amended and 
Restated Voluntary Fiduciary Correction Program.
    PRA Addressee: Address requests for copies of the ICR to Gerald B. 
Lindrew, Office of Policy and Research, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue, 
NW., Room N-5647, Washington, DC 20210. Telephone (202) 693-8410; Fax: 
(202) 219-5333. These are not toll-free numbers.
    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: 700.
    Frequency of Response: On occasion.
    Responses: 5,810.
    Estimated Total Burden Hours: 1,200 for existing ICR; 3,500 for 
revised ICR.
    Total Annual Cost (Operating and Maintenance): $66,000 for existing 
ICR; $177,600 for revised ICR.
    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.

[[Page 17524]]

Regulatory Flexibility Act

    This document describes an enforcement policy of the Department, 
and is not being issued as a general notice of proposed rulemaking. 
Therefore, the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
does not apply and the Department is not required to either certify 
that the rule will not have a significant economic impact on a 
substantial number of small entities, or conduct a regulatory 
flexibility analysis. However, EBSA considered the potential costs and 
benefits of this action for small plans and the Plan Officials in 
developing the revised Program, and believes that its greater 
simplicity and accessibility will make the Program more useful to small 
employers who wish to avail themselves of the relief offered.

Congressional Review Act

    The VFC Program is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and will be transmitted to the Congress and 
the Comptroller General for review. The Program is not a ``major rule'' 
as that term is defined in 5 U.S.C 804 because it is not likely to 
result in (1) an annual effect on the economy of $100 million or more; 
(2) a major increase in costs or prices for consumers, individual 
industries, or federal, state, or local government agencies, or 
geographic regions; or (3) significant adverse effects on competition, 
employment, investment, productivity, innovation, or on the ability of 
United States-based enterprises to compete with foreign-based 
enterprises in domestic or export markets.

Unfunded Mandates Reform Act

    Pursuant to provisions of the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), this regulatory action does not include any Federal 
mandate that may result in annual expenditures by State, local, or 
tribal governments, or the private sector, of $100 million or more.

E. 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 the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This Program would 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 are not pertinent here, 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 requirements implemented in this Program 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 1-2003, 68 FR 5374 (Feb 3, 
2003). ERISA Sec. 502(a)(2) and (a)(5) also issued under 29 U.S.C. 
1132(a)(2) and (a)(5), ERISA Sec. 506(b) also issued under 29 U.S.C. 
1136(b).

Voluntary Fiduciary Correction Program

Section 1. Purpose and Overview of the VFC Program
Section 2. Effect of the VFC Program
Sectio