Voluntary Fiduciary Correction Program Under the Employee Retirement Income Security Act of 1974, 20262-20285 [06-3674]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 71, Number 75 (Wednesday, April 19, 2006)]
[Notices]
[Pages 20262-20285]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-3674]



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Part III





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. 71, No. 75 / Wednesday, April 19, 2006 / 
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 Updated Voluntary Fiduciary Correction Program.

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SUMMARY: This Notice includes an updated and streamlined version of the 
Voluntary Fiduciary Correction Program (VFC Program or the Program) 
under the Employee Retirement Income Security Act. The VFC Program is 
designed to encourage the voluntary correction of fiduciary violations 
by permitting persons to avoid potential civil actions and civil 
penalties if they take steps to correct identified violations in a 
manner consistent with the Program. The Program included in this Notice 
reflects changes made in response to public comments received on the 
VFC Program modifications implemented in April 2005. The final Program 
includes additional transactions, reduced documentation requirements, a 
simplified application form, a checklist, and availability of an online 
calculator for determining the amount to be restored to plans. These 
changes serve to both encourage and facilitate the use of the Program 
as a means by which to correct covered fiduciary violations.

DATES: The VFC Program contained in this Notice is effective May 19, 
2006.

FOR FURTHER INFORMATION CONTACT:
    For Questions Regarding the VFC Program Amendments: Contact Kristen 
L. Zarenko, Office of Regulations and Interpretations, Employee 
Benefits Security Administration (EBSA), (202) 693-8510.
    For General Questions Regarding the VFC Program: Contact Caroline 
Sullivan, Office of Enforcement, EBSA, (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 7.4(a) 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 (November 25, 2002).
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    In April 2005, EBSA published revisions to the VFC Program (the 
April 2005 VFC Program) \4\ containing, among other amendments, several 
new covered transactions, on which EBSA invited public comment. EBSA 
believed that these revisions, designed to both simplify and expand the 
original Program, were needed to further encourage utilization of the 
Program. EBSA made the April 2005 VFC Program effective upon 
publication to permit use of the simplified processes and new covered 
transactions during the interim period prior to the adoption of final 
changes to the Program. Concurrently, EBSA proposed an amendment to the 
related class exemption, PTE 2002-51,\5\ to accommodate a new 
transaction contained in the April 2005 VFC Program. However, the 
excise tax relief afforded by the amendments to PTE 2002-51 was not 
immediately available and could not be relied upon for relief during 
the interim period.
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    \4\ 70 FR 17516 (April 6, 2005).
    \5\ 70 FR 17476 (April 6, 2005).
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    EBSA received six comment letters in response to the April 2005 VFC 
Program and related class exemption. Copies of these comments are 
posted on EBSA's Web site.\6\
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    \6\ https://www.dol.gov/ebsa/regs/cmt_vfcp.html.
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    After careful consideration of the issues raised by the comment 
letters and input from EBSA Regional Office personnel charged with 
administering the Program, EBSA is adopting final changes to the 
Program (the final VFC Program) in this Notice. EBSA believes these 
modifications will facilitate both the correction of violations of 
ERISA's fiduciary responsibility and prohibited transaction rules and 
the restoration of losses to participants resulting from the Breaches 
(as defined in the VFC Program). The final VFC Program will continue to 
be administered in EBSA Regional Offices. In tandem with today's 
publication of the final VFC Program, EBSA is publishing a final 
amendment to PTE 2002-51 in response to comments received and to 
conform with certain revisions in the final VFC Program. This amendment 
also appears in the Notice section of today's Federal Register.

B. Overview of Changes in the Final VFC Program

    The final VFC Program retains the fundamentals of the original 
Program, adopted in 2002. The original Program was revised on April 6, 
2005 (70 FR 17516), and public comment was solicited. The final VFC 
Program contained in this Notice includes additions to and 
modifications of the April 2005 Program. Set forth below is an overview 
of the changes to the April 2005 Program. To facilitate reference to 
the Program, this Notice includes a restatement of the Program in its 
entirety.

(1) Scope of Relief

    Unlike the earlier versions of the Program, the final Program now 
affords relief from the imposition of potential civil penalties under 
section 502(i) of ERISA when correction is undertaken in accordance 
with the Program. This modification was made to provide more thorough 
and complete relief under the Program. In general, section 502(i) 
permits the Secretary to assess a civil penalty on prohibited 
transactions with respect to welfare plans and nonqualified pension 
plans.

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(2) Covered Transactions

(i) Illiquid Assets--Section 7.4(f)
    The April 2005 Program included a correction for a transaction that 
permits a plan to divest, rather than continue to hold in its 
portfolio, a previously purchased asset that is determined to be 
illiquid, within the meaning of the Program. The Program described 
three scenarios for the plan's acquisition of the asset. Each 
acquisition eventually resulted in the plan holding an illiquid asset, 
for which the applicant must determine that the correction is 
determined to be necessary. One commenter suggested that the 
description of this transaction be expanded to include a fourth 
scenario reflecting the acquisition of an asset from a party in 
interest to which a statutory or administrative exemption applied. EBSA 
has decided to adopt this suggestion and, accordingly, has modified the 
description of the transaction in section 7.4(f) of the final Program. 
The related class exemption has been similarly amended.
(ii) Participant Loans--Section 7.3
    The April 2005 VFC Program added two new categories of transactions 
involving plan loans to participants in section 7.C.1. These 
transactions provided an approved correction method for situations 
where participant loans exceeded the Internal Revenue Code (Code) 
section 72(p) limitations on amount or duration, which were 
incorporated into the plan. The statutory exemption from the prohibited 
transaction provisions for participant loans provided by section 
408(b)(1) of ERISA requires that participant loans are made in 
accordance with plan terms regarding such loans. A violation would 
therefore occur when the section 72(p) loan limitations were exceeded.
    Several comment letters on the April 2005 Program urged expansion 
of the categories of participant loan transactions. One commenter 
suggested including loans violating plan terms that imposed more 
stringent amount and duration limitations than Code section 72(p) 
restrictions. One comment letter requested including loans that were 
granted with inappropriate interest rates. Another commenter suggested 
including situations when loan repayments are not properly withheld 
from participants' wages (``default loans''), but instead are paid to 
the participant. This commenter observed that such withholding failures 
are administrative errors that frequently occur because of a change in 
service provider, for example, following a merger or acquisition. 
Several commenters asserted the necessity for coordination between EBSA 
and the IRS and also requested assurance that the Program's loan 
corrections would be compatible with resolution of the associated 
income tax issues under the Voluntary Correction Program of the IRS'' 
Employee Plans Compliance Resolution System (EPCRS) corrections.
    EBSA believes that the transactions covered by the VFC Program 
should be as congruent as possible with the resolution of the related 
income tax issues. EBSA also believes that correction of participant 
loan issues under the VFC Program should be compatible with 
coordinating changes that EBSA understands will be made in a revision 
to the IRS'' EPCRS, based on informal discussions between EBSA and the 
staffs of the Internal Revenue Service and Treasury Department.
    Accordingly, section 7.3(a) of the final Program has been modified 
to include a category of participant loan transactions for Breaches 
involving level amortization in addition to the transactions previously 
included for amount and duration Breaches. Section 7.3(b) also has been 
revised to include a category of transactions for default loans. The 
final Program's description of the loan transactions in section 7.3 is 
applicable only to plan participants who are parties in interest with 
respect to the plan based solely on their employee status with any 
employer whose employees are covered by the plan.
    To simplify and expedite the correction process, the final VFC 
Program has been modified to require only that an applicant correct 
participant loan violations under the coordinating IRS'' EPCRS 
correction, when published, and then submit a copy of the resulting 
EPCRS compliance statement, along with proof of payment of any required 
amounts, to EBSA. Applicants are not required to submit any other 
documentation under the Program.
(iii) Settlor Expenses--Section 7.6
    The preamble to the April 2005 Program specifically requested 
public input on viable additional transactions and reasonable methods 
of correction for such additional transactions. One commenter suggested 
the future development of transactions if and when additional fiduciary 
errors were identified. A second commenter recommended the addition of 
categories of transactions that might violate specific sections of 
ERISA under 404(a)(1) and 406(b). The recommended categories included 
the payment of expenses with plan assets in violation of ERISA section 
404(a)(1)(A), (B) and (D), the holding of real estate in violation of 
ERISA section 404(a)(1)(C) and the acquisition of plan assets in 
violation of ERISA section 404(a)(1)(D).
    In response to these comments, EBSA has revised the transactions in 
section 7.6 ``Plan Expenses'' to clarify that violations involving the 
use of plan assets to pay expenses that should have been paid by the 
plan sponsor may be corrected under the Program, as described more 
fully below. The related class exemption has also been revised to 
provide excise tax relief for certain plan expense violations corrected 
under the Program.
    Beyond this expansion, however, EBSA believes that the addition of 
general categories of transactions, in contrast with the precisely 
described transactions currently included in the Program, would raise 
questions about the adequacy of the corrections. Program corrections 
depend on facts and circumstances and must be sufficiently uniform to 
obviate all need for negotiation and the consequent triggering of ERISA 
section 502(l) penalties.
    The final Program includes a new section 7.6(b) ``Expenses 
Improperly Paid by a Plan.'' The description of this transaction posits 
that a plan used plan assets to pay expenses, including commissions or 
fees, which should have been paid by the plan sponsor, to a service 
provider for (A) services appropriately characterized as plan expenses, 
which involved the administration and maintenance of the plan, in 
circumstances where a plan provision requires that such plan expenses 
be paid by the plan sponsor, or (B) services appropriately 
characterized as settlor expenses, which relate to the activities of 
the plan sponsor in its capacity as settlor. The correction requires 
that the applicant restore the Principal Amount plus the greater of 
Lost Earnings or Restoration of Profits. For purposes of this 
transaction, the Principal Amount is defined as the entire amount 
improperly paid by the plan to the service provider for expenses that 
should have been paid by the plan sponsor.
    Section 7.6(a) also has been revised and the definition of the 
Principal Amount for each of the described variations of the 
transaction has been clarified. A new example has also been added to 
illustrate a situation where the use of plan assets to pay compensation 
was a Breach because the compensation was for services that were simply 
unnecessary, in that they were not helpful or appropriate in carrying 
out the purposes for which the plan is maintained. Section 7.6(c) 
``Payment of

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Dual Compensation to a Plan Fiduciary'' has not been substantively 
altered in the final Program.

(3) Definitions

(i) Under Investigation
    Several commenters suggested clarifying the changes made to the 
April 2005 Program's definition of ``Under Investigation.'' One 
commenter expressed concern that the current definition, which bars 
applicants if EBSA or any other federal agency is conducting an 
investigation in connection with a plan transaction, might prevent 
Program applications where an investigation has only an indirect impact 
on the plan, such as an employment tax audit resulting in misclassified 
employees. Another commenter suggested that the definition be modified 
to permit applications by financial institutions subject to ongoing 
investigations that are not plan specific, but might arguably 
``involve'' the plan, such as annual examinations by the Federal 
Reserve.
    EBSA has decided to amend the definition to more narrowly focus on 
situations when an investigation, either ongoing or for which notice 
has been given, involves the plan or an act or transaction involving 
the plan. For example, a plan would be ``Under Investigation'' if 
undergoing an Employee Plans examination by the Tax Exempt and 
Government Entities Division of the IRS. For non-criminal 
investigations and examinations of a plan, or of the applicant or plan 
sponsor in connection with an act or transaction directly related to 
the plan, by the Pension Benefit Guaranty Corporation (PBGC) or certain 
state agency officials, EBSA is instituting an optional disclosure 
provision. Potential applicants who choose to disclose such an 
investigation may apply under the final Program, while potential 
applicants who opt for nondisclosure cannot apply because they are 
considered ``Under Investigation.''
    If an applicant discloses the existence of an investigation to EBSA 
in writing when submitting an application, EBSA will promptly notify 
the investigating agency of such application. EBSA's written notice is 
designed to afford the investigating agency an opportunity to provide 
EBSA with information relevant to the investigation or examination. 
EBSA will take suitable action in response to information received from 
the investigating agency and as a result, in appropriate circumstances, 
may decline to issue a no action letter to the applicant.
    If EBSA has completed an investigation resulting in a referral of 
transactions to the IRS, eligibility to participate in the VFC Program 
to correct such transactions is limited. Section 4(c) has been revised 
to clarify that potential applicants continue to be eligible except 
with regard to the specific transactions identified by EBSA in a 
written notice to a plan fiduciary concerning the referral to the IRS.
(ii) Plan Official
    One commenter suggested that the definition of ``Plan Official'' be 
revised to provide that in cases of multiemployer plans or multiple 
employer plans, an application could be made only by the ``plan 
administrator,'' rather than by any contributing or adopting employer. 
EBSA has decided to retain the existing definition of ``Plan 
Official,'' because the current definition provides maximum flexibility 
as to who may apply under the Program to correct violations involving 
multiemployer plans or multiple employer plans. The Program, of course, 
allows the plan administrator of such a plan to apply on behalf of the 
entire plan; any participating employer may apply on its own behalf.

(4) Correction Methodology

(i) Cash Settlement
    One commenter requested that the correction for a plan's purchase 
of an asset from a party in interest under section 7.4(a) be amended to 
allow the plan to retain the asset and settle the correction amount in 
cash if doing so is determined to be in the best interest of 
participants and beneficiaries. The April 2005 Program required that a 
plan's purchase of an asset from a party in interest be corrected by 
selling the asset back to the party in interest, or to a non-party in 
interest. EBSA has decided to modify the correction under the final 
Program to permit the suggested alternative correction. A plan will be 
permitted to retain an asset purchased from a party in interest by 
settling the correction amount in cash, provided an independent 
fiduciary determines that the plan will realize a greater benefit from 
this correction than it would from the resale of the asset. An 
independent fiduciary is not required if the plan sells the asset back 
to the party in interest, because this correction is in essence a 
reversal of the original sale. EBSA believes that the determination to 
resell the asset to the party in interest may be properly determined by 
a plan fiduciary.
    The correction for a plan's sale of an asset to a party in interest 
under section 7.4(b) is also being revised under the final Program. 
Although this correction already permitted both a cash settlement and 
the reversal of the transaction by the plan's repurchase of the asset 
from the party in interest, it is being modified to require a 
determination by an independent fiduciary only in the limited 
circumstances where the plan settles the transaction in cash. The 
related class exemption is being amended for consistency with these 
changes.
(ii) Credit for Voluntary Contributions
    One commenter requested that the correction for delinquent 
participant contributions under section 7.1(a) be modified to permit an 
employer, which failed to timely remit withheld participant 
contributions to a contributory defined benefit plan, to credit any 
employer contribution in excess of amounts legally required by the 
minimum funding standard or bargaining agreements against the Program's 
required Lost Earnings or Restoration of Profits for that same plan 
year. EBSA has decided to retain the existing correction because it 
adequately addresses the Breach. EBSA believes that the proposed 
modification would create uncertainty and contravene sound funding 
policy.
(iii) Transaction Costs
    In the interest of accurate applications and the desire to provide 
timely review by EBSA staff, EBSA wishes to emphasize that the general 
rule for determining the Principal Amount under section 5(b)(2) 
requires, where appropriate, the inclusion of any transaction costs 
associated with entering into the transaction that constitutes the 
Breach in the determination of the Principal Amount.

(5) Program Calculations

(i) Multiple Recovery Dates
    One commenter asked for clarification regarding Program 
transactions that involve more than one correction period and result in 
separate calculations and multiple Recovery Dates. This commenter 
offered as examples: A plan's purchase of securities in a prohibited 
transaction where such securities are sold over time in more than one 
transaction, and the repayment of debt securities over time in 
installments of principal and interest. Corrections under the Program, 
which may involve multiple transactions with different time periods, 
may be corrected by performing the calculations in steps using 
different Recovery Dates. The Online Calculator is generally available

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to perform such calculations; however, if the factual circumstances 
surrounding the correction cannot be accommodated by the Online 
Calculator's functions, a manual calculation may be submitted.
(ii) Lost Earnings Formulation
    One commenter observed that certain language in the original 
Program's formulation of Lost Earnings, which allowed applicants in 
appropriate circumstances to subtract ``actual net earnings or realized 
net appreciation'' or to add ``net loss to the plan as a result of the 
transaction,'' was not included in the April 2005 Program. EBSA 
deliberately eliminated such language from the April 2005 Program in an 
effort to provide more straightforward calculations. The April 2005 
Program was designed to provide simplicity and uniformity in correction 
amount calculations; EBSA eliminated complicated requirements for the 
computation of actual plan earnings, as well as the associated 
additions and subtractions for net gains and losses. Instead, the April 
2005 Program focused on the IRC section 6621 rate in its Lost Earnings 
calculation. The final Program retains this approach.
(iii) Corporate Transactions
    One commenter asked whether the Online Calculator can accommodate 
corporate transactions such as stock splits, tenders, and mergers, or 
if such transactions had to be accounted for manually. EBSA believes 
that is the responsibility of applicants to take into account any 
adjustments necessary because of corporate transactions before entering 
data into the Online Calculator in order to ensure that the results are 
current and correct. In the event the factual circumstances surrounding 
the correction cannot be accommodated by the Online Calculator, 
applicants may submit a manual calculation.

(6) Documentation Requirements

(i) Summary Documentation
    With regard to the correction of delinquent participant 
contributions or loan repayments to pension plans, the April 2005 
Program under section 7.A.1. permitted applicants correcting Breaches 
that involved (A) amounts below $50,000 or (B) amounts greater than 
$50,000 that were remitted within 180 calendar days after receipt by 
the employer to provide summary documentation. EBSA has decided to 
expand the summary documentation requirements to two additional 
transactions involving the delinquent remittance of participant funds.
    Specifically, with regard to the correction of delinquent 
participant contributions to insured welfare plans under section 7.1(b) 
and to welfare plan trusts under section 7.1(c), the final VFC Program 
permits the use of simplified documentation requirements for applicants 
correcting Breaches that involved (A) amounts below $50,000 or (B) 
amounts greater than $50,000 that were remitted within 180 calendar 
days after receipt by the employer. EBSA believes that extending the 
summary documentation requirements to these additional transactions not 
only minimizes the paperwork burden on applicants making smaller 
corrections, but provides consistency among all three transactions in 
section 7.1 of the final Program.
    Applicants who fail to meet the $50,000 and 180 day standards may 
still be eligible to correct transactions involving the delinquent 
remittance of participant funds under the Program, but are simply 
precluded from submitting summary documentation to substantiate their 
applications. It should also be noted that the 180 day standard for 
summary documentation is separate and distinct from the 180 day 
standard for excise tax relief under the related class exemption for 
delinquent participant contributions or loan repayments to pension 
plans; for purposes of the exemption, the 180 day standard applies 
regardless of the amount involved.
(ii) Bonding
    In the April 2005 VFC Program, section 6 was modified to eliminate 
the requirement that applicants provide certain information relating to 
the plan's fidelity bond. This modification was not changed in the 
final VFC Program, but this decision should not be misconstrued as 
eliminating the bonding requirement itself. This change focuses merely 
on streamlining the application process to eliminate documentation of 
the bond, and not on compliance with the substantive bonding 
requirements of ERISA.
(iii) Online Calculator
    One commenter observed that the provisions requiring the submission 
of documents and information in support of calculations in 
circumstances where the Online Calculator is used to perform Program 
calculations were unclear. In response to this comment, EBSA has 
modified section 6(d), ``Detailed Narrative,'' which lists documents 
and information that must be submitted with an application. 
Subparagraph (ii) of section 6(d)(6) clarifies that applicants using 
the Online Calculator for Program calculations only need to submit a 
copy of the final page(s) that results from using the ``Print Viewable 
Results'' function. This function is used after inputting all data 
elements and completing all calculations using the Online Calculator.

(7) EBSA Procedures

(i) Investigations
    One commenter inquired whether EBSA would commence investigations 
related to already filed Program applications if the statute of 
limitations for the transaction described in the application was close 
to expiring. As stated in the preamble to the original Program, EBSA 
generally does not anticipate taking enforcement action in response to 
an application, except where EBSA becomes aware of possible criminal 
behavior, material misrepresentations or omissions, or other abuses of 
the Program. In rare and appropriate circumstances, EBSA will consider 
entering into tolling agreements with applicants, but EBSA is not 
amending the VFC Program to require tolling agreements as a matter of 
course.
(ii) Timing
    One commenter inquired whether relief under the Program remains 
available for transactions covered by a filed application if an 
investigation were to begin after the application is filed, but before 
a no action letter is issued. Relief under the Program is available for 
covered transactions if, at the time the application is filed, the plan 
or applicant is not considered to be ``Under Investigation'' as defined 
in section 3(b)(3) and meets the conditions under section 4 ``VFC 
Program Eligibility.''
(iii) Self Correction Component
    One commenter requested that EBSA expand the VFC Program to include 
a voluntary self correction component within the Program. EBSA has 
decided not to include a formal self correction component. EBSA 
continues to believe that an important result under the Program is the 
certainty that applicants have complied with the terms of the Program 
and have revealed the details of the transaction and the correction 
under penalty of perjury in their applications.

(8) Miscellaneous

(i) Reporting
    One commenter requested that EBSA implement a de minimis filing 
rule under the Program so that applicants would be required to correct 
previously filed Forms 5500 only in circumstances

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where the Breach involved a reasonable and defined threshold of the 
plan's assets. EBSA has declined to adopt this suggestion. EBSA 
believes that when a plan has engaged in a prohibited transaction or 
plan assets have been improperly valued, previously filed Forms 5500 
must be amended to reflect these important reporting items. Applicants 
are directed to the instructions for the Form 5500 to determine their 
reporting obligations.
(ii) Application of Program to Other Plans
    One commenter requested that EBSA provide relief under the Program 
and the related class exemption for breaches involving plans that 
currently are not eligible to participate in the Program.\7\ The 
commenter suggested that it would be administratively convenient if a 
Program applicant, who had caused a number of plans, including plans 
subject only to provisions in the Code, to engage in a violation 
subject to correction under the Program, could correct and receive a no 
action letter with respect to all of the plans. The Department has 
determined that it cannot expand the Program as requested by the 
commenter, as it lacks jurisdiction to issue a no action letter under 
the Program with respect to violations of the Code.
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    \7\ Certain individual retirement accounts and other types of 
plans are regulated solely under the provisions of the Code. 
Compliance with and enforcement of those provisions are not within 
the jurisdiction of the Department of Labor.
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C. De Minimis Excise Tax

    The IRS requested a modification to the requirement in the related 
class exemption that employers notify interested persons in writing of 
transactions corrected under the VFC Program. Specifically, the IRS 
requested that the notice requirement not apply in those instances when 
the excise tax otherwise due under section 4975 of the Code would be 
less than or equal to $100.00. The IRS requested that the amount of the 
excise tax otherwise due be contributed to the plan, and that the 
contribution be allocated to the plan's participants and beneficiaries 
in a manner consistent with the plan's provisions for allocating 
earnings. The Department has adopted this request, which is discussed 
further in the preamble to the amendment to PTE 2002-51 published 
simultaneously with this Notice.

D. Effective Date

    The Department has determined that the relief afforded to 
applicants under the final VFC Program will be available thirty days 
following publication of the final Program in the Federal Register. 
EBSA believes that any further delay for potential applicants in the 
availability of the provisions of the final Program would serve no 
useful purpose. During the thirty day period following publication of 
the final Program, applicants may continue to pursue relief by filing 
applications under either the original VFC Program or the April 2005 
VFC Program. These applications will be processed under the provisions 
of the applicable Program. However, upon expiration of the 30 day 
period following publication of the final Program in the Federal 
Register, both the April 2005 VFC Program and original VFC Program will 
be superseded by the final VFC Program.
    The Department notes that implementation of the final Program does 
not foreclose resolution of fiduciary breaches by other means, 
including entering into settlement agreements with the Department.

E. 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 significant under section 3(f)(4) 
because it raises novel legal or policy issues arising from the 
President's priorities. Accordingly, the Department has assessed the 
costs and benefits of the regulation. OMB has reviewed this regulatory 
action.
    As stated in its previous analysis in the preamble to the April 
2005 Program published in April, 2005, the Department believes that the 
benefits of the VFC Program justify its costs. The Program is designed 
to provide an efficient, cost-effective method for correcting a variety 
of fiduciary Breaches and prohibited transactions and receiving 
Departmental recognition of the correction. The methods of correction 
set out in the Program provide the required conditions for correction, 
which are adequate and protective of the rights of participants and 
beneficiaries. Participation in the Program is voluntary. The 
Department believes that the costs to a plan and its fiduciaries of 
correcting a potential fiduciary Breach through voluntary participation 
in the VFC Program are lower than if correction were imposed in 
connection with a civil action; further, correction of potential 
fiduciary Breaches and prohibited transactions through the Program 
satisfactorily protects the assets of the participating plans.
    The VFC Program imposes costs only when Plan Officials choose to 
use the Program to correct a potential fiduciary Breach. Such costs to 
Plan Officials generally include payment of the correction amount 
required by the Program and preparation and submission of the 
application to the Department. Benefits for Plan Officials who apply 
for relief under the Program include elimination of risks arising from 
an otherwise uncorrected fiduciary Breach, as well as savings of 
resources that otherwise might have been needed to defend against a 
civil action based on the Breach.
    An additional and significant benefit of the VFC Program accrues to 
participants and beneficiaries through the correction of fiduciary 
violations and the restoration to the plan of amounts representing 
losses or improperly generated profits arising from impermissible 
transactions, resulting in greater security of plan assets and future 
benefits.
    The Department expects that the improvements to the final VFC 
Program published today will increase efficiency and accessibility for 
potential applicants. These improvements, described above, include: 
Extending to welfare plans the summary documentation requirements 
permitted for certain delinquent participant contributions to pension 
plans; clarifying the availability of a correction for the improper use 
of plan assets to pay expenses that should have been paid by a plan 
sponsor based on a plan provision or that are properly characterized as 
settlor expenses; expanding the correctable categories of

[[Page 20267]]

defective participant plan loans and simplifying the loan documentation 
requirements; and permitting the use of a cash settlement as a 
correction methodology when a plan decides to retain an improperly 
purchased asset and an independent fiduciary approves such decision.
    The Department has determined that the particular changes made to 
the final Program will reduce costs by reducing the number of hours 
required to make corrections and file applications. The Department has 
also estimated that participation in the Program will continue to rise 
in the future due to a combination of factors, including increases in 
the number and types of correctable transactions and increased public 
familiarity. Although the Department is unable to estimate accurately 
the extent to which the particular changes made in the final Program 
will contribute to this projected increase in participation in the 
Program, the Department is projecting that participation in the Program 
will increase from 985 in fiscal year 2005 to an annual application 
level of 1,250. See discussion below under Paperwork Reduction Act. The 
Department will continue to actively monitor the use of the Program in 
order to better evaluate its strengths and weaknesses.

Paperwork Reduction Act

    The Information Collection Request (ICR) included in the 2002 
edition of the Program and PTE 2002-51 was originally approved by the 
Office of Management and Budget (OMB) under control number 1210-0118. 
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) (PRA 95), the Department submitted the revision to the existing 
ICR attributable to changes made to section 7.A.1(c) of the April 2005 
Program to OMB for review and clearance at the time the April 2005 VFC 
Program was published in the Federal Register (April 6, 2005). At that 
time, the Department solicited public comment on the revision to the 
ICR. No comments were received on the information collection provisions 
contained in the revision to the ICR. OMB approved the revision on 
September 26, 2005, under the same control number, 1210-0118. A copy of 
the ICR, with applicable supporting documentation, may be obtained by 
contacting the Department of Labor, Departmental Clearance Office, Ira 
Mills, at (202) 693-4122. (This is not a toll-free number.) Certain of 
the additional changes being made in the final VFC Program as a result 
of public comment on the April 2005 Program, as described above, will 
cause adjustment of the prior ICR and the estimates of burden. These 
adjustments and their effect on the estimates of the overall paperwork 
burden imposed by the final Program are discussed below.
    The final VFC Program extensively simplifies the documentation 
requirements for correction of certain participant loan and welfare 
plan contribution violations. In the final VFC Program, the Department 
requires voluntary correction of certain participant loans to employees 
under the IRS'' Employee Plans Compliance Resolution System (EPCRS) as 
a prerequisite to application for relief under the Program. Following 
correction under the EPCRS, applicants must only provide the Department 
with a copy of the compliance statement received from the IRS and proof 
of payment of any required correction amounts. No additional 
documentation is required. The Department also simplified the 
documentation requirements for applicants correcting delinquent 
participant contributions to insured welfare plans and welfare plan 
trusts. The April 2005 Program permitted summary documentation, rather 
than detailed payroll and accounting records, in support of 
applications for delinquent participant contributions or loan 
repayments to pension plans; the Department decided to extend these 
reduced requirements for Breaches involving delinquent participant 
contributions to welfare plans that are within certain amount and 
duration thresholds. Finally, the Department clarified that applicants 
using the Online Calculator to perform required calculations are not 
required to submit detailed documentation in support of the 
calculations; rather, they are simply asked to provide a copy of the 
final page(s) that results from using the ``Print Viewable Results'' 
feature of the Online Calculator.
    The ``Fees and Expenses'' category of transactions in the final VFC 
Program has been restructured to clarify that applicants may correct 
Breaches involving the improper use of plan assets to pay plan expenses 
that should have been paid by the plan sponsor based on a plan 
provision or that are properly characterized as settlor expenses. 
Applicants must provide copies of the plan's accounting records showing 
the date and amount of the improperly paid expenses in addition to the 
supporting documentation generally required by the Program.
    As a further change, the final VFC Program permits plans to utilize 
a cash settlement as a correction methodology when a plan decides to 
retain an improperly purchased asset, such as real estate. Plans that 
pursue this type of correction must hire an independent fiduciary to 
determine that the plan will realize a greater benefit from this 
correction than a reversal of the original transaction. If a plan 
chooses this method of correction, its application to the VFC Program 
must include a report of the independent fiduciary's determination 
explaining the basis for his or her conclusion that the plan will 
receive a greater benefit than if the plan had reversed the purchase by 
reselling the asset in accordance with Program requirements.
    The overall paperwork burden of the final VFC Program and the 
amended PTE 2002-51 is estimated as follows. The Department projects an 
increase in the number of respondents from 985 in fiscal year 2005 to 
1,250 annually. For the final VFC Program alone, Plan Officials will 
have to devote 3.5 hours to each application; they will spend an 
additional 1 hour on recordkeeping. Therefore, total burden hours for 
Plan Officials will equal 5,625 hours (4.5 hrs. x 1,250).
    Service providers will need about 2 hours (at $34.50 per hour) for 
their work preparing plans' applications. The total burden cost for 
service providers equates to $86,250 ($34.50 x 2 hrs. x 1,250). 
Factoring in mailing costs of $8 per application ($10,000), the 
complete burden costs for applicants will be $96,250 ($86,250 + 
$10,000).
    In addition to the Program, the Department is publishing an 
amendment to the class exemption PTE 2002-51, which applies only to 
qualifying applicants participating in the final VFC Program. A 
detailed discussion of the economic impact under Executive Order 12866 
and the paperwork burdens under the Paperwork Reduction Act for the 
exemption, together with a table summarizing the relevant numbers, can 
be found in the preamble to the amendment to PTE 2002-51 published 
simultaneously with this Notice in today's Federal Register. In brief, 
the Department calculates that 250 of the applicants to the final VFC 
Program will be covered by the class exemption. The Department has 
determined that service providers will prepare the requisite 
documentation, which will require approximately one hour for completion 
and delivery. The paperwork burden cost of the exemption therefore 
equals $8,625 ($34.50 x 1 hr. x 250). Total mailing costs for the 
paperwork under the exemption will be $4,427. The Department assumes, 
however, that all applicants who send interested party notices will 
send the Department its

[[Page 20268]]

copy of the notice by mail, using certified or overnight delivery 
services and that this copy will be included in the application package 
described above under costs for the VFC Program. The annual mailing 
costs for notices to interested persons and the Department is therefore 
estimated at $4,427. In total, the paperwork burden costs entailed by 
PTE 2002-51, as amended, is $13,052 ($8,625 + $4,427).
    In summary, the categories in the table below encompass the numbers 
for both the final VFC Program and the amended class exemption:
    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: 1,250.
    Frequency of Response: On occasion.
    Responses: 11,790.
    Estimated Total Burden Hours: 5,625.
    Total Annual Cost (Operating and Maintenance): $109,302.
    Persons are not required to respond to the revised information 
collection unless it displays a currently valid OMB control number.

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 final 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.

F. 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 
(February 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
Section 3. Definitions
Section 4. VFC Program Eligibility
Section 5. General Rules for Acceptable Corrections
    (a) Fair Market Value Determinations
    (b) Correction Amount
    (c) Costs of Correction
    (d) Distributions
    (e) De Minimis Exception
Section 6. Application Procedures
Section 7. Description of Eligible Transactions and Corrections 
Under the VFC Program
    7.1 Delinquent Remittance of Participant Funds
    (a) Delinquent Participant Contributions and Participant Loan 
Repayments to Pension Plans
    (b) Delinquent Participant Contributions to Insured Welfare 
Plans
    (c) Delinquent Participant Contributions to Welfare Plan Trusts
    7.2 Loans
    (a) Loan at Fair Market Interest Rate to a Party in Interest 
With Respect to the Plan
    (b) Loan at Below-Market Interest Rate to a Party in Interest 
With Respect to the Plan
    (c) Loan at Below-Market Interest Rate to a Person Who is Not a 
Party in Interest With Respect to the Plan
    (d) Loan at Below-Market Interest Rate Solely Due to a Delay in 
Perfecting the Plan's Security Interest
    7.3 Participant Loans
    (a) Loans Failing to Comply With Plan Provisions for Amount, 
Duration, or Level Amortization
    (b) Default Loans
    7.4 Purchases, Sales and Exchanges
    (a) Purchase of an Asset (Including Real Property) by a Plan 
From a Party in Interest
    (b) Sale of an Asset (Including Real Property) by a Plan to a 
Party in Interest
    (c) Sale and Leaseback of Real Property to Employer
    (d) Purchase of an Asset (Including Real Property) by a Plan 
From a Person Who is Not a Party in Interest With Respect to the 
Plan at a Price More Than Fair Market Value
    (e) Sale of an Asset (Including Real Property) by a Plan to a 
Person Who Is Not a Party in Interest With Respect to the Plan at a 
Price Less Than Fair Market Value
    (f) Holding of an Illiquid Asset Previously Purchased by a Plan
    7.5 Benefits
    (a) Payment of Benefits Without Properly Valuing Plan Assets on 
Which Payment is Based
    7.6 Plan Expenses
    (a) Duplicative, Excessive, or Unnecessary Compensation Paid by 
a Plan
    (b) Expenses Improperly Paid by a Plan
    (c) Payment of Dual Compensation to a Plan Fiduciary
Appendix A. Sample VFC Program No Action Letter
Appendix B. VFC Program Checklist (Required)
Appendix C. List of EBSA Regional Offices
Appendix D. Lost Earnings Example

[[Page 20269]]

Appendix E. Model Application Form (Optional)

Section 1. Purpose and Overview of the VFC Program

    The purpose of the Voluntary Fiduciary Correction Program (VFC 
Program or Program) is to protect the financial security of workers by 
encouraging identification and correction of transactions that violate 
Part 4 of Title I of the Employee Retirement Income Security Act of 
1974, as amended (ERISA). Part 4 of Title I of ERISA sets out the 
responsibilities of employee benefit plan fiduciaries. Section 409 of 
ERISA provides that a fiduciary who breaches any of these 
responsibilities shall be personally liable to make good to the plan 
any losses to the plan resulting from each breach and to restore to the 
plan any profits the fiduciary made through the use of the plan's 
assets. Section 405 of ERISA provides that a fiduciary may be liable, 
under certain circumstances, for a co-fiduciary's breach of his or her 
fiduciary responsibilities. In addition, under certain circumstances, 
there may be liability for knowing participation in a fiduciary breach. 
In order to assist all affected persons in understanding the 
requirements of ERISA and meeting their legal responsibilities, the 
Employee Benefits Security Administration (EBSA) is providing guidance 
on what constitutes adequate correction under Title I of ERISA for the 
breaches described in this Program.

Section 2. Effect of the VFC Program

    (a) In general. EBSA generally will issue to the applicant a no 
action letter \8\ with respect to a breach identified in the 
application if the eligibility requirements of section 4 are satisfied 
and a Plan Official corrects a breach, as defined in section 3, in 
accordance with the requirements of sections 5, 6 and 7. Pursuant to 
the no action letter it issues, EBSA will not initiate a civil 
investigation under Title I of ERISA regarding the applicant's 
responsibility for any transaction described in the no action letter, 
or assess civil penalties under either section 502(l) or 502(i) of 
ERISA on the correction amount paid to the plan or its participants.
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    \8\ See Appendix A.
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    (b) Verification. 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.
    (c) Limits on the effect of the VFC Program. (1) In general. Any no 
action letter issued under the VFC Program is limited to the breach and 
applicants identified therein. Moreover, the method of calculating the 
correction amount described in this Program is only intended to correct 
the specific breach described in the application. Methods of 
calculating losses other than, or in addition to, those set forth in 
the Program may be more appropriate, depending on the facts and 
circumstances, if the transaction violates provisions of ERISA other 
than those that can be corrected under the Program. If a transaction 
gave rise to violations not specifically described in the Program, the 
relief afforded by the Program would not extend to such additional 
violations.
    (2) No implied approval of other matters. A no action letter does 
not imply Departmental approval of matters not included therein, 
including steps that the fiduciaries take to prevent recurrence of the 
breach described in the application and to ensure the plan's future 
compliance with Title I of ERISA.
    (3) Material misrepresentation. Any no action letter issued under 
the VFC Program is conditioned on the truthfulness, completeness and 
accuracy of the statements made in the application and of any 
subsequent oral and written statements or submissions. Any material 
misrepresentations or omissions will void the no action letter, 
retroactive to the date that the letter was issued by EBSA, with 
respect to the transaction that was materially misrepresented.
    (4) Applicant fails to satisfy terms of the VFC Program. If an 
application fails to satisfy the terms of the VFC Program, as 
determined by EBSA, EBSA reserves the right to investigate and take any 
other action with respect to the transaction and/or plan that is the 
subject of the application, including refusing to issue a no action 
letter.
    (5) Criminal investigations not precluded. Participation in the VFC 
Program will not preclude:
    (i) EBSA or any other governmental agency from conducting a 
criminal investigation of the transaction identified in the 
application;
    (ii) EBSA's assistance to such other agency; or
    (iii) EBSA making the appropriate referrals of criminal violations 
as required by section 506(b) of ERISA.\9\
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    \9\ Section 506(b) provides that the Secretary of Labor shall 
have the responsibility and authority to detect and investigate and 
refer, where appropriate, civil and criminal violations related to 
the provisions of Title I of ERISA and other related Federal laws, 
including the detection, investigation, and appropriate referrals of 
related violations of Title 18 of the United States Code.
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    (6) Other actions not precluded. Compliance with the terms of the 
VFC Program will not preclude EBSA from taking any of the following 
actions:
    (i) Seeking removal from positions of responsibility with respect 
to a plan or other non-monetary injunctive relief against any person 
responsible for the transaction at issue;
    (ii) Referring information regarding the transaction to the 
Internal Revenue Service (IRS) as required by section 3003(c) of ERISA; 
\10\ or
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    \10\ Section 3003(c) provides that, whenever the Secretary of 
Labor obtains information indicating that a party in interest or 
disqualified person is violating section 406 of ERISA, she shall 
transmit such information to the Secretary of the Treasury.
---------------------------------------------------------------------------

    (iii) Imposing civil penalties under section 502(c)(2) of ERISA 
based on the failure or refusal to file a timely, complete and accurate 
annual report Form 5500. Applicants should be aware that amended annual 
report filings may be required if possible breaches of ERISA have been 
identified, or if action is taken to correct possible breaches in 
accordance with the VFC Program.
    (7) Not binding on others. The issuance of a no action letter does 
not affect the ability of any other government agency, or any other 
person, to enforce any rights or carry out any authority they may have, 
with respect to matters described in the no action letter.
    (8) Example. A plan fiduciary causes the plan to purchase real 
estate from the plan sponsor under circumstances to which no prohibited 
transaction exemption applies. In connection with this transaction, the 
purchase causes the plan assets to be no longer diversified, in 
violation of ERISA section 404(a)(1)(C). If the application reflects 
full compliance with the requirements of the Program, the Department's 
no action letter would apply to the violation of ERISA section 
406(a)(1)(A), but would not apply to the violation of section 
404(a)(1)(C).
    (d) Correction. The correction criteria listed in the VFC Program 
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 who 
purports to correct a violation. Applicants are advised that the term 
``correction'' as used in the VFC Program is not necessarily the same 
as ``correction'' pursuant to section 4975 of the Internal Revenue Code 
(Code).\11\

[[Page 20270]]

Correction may not be achieved under the Program by engaging in a 
prohibited transaction that is not subject to a prohibited transaction 
administrative exemption.
---------------------------------------------------------------------------

    \11\ See section 4975(f)(5) of the Code; section 141.4975-13 of 
the temporary Treasury Regulations and section 53.4941(e)-1(c) of 
the Treasury Regulations. The IRS has indicated 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 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 for a breach that also 
constitutes an operational plan qualification failure generally will 
constitute correction for purposes of the IRS' Employee Plans 
Compliance Resolution System (EPCRS).
---------------------------------------------------------------------------

    (e) EBSA's authority to investigate. EBSA reserves the right to 
conduct an investigation and take any other enforcement action relating 
to the transaction identified in a VFC Program application in certain 
circumstances, such as prejudice to the Department that may be caused 
by the expiration of the statute of limitations period, material 
misrepresentations or omissions, other abuses of the VFC Program, or 
significant harm to the plan or its participants that is not cured by 
the correction provided under the VFC Program. EBSA may also conduct a 
civil investigation and take any other enforcement action relating to 
matters not covered by the VFC Program application or relating to other 
plans sponsored by the same plan sponsor, while a VFC Program 
application involving the plan or the plan sponsor is pending.
    (f) Confidentiality. EBSA will maintain the confidentiality of any 
documents submitted under the VFC Program, to the extent permitted by 
law. However, as noted in (c)(5) and (6) of this section, EBSA has an 
obligation to make referrals to the IRS and to refer to other agencies 
evidence of criminality and other information for law enforcement 
purposes.

Section 3. Definitions

    (a) The terms used in this document have the same meaning as 
provided in section 3 of ERISA, 29 U.S.C. 1002, unless separately 
defined herein.
    (b) The following definitions apply for purposes of the VFC 
Program:
    (1) Breach. The term ``Breach'' means any transaction that is or 
may be a breach of the fiduciary responsibilities contained in Part 4 
of Title I of ERISA.
    (2) Plan Official. The term ``Plan Official'' means a plan 
fiduciary, plan sponsor, party in interest with respect to a plan, or 
other person who is in a position to correct a Breach.
    (3) Under Investigation. For purposes of section 4(a), a plan or 
potential applicant shall be considered to be ``Under Investigation'' 
if:
    (i) EBSA is conducting an investigation of the plan;
    (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;
    (iii) Any governmental agency is conducting a criminal 
investigation of the plan, or of the potential applicant or plan 
sponsor in connection with an act or transaction directly related to 
the plan;
    (iv) The Tax Exempt and Government Entities Division of the IRS is 
conducting an Employee Plans examination of the plan; or
    (v) The Pension Benefit Guaranty Corporation (PBGC), any state 
attorney general, or any state insurance commissioner is conducting an 
investigation or examination of the plan, or of the applicant or plan 
sponsor in connection with an act or transaction directly related to 
the plan, unless the applicant notifies EBSA, in writing, of such an 
investigation or examination at the time of the application;

and the plan, a Plan Official, or any authorized plan representative 
has received a written or oral notice of an investigation or 
examination described in (i), (ii), (iii), (iv), or (v).
    An applicant notifying EBSA of an investigation or examination 
under section 3(b)(3)(v) must submit t