Voluntary Fiduciary Correction Program

Wednesday,
April 19, 2006

Part III

Department of Labor
Employee Benefits Security
Administration

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

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Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices

DEPARTMENT OF LABOR
Employee Benefits Security
Administration
RIN 1210–AB03

Voluntary Fiduciary Correction
Program Under the Employee
Retirement Income Security Act of
1974
Employee Benefits Security
Administration, DOL.
ACTION: Adoption of Updated Voluntary
Fiduciary Correction Program.
AGENCY:

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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

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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.
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
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
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).
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).
4 70 FR 17516 (April 6, 2005).
5 70 FR 17476 (April 6, 2005).

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2002–51 was not immediately available
and could not be relied upon for relief
during the interim period.
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
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.
6 http://www.dol.gov/ebsa/regs/cmt_vfcp.html.

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(2) Covered Transactions

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(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

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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),

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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

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(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
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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 nonparty 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
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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

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(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.

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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

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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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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
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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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

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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

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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

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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

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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.
× 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 × 2 hrs. ×
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 × 1 hr. × 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

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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.

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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
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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 foreignbased 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

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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

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Appendix E. Model Application Form
(Optional)

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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.
(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
8 See

Appendix A.

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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
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
(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
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.
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

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

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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
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).

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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 the name
of the examining agency and a contact
person at such agency. Upon receipt of
an application including such
information, EBSA will promptly notify
the investigating agency in writing of
the VFC Program application. EBSA’s
notice will afford the examining agency
an opportunity to provide EBSA with
information relevant to the investigation
or examination. In response to the
information received from the
investigating agency, EBSA, in its sole
discretion, may decline to issue a no
action letter to the applicant.
For purposes of section 4(a), a plan
shall not be considered to be ‘‘Under
Investigation’’ merely because EBSA
staff has contacted the plan, the
applicant, or the plan sponsor in
connection with a participant
complaint, unless the participant
complaint concerns the transaction
described in the application and the
plan has not received the correction
amount due under the Program as of the
date EBSA staff contacted the plan, the
applicant, or the plan sponsor. A plan
also is not considered to be ‘‘Under
Investigation’’ if the accountant of the
plan is undergoing a work paper review

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by EBSA’s Office of the Chief
Accountant under the authority of
ERISA section 504(a).
Example 1. On March 1 the plan sponsor
of a multiple employer welfare arrangement
(MEWA) received written notification from
an agent of the state insurance
commissioner’s office that the MEWA has
been scheduled for examination. The
applicant does not notify EBSA of the
examination. As of March 1, the plan is
ineligible for participation in the VFC
Program because the plan sponsor has
received a notice from the state insurance
commissioner’s office concerning its intent to
examine the plan, and the applicant did not
provide EBSA written notice of the
examination with the application.
Example 2. Assume the same facts as in
Example 1, except that the applicant chooses
to notify EBSA in writing of the examination.
The plan’s eligibility to apply under the VFC
Program would not be affected because the
applicant provides written notice of the
examination to EBSA with the application.
EBSA will promptly notify the state
insurance commissioner of the pending VFC
Program application so that the state
insurance commissioner’s office has an
opportunity to provide information about its
examination to EBSA. EBSA will include the
information received from the state insurance
commissioner’s office in its review of the
VFC Program application.

Section 4. VFC Program Eligibility
Eligibility for the VFC Program is
conditioned on the following:
(a) Neither the plan nor the applicant
is Under Investigation.
(b) The application contains no
evidence of potential criminal violations
as determined by EBSA.
(c) EBSA has not conducted an
investigation which resulted in written
notice to a plan fiduciary that the
transaction, for which the potential
applicant could otherwise have sought
relief under the Program, has been
referred to the IRS. This condition
applies only to those transactions
specifically identified in EBSA’s written
notice of referral to the IRS.
Section 5. General Rules for Acceptable
Corrections
(a) Fair Market Value Determinations.
Many corrections require that the
current or fair market value (FMV) of an
asset be determined as of a particular
date, usually either the date the plan
originally acquired the asset or the date
of the correction, or both. In order to be
acceptable as part of a VFC Program
correction, the valuation must meet the
following conditions:
(1) If there is a generally recognized
market for the property (e.g., the New
York Stock Exchange), the FMV of the
asset is the average value of the asset on
such market on the applicable date,
unless the plan document specifies

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another objectively determined value
(e.g., the closing price).
(2) If there is no generally recognized
market for the asset, the FMV of that
asset must be determined in accordance
with generally accepted appraisal
standards by a qualified, independent
appraiser and reflected in a written
appraisal report signed by the appraiser.
(3) An appraiser is ‘‘qualified’’ if he or
she has met the education, experience,
and licensing requirements that are
generally recognized for appraisal of the
type of asset being appraised.
(4) An appraiser is ‘‘independent’’ if
he or she is not one of the following,
does not own or control any of the
following, and is not owned or
controlled by, or affiliated with, any of
the following:
(i) The prior owner of the asset, if the
asset was purchased by the plan;
(ii) The purchaser of the asset, if the
asset was, or is now being, sold by the
plan;
(iii) Any other owner of the asset, if
the plan is not the sole owner;
(iv) A fiduciary of the plan;
(v) A party in interest with respect to
the plan (except to the extent the
appraiser becomes a party in interest
when retained to perform this appraisal
for the plan); or
(vi) The VFC Program applicant.
(b) Correction Amount. (1) In general.
For purposes of the VFC Program, the
correction amount is the amount that
must be paid to the plan as a result of
the Breach in order to make the plan
whole. In most instances, the correction
amount will be a combination of the
Principal Amount involved in the
transaction (see paragraph (b)(2) of this
section), the Lost Earnings amount,
which is earnings that would have been
earned on the Principal Amount for the
period of the transaction (see paragraph
(b)(5) of this section), and any interest
on Lost Earnings. However, in
circumstances when the Restoration of
Profits amount (see paragraph (b)(6) of
this section) exceeds the Lost Earnings
amount and any interest on Lost
Earnings, the correction amount will be
a combination of the Principal Amount
and the Restoration of Profits amount.
(2) Principal Amount. ‘‘Principal
Amount’’ is the amount that would have
been available to the plan for
investment or distribution on the date of
the Breach, had the Breach not
occurred. The Principal Amount, when
applicable, must be determined for each
transaction by reference to section 7 of
the VFC Program. Generally, the
Principal Amount is the base amount on
which Lost Earnings and, if applicable,
Restoration of Profits is calculated. The
Principal Amount shall include any

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transaction costs associated with
entering into the transaction that
constitutes the Breach.
(3) Loss Date. ‘‘Loss Date’’ is the date
that the plan lost the use of the
Principal Amount.
(4) Recovery Date. ‘‘Recovery Date’’ is
the date that the Principal Amount is
restored to the plan.
(5) Lost Earnings. (i) General. ‘‘Lost
Earnings’’ is intended to approximate
the amount that would have been
earned by the plan on the Principal
Amount, but for the Breach. For
purposes of this Program, Lost Earnings
shall be calculated in accordance with
this paragraph.
(ii) Initial Calculation. Lost earnings
shall be calculated by: (A) Determining
the applicable corporate underpayment
rate(s) established under section
6621(a)(2) of the Code 12 for each quarter
(or portion thereof) for the period
beginning with the Loss Date and
ending with the Recovery Date; (B)
determining, by reference to IRS
Revenue Procedure 95–17,13 the
applicable factor(s) 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; and (C)
multiplying 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, the initial calculation is
complete. 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.
(iii) Payment of Lost Earnings after
Recovery Date. If Lost Earnings are not
paid to the plan on the Recovery Date
along with the Principal Amount,
payment of Lost Earnings shall include
interest on the amount of Lost Earnings
determined in accordance with
paragraph (b)(5)(ii) above. Such interest
shall be calculated in the same manner
as Lost Earnings described in paragraph
(b)(5)(ii) above, for the period beginning
on the Recovery Date and ending on the
12 These underpayment rates are displayed on
EBSA’s Web site and will be updated when
necessary.
13 Rev. Proc. 95–17, 1995–1 C.B. 556 (Feb. 8,
1995). 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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date the Lost Earnings are paid to the
plan.
(iv) Special Rule for Transactions
Causing Large Losses. If the amount of
Lost Earnings (determined in
accordance with paragraph (b)(5)(ii)
above) and any interest added to such
Lost Earnings (determined in
accordance with paragraph (b)(5)(iii)
above), exceed $100,000, the amount of
Lost Earnings and interest, if any, to be
paid to the plan shall be determined in
accordance with paragraphs (b)(5)(ii)
and (iii) above, substituting the
applicable underpayment rates under
section 6621(c)(1) of the Code 14 in lieu
of the rates under section 6621(a)(2).
(v) Method of Calculation. For
purposes of calculating Lost Earnings
and interest, if any, a Plan Official may
either (A) use the Online Calculator
described in paragraph (b)(7) below, or
(B) perform a manual calculation in
accordance with subparagraphs (i)
through (iv) of this paragraph (b)(5). A
Plan Official using the Online
Calculator or performing a manual
calculation shall include as part of the
VFC Program application sufficient
information to verify the correctness of
the amounts to be paid to the plan.
(6) Restoration of Profits. (i) General.
If the Principal Amount was used for a
specific purpose such that a profit on
the use of the Principal Amount is
determinable, the Plan Official must
calculate the Restoration of Profits
amount and compare it to the Lost
Earnings amount to determine the
correction amount (see paragraph (b)(1)
of this section). ‘‘Restoration of Profits’’
is a combination of two amounts: (A)
The amount of profit made on the use
of the Principal Amount by the
fiduciary or party in interest who
engaged in the Breach, or by a person
who knowingly participated in the
Breach, and (B) if the profit is returned
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 paid to the plan.
The amount of such interest shall be
determined in accordance with
paragraph (b)(6)(ii) below.
If the Restoration of Profits amount
exceeds Lost Earnings and interest, if
any, the Restoration of Profits amount
must be paid to the plan instead of Lost
Earnings.
(ii) Calculation of Interest. Interest
shall be calculated by: (A) Determining
the applicable corporate underpayment
14 These underpayment rates are displayed on
EBSA’s Web site and will be updated when
necessary.

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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; (B)
determining, by reference to IRS
Revenue Procedure 95–17, the
applicable factor(s) 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; and
(C) multiplying the first applicable
factor by the profit on the Principal
Amount, referred to in paragraph
(b)(6)(i)(A) above, 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. 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, referred to in
paragraph (b)(6)(i)(A) above, 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 is paid to the plan.
(iii) Special Rule for Transactions
Resulting in Large Restorations. If the
amount of Restoration of Profits
(determined in accordance with
paragraph (b)(6)(i) above) exceeds
$100,000, the amount of any interest on
the Restoration of Profits to be paid to
the plan shall be determined in
accordance with paragraph (b)(6)(ii),
above, substituting the applicable
underpayment rates under section
6621(c)(1) of the Code in lieu of the
rates under section 6621(a)(2).
(iv) Method of Calculation. For
purposes of calculating the interest
amount for Restoration of Profits,
pursuant to paragraphs (b)(6)(ii) and (iii)
above, a Plan Official may either (A) use
the Online Calculator described in
paragraph (b)(7) below, or (B) perform a
manual calculation in accordance with
subparagraphs (ii) and (iii) of this
paragraph (b)(6). A Plan Official using
the Online Calculator or performing a
manual calculation shall include as part
of the VFC Program application
sufficient information to verify the
correctness of the amounts to be paid to
the plan.
(7) Online Calculator. ‘‘Online
Calculator’’ is an Internet based
compliance assistance tool provided on

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EBSA’s Web site that permits applicants
to calculate the amount of Lost
Earnings, any interest on Lost Earnings,
and the interest amount for Restoration
of Profits, if applicable, for certain
transactions. The Online Calculator will
be updated as necessary.
(i) Lost Earnings and Interest. To
calculate Lost Earnings, applicants must
input the (A) Principal Amount, (B)
Loss Date, (C) Recovery Date, and, if the
final payment will occur after the
Recovery Date, (D) 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.
(ii) Interest Amount for Restoration of
Profits. To calculate the interest amount
on the profit, applicants must input (A)
the amount of profit, (B) the date the
amount of profit was realized (i.e.
received or determined), and (C) 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 amount on the profit that
must be paid to the plan.
(8) The principles of paragraph (b) of
this Section are illustrated by example
in Appendix D.
(c) Costs of Correction. (1) The
fiduciary, plan sponsor or other Plan
Official, shall pay the costs of
correction, which may not be paid from
plan assets.
(2) The costs of correction include,
where appropriate, such expenses as
closing costs, prepayment penalties, or
sale or purchase costs associated with
correcting the transaction.
(3) The principle of paragraph (c)(1) of
this Section is illustrated in the
following example and in paragraph (d)
below:
Example: The plan fiduciaries did not
obtain a required independent appraisal in
connection with a transaction described in
section 7. In connection with correcting the
transaction, the plan fiduciaries now propose
to have the appraisal performed as of the date
of purchase. The plan document permits the
plan to pay reasonable and necessary
expenses; the fiduciaries have objectively
determined that the cost of the proposed
appraisal is reasonable and is not more
expensive than the cost of an appraisal
contemporaneous with the purchase. The
plan may therefore pay for this appraisal.
However, the plan may not pay any costs

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associated with recalculating participant
account balances to take into account the
new valuation. There would be no need for
these additional calculations or any
increased appraisal cost if the plan’s assets
had been valued properly at the time of the
purchase. Therefore, the cost of recalculating
the plan participants’ account balances is not
a reasonable plan expense, but is part of the
costs of correction.

(d) Distributions. Plans will have to
make supplemental distributions to
former employees, beneficiaries
receiving benefits, or alternate payees, if
the original distributions were too low
because of the Breach. In these
situations, the Plan Official or plan
administrator must determine who
received distributions from the plan
during the time period affected by the
Breach, recalculate the account
balances, and determine the amount of
the underpayment to each affected
individual. The applicant must
demonstrate proof of payment to
participants and beneficiaries whose
current location is known to the plan
and/or applicant. For individuals whose
location is unknown, applicants must
demonstrate that they have segregated
adequate funds to pay the missing
individuals and that the applicant has
commenced the process of locating the
missing individuals using either the IRS
and Social Security Administration
locator services, or other comparable
means. The costs of such efforts are part
of the costs of correction.
(e) De Minimis Exception. Where
correction under the Program requires
distributions in amounts less than $20
to former employees, their beneficiaries
and alternate payees, who neither have
account balances with, nor have a right
to future benefits from the plan, and the
applicant demonstrates in its
submission that the cost of making the
distribution to each such individual
exceeds the amount of the payment to
which such individual is entitled in
connection with the correction of the
transaction that is the subject of the
application, the applicant need not
make distributions to such individuals
who would receive less than $20 each
as part of the correction. However, the
applicant must pay to the plan as a
whole the total of such de minimis
amounts not distributed to such
individuals.
Example. Employer X sponsors Plan Y.
Employer X submits an application under the
VFC Program to correct a failure to timely
forward participant contributions to Plan Y.
Employer X had paid the delinquent
contributions six months late, but had not
paid lost earnings on the delinquency. The
correction under the VFC Program, therefore,
required only payment of Lost Earnings for
the six-month delinquency. During the six-

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month period 25 employees separated from
service and rolled over their plan accounts to
individual retirement accounts. The amount
of lost earnings due to 20 of those former
employees is less than $20, and Employer X
demonstrates that the cost of making the
distribution to those former employees is $27
per individual. Employer X need not make
distributions to those 20 former employees.
However, the total amount of distributions
that would have been due to those former
employees must be paid to Plan Y. The
payment to Plan Y may be used for any
purpose that payments or credits, which are
not allocated directly to participant accounts,
are used. Employer X must make
distributions to the five former employees
who are entitled to receive distributions of
more than $20.

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Section 6. Application Procedures
(a) In general. Each application must
adhere to the requirements set forth
below. Failure to do so may render the
application invalid.
(b) Preparer. The application must be
prepared by a Plan Official or his or her
authorized representative (e.g., attorney,
accountant, or other service provider). If
a representative of the Plan Official is
submitting the application, the
application must include a statement
signed by the Plan Official that the
representative is authorized to represent
the Plan Official. Any fees paid to such
representative for services relating to the
preparation and submission of the
application may not be paid from plan
assets.
(c) Contact person. Each application
must include the name, address and
telephone number of a contact person.
The contact person must be familiar
with the contents of the application, and
have authority to respond to inquiries
from EBSA.
(d) Detailed narrative. The applicant
must provide to EBSA a detailed
narrative describing the Breach and the
corrective action. The narrative must
include:
(1) A list of all persons materially
involved in the Breach and its
correction (e.g., fiduciaries, service
providers, borrowers);
(2) The employer identification
number (EIN), plan number, and
address of the plan sponsor and
administrator;
(3) The date the plan’s most recent
Form 5500 was filed;
(4) An explanation of the Breach,
including the date it occurred;
(5) An explanation of how the Breach
was corrected, by whom and when; and
(6)(i) If the applicant performs a
manual calculation in accordance with
paragraphs (b)(5)(i) through (iv) of
section 5, specific calculations
demonstrating how Principal Amount

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and Lost Earnings or, if applicable,
Restoration of Profits were computed;
(ii) If the applicant uses the Online
Calculator in accordance with (b)(7) of
section 5, the data elements required to
be input into the Online Calculator
under paragraphs (b)(7)(i) and/or (ii) of
section 5, as applicable (to satisfy this
requirement, applicants may submit a
copy of the page(s) that results from the
‘‘View Printable Results’’ function used
after inputting data elements and
completing use of the Online
Calculator); and
(iii) An explanation of why payment
of Lost Earnings or Restoration of Profits
was chosen to correct the Breach.
(e) Supporting documentation. The
applicant must also include:
(1) Copies of the relevant portions of
the plan document and any other
pertinent documents (such as the
adoption agreement, trust agreement, or
insurance contract); 15
(2) Documentation that supports the
narrative description of the transaction
and its correction;
(3) Documentation establishing the
Lost Earnings amount;
(4) Documentation establishing the
amount of Restoration of Profits, if
applicable;
(5) All documents described in
section 7 with respect to the transaction
involved; and
(6) Proof of payment of Principal
Amount and Lost Earnings or
Restoration of Profits.
Applicants using the Online
Calculator may satisfy the requirements
of paragraph (e)(3) above, with respect
to Lost Earnings, and paragraph (e)(4)
above, as to the amount of interest, if
any, payable with respect to the profit
amount, by complying with the
requirements of paragraph (d)(6)(ii) of
this section. Except for proof of
payment, as described in paragraph
(e)(6) above, applicants correcting
participant loan transactions in section
7.3 are not required to submit the other
documentation described above.
(f) Examples of supporting
documentation. (1) Examples of
documentation supporting the
description of the transaction and
correction are leases, appraisals, notes
and loan documents, service provider
contracts, invoices, settlement
documents, deeds, perfected security
interests, and amended annual reports.
(2) Examples of acceptable proof of
payment include copies of canceled
checks, executed wire transfers, a
15 Applicants must supply complete copies of the
plan documents and other pertinent documents if
requested by EBSA during its review of the
application.

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signed, dated receipt from the recipient
of funds transferred to the plan (such as
a financial institution), and bank
statements for the plan’s account.
(g) Penalty of Perjury Statement. Each
application must include the following
statement: ‘‘Under penalties of perjury I
certify that I am not Under Investigation
(as defined in section 3(b)(3)) and that
I have reviewed this application,
including all supporting documentation,
and to the best of my knowledge and
belief the contents are true, correct, and
complete.’’ The statement must be
signed and dated by a plan fiduciary
with knowledge of the transaction that
is the subject of the application and the
authorized representative of the
applicant, if any. In addition, each Plan
Official applying under the VFC
Program must sign and date the Penalty
of Perjury statement. The statement
must accompany the application and
any subsequent additions to the
application. Use of the Penalty of
Perjury Statement included with the
Model Application Form in Appendix E
will satisfy the requirements of
paragraph (g) of this section.
(h) Checklist. The checklist in
Appendix B must be completed, signed,
and submitted with the application. Use
of the checklist included with the
Model Application Form in Appendix E
also will satisfy the requirements of
paragraph (h) of this section.
(i) Where to apply. The application
shall be mailed to the appropriate EBSA
Regional Office listed in Appendix C.
(j) Submission of Additional
Documentation. If EBSA determines
that required information is missing
from the application or that additional
documentation is needed to complete
EBSA’s review, EBSA will request such
documentation in writing from the
applicant or authorized representative.
If EBSA does not receive the requested
documentation within a time period
specified in writing by the EBSA
reviewer, EBSA may suspend its review
of the application and consider
appropriate action. EBSA will notify the
applicant or authorized representative
in writing regarding such suspension.
(k) Recordkeeping. The applicant
must maintain copies of the application
and any subsequent correspondence
with EBSA for the period required by
section 107 of ERISA.
Section 7. Description of Eligible
Transactions and Corrections Under
the VFC Program
EBSA has identified certain Breaches
and methods of correction that are
suitable for the VFC Program. Any Plan
Official may correct a Breach listed in
this section in accordance with section

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5 and the applicable correction method.
The correction methods set forth are
strictly construed and are the only
acceptable correction methods under
the VFC Program for the transactions
described in this section. EBSA will
only accept applications concerning
correction of Breaches described in this
section.
7.1 Delinquent Remittance of
Participant Funds

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(a) Delinquent Participant Contributions
and Participant Loan Repayments to
Pension Plans
(1) Description of Transaction. An
employer receives directly from
participants, or withholds from
employees’ paychecks, certain amounts
for either contribution to a pension plan
or for repayment of participants’ plan
loans. Instead of forwarding participant
contributions for investment in
accordance with the provisions of the
plan and by reference to the principles
of the Department’s regulation at 29 CFR
2510.3–102, the employer retains such
contributions for a longer period of
time. Similarly, in the case of
participant loan repayments, instead of
applying such repayments to
outstanding loan balances within a
reasonable period of time determined by
reference to the guiding principles of 29
CFR 2510.3–102 and in accordance with
the provisions of the plan, the employer
retains such repayments for a longer
period of time.
(2) Correction of Transaction. (i)
Unpaid Contributions or Participant
Loan Repayments. Pay to the plan the
Principal Amount plus the greater of (A)
Lost Earnings on the Principal Amount
or (B) Restoration of Profits resulting
from the employer’s use of the Principal
Amount, as described in section 5(b).
The Loss Date for such contributions is
the date on which each contribution
reasonably could have been segregated
from the employer’s general assets. In
no event shall the Loss Date for such
contributions be later than the
applicable maximum time period
described in 29 CFR 2510.3–102. The
Loss Date for such repayments is the
date on which each repayment
reasonably could have been segregated
from the employer’s general assets
consistent with the guiding principles of
29 CFR 2510.3–102.16 Any penalties,
late fees or other charges shall be paid
16 Although the maximum time periods described
in 29 CFR 2510.3–102 are not directly applicable to
participant loan repayments, retaining repayments
beyond such periods raises a question as to whether
the employer forwarded repayments to the plan as
soon as they could reasonably be segregated from
the employer’s general assets. See Advisory
Opinion 2002–02A (May 17, 2002).

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by the employer and not from
participant loan repayments.
(ii) Late Contributions or Participant
Loan Repayments. If participant
contributions or loan repayments were
remitted to the plan outside of the time
periods described above, the only
correction required is to pay to the plan
the greater of (A) Lost Earnings or (B)
Restoration of Profits resulting from the
employer’s use of the Principal Amount
as described in section 5(b). Any
penalties, late fees or other charges shall
be paid by the employer and not from
participant loan repayments.
(iii) For this transaction, the Principal
Amount is the amount of delinquent
participant contributions or loan
repayments retained by the employer.
(iv) Example. The principles of
paragraph (a)(2) of this section are
illustrated by example in Appendix D.
(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) A statement from a Plan Official
identifying the earliest date on which
the participant contributions and/or
repayments reasonably could have been
segregated from the employer’s general
assets, along with the supporting
documentation on which the Plan
Official relied in reaching this
conclusion;
(ii) If restored participant
contributions and/or repayments
(exclusive of Lost Earnings) (A) total
$50,000 or less; or (B) exceed $50,000
and were remitted to the plan within
180 calendar days from the date such
amounts were received by the employer,
or the date such amounts otherwise
would have been payable to the
participants in cash (regarding amounts
withheld by an employer from
employees’ paychecks), submit:
(1) A narrative describing the
applicant’s contribution and/or
repayment remittance practices before
and after the period of unpaid or late
contributions and/or repayments; and
(2) Summary documents
demonstrating the amount of unpaid or
late contributions and/or repayments;
and
(iii) If restored participant
contributions and/or repayments
(exclusive of Lost Earnings) exceed
$50,000 and were remitted more than
180 calendar days after the date such
amounts were received by the employer,
or the date such amounts otherwise
would have been payable to the
participants in cash (regarding amounts
withheld by an employer from
employees’ paychecks), submit:
(A) A narrative describing the
applicant’s contribution and/or
repayment remittance practices before

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and after the period of unpaid or late
contributions and/or repayments;
(B) For participant contributions and/
or repayments received from
participants, a copy of the accounting
records which identify the date and
amount of each contribution received;
and
(C) For participant contributions and/
or repayments withheld from
employees’ paychecks, a copy of the
payroll documents showing the date
and amount of each withholding.
(b) Delinquent Participant Contributions
to Insured Welfare Plans
(1) Description of Transaction.
Benefits are provided exclusively
through insurance contracts issued by
an insurance company or similar
organization qualified to do business in
any state or through a health
maintenance organization (HMO)
defined in section 1310(c) of the Public
Health Service Act, 42 U.S.C. 300e–9(c).
An employer receives directly from
participants or withholds from
employees’ paychecks certain amounts
that the employer forwards to an
insurance provider for the purpose of
providing group health or other welfare
benefits. The employer fails to forward
such amounts in accordance with the
terms of the plan (including the
provisions of any insurance contract) or
the requirements of the Department’s
regulation at 29 CFR 2510.3–102. There
are no instances in which claims have
been denied under the plan, nor has
there been any lapse in coverage, due to
the failure to transmit participant
contributions on a timely basis.
(2) Correction of Transaction. (i) Pay
to the insurance provider or HMO the
Principal Amount, as well as any
penalties, late fees or other charges
necessary to prevent a lapse in coverage
due to such failure. Any penalties, late
fees or other such charges shall be paid
by the employer and not from
participant contributions.
(ii) For this transaction, the Principal
Amount is the amount of delinquent
participant contributions retained by the
employer.
(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) A statement from a Plan Official:
(A) Identifying the earliest date on
which the participant contributions
reasonably could have been segregated
from the employer’s general assets,
along with the supporting
documentation on which the Plan
Official relied in reaching this
conclusion; (B) attesting that there are
no instances in which claims have been
denied under the plan for nonpayment,

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nor has there been any lapse in
coverage; and (C) attesting that any
penalties, late fees or other such charges
have been paid by the employer and not
from participant contributions;
(ii) Copies of the insurance contract or
contracts for the group health or other
welfare benefits for the plan; and
(iii) If restored participant
contributions (A) total $50,000 or less,
or (B) exceed $50,000 and were remitted
to the plan within 180 calendar days
from the date such amounts were
received by the employer, or the date
such amounts otherwise would have
been payable to the participants in cash
(regarding amounts withheld by an
employer from employees’ paychecks),
submit:
(1) A narrative describing the
applicant’s contribution practices before
and after the period of unpaid or late
contributions, and
(2) Summary documents
demonstrating the amount of unpaid or
late contributions; and
(iv) If restored participant
contributions exceed $50,000 and were
remitted more than 180 calendar days
after the date such amounts were
received by the employer, or the date
such amounts otherwise would have
been payable to the participants in cash
(regarding amounts withheld by an
employer from employees’ paychecks),
submit:
(A) A narrative describing the
applicant’s contribution remittance
practices before and after the period of
unpaid or late contributions,
(B) For participant contributions
received directly from participants, a
copy of the accounting records which
identify the date and amount of each
contribution received, and
(C) For participant contributions
withheld from employees’ paychecks, a
copy of the payroll documents showing
the date and amount of each
withholding.

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(c) Delinquent Participant Contributions
to Welfare Plan Trusts
(1) Description of Transaction. An
employer receives directly from
participants or withholds from
employees’ paychecks certain amounts
that the employer forwards to a trust
maintained to provide, through
insurance or otherwise, group health or
other welfare benefits. The employer
fails to forward such amounts in
accordance with the terms of the plan or
the requirements of the Department’s
regulation at 29 CFR 2510.3–102. There
are no instances in which claims have
been denied under the plan, nor has
there been any lapse in coverage, due to

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the failure to transmit participant
contributions on a timely basis.
(2) Correction of Transaction. (i)
Unpaid Contributions. Pay to the trust
(A) the Principal Amount, and, where
applicable, any penalties, late fees or
other charges necessary to prevent a
lapse in coverage due to the failure to
make timely payments, and (B) the
greater of (1) Lost Earnings on the
Principal Amount or (2) Restoration of
Profits resulting from the employer’s use
of the Principal Amount as described in
section 5(b). The Loss Date for such
contributions is the date on which each
contribution would become plan assets
under 29 CFR 2510.3–102. Any
penalties, late fees or other charges shall
be paid by the employer and not from
participant contributions.
(ii) Late Contributions. If participant
contributions were remitted to the trust
outside of the time period required by
the regulation, the only correction
required is to pay to the trust the greater
of (A) Lost Earnings or (B) Restoration
of Profits resulting from the employer’s
use of the Principal Amount as
described in section 5(b). Any penalties,
late fees or other such charges shall be
paid by the employer and not from
participant contributions.
(iii) For this transaction, the Principal
Amount is the amount of delinquent
participant contributions retained by the
employer.
(3) Documentation. In addition to the
documentation required by Section 6,
submit the following documents:
(i) A statement from a Plan Official:
(A) Identifying the earliest date on
which the participant contributions
reasonably could have been segregated
from the employer’s general assets,
along with the supporting
documentation on which the Plan
Official relied in reaching this
conclusion, and (B) attesting that there
are no instances in which claims have
been denied under the plan for
nonpayment, nor has there been any
lapse in coverage;
(ii) If restored participant
contributions (exclusive of Lost
Earnings) (A) total $50,000 or less, or (B)
exceed $50,000 and were remitted to the
plan within 180 calendar days from the
date such amounts were received by the
employer, or the date such amounts
otherwise would have been payable to
the participants in cash (regarding
amounts withheld by an employer from
employees’ paychecks), submit:
(1) A narrative describing the
applicant’s contribution practices before
and after the period of unpaid or late
contributions, and

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(2) Summary documents
demonstrating the amount of unpaid or
late contributions; and
(iii) If restored participant
contributions (exclusive of Lost
Earnings) exceed $50,000 and were
remitted more than 180 calendar days
after the date such amounts were
received by the employer, or the date
such amounts otherwise would have
been payable to the participants in cash
(regarding amounts withheld by an
employer from employees’ paychecks),
submit:
(A) A narrative describing the
applicant’s contribution remittance
practices before and after the period of
unpaid or late contributions,
(B) For participant contributions
received directly from participants, a
copy of the accounting records which
identify the date and amount of each
contribution received, and
(C) For participant contributions
withheld from employees’ paychecks, a
copy of the payroll documents showing
the date and amount of each
withholding.
7.2

Loans

(a) Loan at Fair Market Interest Rate to
a Party in Interest With Respect to the
Plan
(1) Description of Transaction. A plan
made a loan to a party in interest at an
interest rate no less than that for loans
with similar terms (for example, the
amount of the loan, amount and type of
security, repayment schedule, and
duration of loan) to a borrower of
similar creditworthiness. The loan was
not exempt from the prohibited
transaction provisions of Title I of
ERISA.
(2) Correction of Transaction. Pay off
the loan in full, including any
prepayment penalties. An independent
commercial lender must also confirm in
writing that the loan was made at a fair
market interest rate for a loan with
similar terms to a borrower of similar
creditworthiness.
(3) Documentation. In addition to the
documentation required by section 6,
submit a narrative describing the
process used to determine the fair
market interest rate at the time the loan
was made, validated in writing by an
independent commercial lender.
(b) Loan at Below-Market Interest Rate
to a Party in Interest With Respect to the
Plan
(1) Description of Transaction. A plan
made a loan to a party in interest with
respect to the plan at an interest rate
which, at the time the loan was made,
was less than the fair market interest

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rate for loans with similar terms (for
example, the amount of loan, amount
and type of security, repayment
schedule, and duration of the loan) to a
borrower of similar creditworthiness.
The loan was not exempt from the
prohibited transaction provisions of
Title I of ERISA.
(2) Correction of Transaction. (i) Pay
off the loan in full, including any
prepayment penalties. Pay to the plan
the Principal Amount, plus the greater
of (A) the Lost Earnings as described in
section 5(b), or (B) the Restoration of
Profits, if any, as described in section
5(b).
(ii) For purposes of this transaction,
each loan payment has a Principal
Amount equal to the excess of the loan
payment that would have been received
if the loan had been made at the fair
market interest rate (from the beginning
of the loan until the Recovery Date) over
the loan payment actually received
under the loan terms during such
period. Under the VFC Program, the fair
market interest rate must be determined
by an independent commercial lender.

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Example: The plan made to a party in
interest a $150,000 mortgage loan, secured by
a first Deed of Trust, at a fixed interest rate
of 4% per annum. The loan was to be fully
amortized over 30 years. The fair market
interest rate for comparable loans, at the time
this loan was made, was 7% per annum. The
party in interest or Plan Official must repay
the loan in full plus any applicable
prepayment penalties. The party in interest
or Plan Official also must pay the difference
between what the plan would have received
through the Recovery Date had the loan been
made at 7% and what, in fact, the plan did
receive from the commencement of the loan
to the Recovery Date, plus Lost Earnings on
that amount as described in section 5(b).

of loan, amount and type of security,
repayment schedule, and duration of the
loan) to a borrower of similar
creditworthiness.
(2) Correction of Transaction. (i) Pay
to the plan the Principal Amount, plus
Lost Earnings through the Recovery
Date, as described in section 5(b).
(ii) For purposes of this transaction,
each loan payment has a Principal
Amount equal to the excess of the loan
payment that would have been received
if the loan had been made at the fair
market interest rate (from the beginning
of the loan until the Recovery Date) over
the loan payment actually received
under the loan terms during such
period. Under the VFC Program, the fair
market interest rate must be determined
by an independent commercial lender.
(iii) From the inception of the loan to
the Recovery Date, the amount to be
paid to the plan is the Lost Earnings on
the series of Principal Amounts,
calculated in accordance with section
5(b).
(iv) From the Recovery Date to the
maturity date of the loan, the amount to
be paid to the plan is the present value
of the remaining Principal Amounts, as
determined by an independent
commercial lender. Instead of
calculating the present value, it is
acceptable for administrative
convenience to pay the sum of the
remaining Principal Amounts.
(v) The principles of paragraph (c)(2)
of this section are illustrated in the
following example:

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) A narrative describing the process
used to determine the fair market
interest rate at the time the loan was
made;
(ii) A copy of the independent
commercial lender’s fair market interest
rate determination(s); and
(iii) A copy of the independent
fiduciary’s dated, written approval of
the fair market interest rate
determination(s).

Example: The plan made a $150,000
mortgage loan, secured by a first Deed of
Trust, at a fixed interest rate of 4% per
annum. The loan was to be fully amortized
over 30 years. The fair market interest rate for
comparable loans, at the time this loan was
made, was 7% per annum. The borrower or
the Plan Official must pay the excess of what
the plan would have received through the
Recovery Date had the loan been made at 7%
over what, in fact, the plan did receive from
the commencement of the loan to the
Recovery Date, plus Lost Earnings on that
amount as described in section 5(b). The Plan
Official must also pay on the Recovery Date
the difference in the value of the remaining
payments on the loan between the 7% and
the 4% for the duration of the time the plan
is owed repayments on the loan.

(c) Loan at Below-Market Interest Rate
to a Person Who Is Not a Party in
Interest With Respect to the Plan
(1) Description of Transaction. A plan
made a loan to a person who is not a
party in interest with respect to the plan
at an interest rate which, at the time the
loan was made, was less than the fair
market interest rate for loans with
similar terms (for example, the amount

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) A narrative describing the process
used to determine the fair market
interest rate at the time the loan was
made; and
(ii) A copy of the independent
commercial lender’s fair market interest
rate determination(s).

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(d) Loan at Below-Market Interest Rate
Solely Due to a Delay in Perfecting the
Plan’s Security Interest
(1) Description of Transaction. For
purposes of the VFC Program, if a plan
made a purportedly secured loan to a
person who is not a party in interest
with respect to the plan, but there was
a delay in recording or otherwise
perfecting the plan’s interest in the loan
collateral, the loan will be treated as an
unsecured loan until the plan’s security
interest is perfected.
(2) Correction of Transaction. (i) Pay
to the plan the Principal Amount, plus
Lost Earnings as described in section
5(b), through the date the loan became
fully secured.
(ii) For purposes of this transaction,
each loan payment has a Principal
Amount equal to the excess of the loan
payment that would have been received
if the loan had been made at the fair
market interest rate for an unsecured
loan (from the beginning of the loan
until the Recovery Date) over the loan
payment actually received under the
loan terms during such period. Under
the VFC Program, the fair market
interest rate must be determined by an
independent commercial lender.
(iii) In addition, if the delay in
perfecting the loan’s security caused a
permanent change in the risk
characteristics of the loan, the fair
market interest rate for the remaining
term of the loan must be determined by
an independent commercial lender. In
that case, the correction amount
includes an additional payment to the
plan. The amount to be paid to the plan
is the present value of the remaining
Principal Amounts from the date the
loan is fully secured to the maturity date
of the loan. Instead of calculating the
present value, it is acceptable for
administrative convenience to pay the
sum of the remaining Principal
Amounts.
(iv) The principles of paragraph (d)(2)
of this section are illustrated in the
following examples:
Example 1: The plan made a mortgage
loan, which was supposed to be secured by
a Deed of Trust. The plan’s Deed was not
recorded for six months, but, when it was
recorded, the Deed was in first position. The
interest rate on the loan was the fair market
interest rate for a mortgage loan secured by
a first-position Deed of Trust. The loan is
treated as an unsecured, below-market loan
for the six months prior to the recording of
the Deed of Trust.
Example 2: Assume the same facts as in
Example 1, except that, as a result of the
delay in recording the Deed, the plan ended
up in second position behind another lender.
The risk to the plan is higher and the interest
rate on the note is no longer commensurate
with that risk. The loan is treated as a below-

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market loan (based on the lack of security) for
the six months prior to the recording of the
Deed of Trust and as a below-market loan
(based on secondary status security) from the
time the Deed is recorded until the end of the
loan.

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) A narrative describing the process
used to determine the fair market
interest rate for the period that the loan
was unsecured and, if applicable, for the
remaining term of the loan; and
(ii) A copy of the independent
commercial lender’s fair market interest
rate determination(s).
7.3

Participant Loans

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(a) Loans Failing to Comply With Plan
Provisions for Amount, Duration or
Level Amortization
(1) Description of Transaction. A plan
extended a loan to a plan participant
who is a party in interest with respect
to the plan based solely on his or her
status as an employee of any employer
whose employees are covered by the
plan, as defined in section 3(14)(H) of
ERISA. The loan was a prohibited
transaction that failed to qualify for
ERISA’s statutory exemption for plan
loan programs because the loan terms
did not comply with applicable plan
provisions, which incorporated the
requirements of section 72(p) of the
Code concerning:
(i) The amount of the loan,
(ii) The duration of the loan, or
(iii) The level amortization of the loan
repayment.
(2) Correction of Transaction. Plan
Officials must make a voluntary
correction of the loan with IRS approval
under the Voluntary Correction Program
of the IRS’ Employee Plans Compliance
Resolution System (EPCRS).
(3) Documentation. The applicant is
not required to submit any of the
supporting documentation listed in
section 6(e), except that the applicant
must provide (i) proof of payment, as
described in paragraph (e)(6) of section
6, and (ii) a copy of the IRS compliance
statement.
(b) Default Loans
(1) Description of Transaction. A plan
extended a loan to a plan participant
who is a party in interest with respect
to the plan based solely on his or her
status as an employee of any employer
whose employees are covered by the
plan, as defined in section 3(14)(H) of
ERISA. At origination, the loan qualified
for ERISA’s statutory exemption for plan
loan programs because the loan
complied with applicable plan
provisions, which incorporated the

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requirements of section 72(p) of the
Code. During the loan repayment
period, the Plan Official responsible for
loan administration failed to properly
withhold a number of loan repayments
from the participant’s wages and
included the amount of such
repayments in the participant’s wages
based on administrative or systems
processing errors. The failure to
withhold is a Breach causing the loan to
become non-compliant with applicable
plan provisions, which incorporated the
requirements of section 72(p) of the
Code.
(2) Correction of Transaction. Plan
Officials must make a voluntary
correction of the loan with IRS approval
under the Voluntary Correction Program
of the IRS’ EPCRS.
(3) Documentation. The applicant is
not required to submit any of the
supporting documentation listed in
section 6(e), except that the applicant
must provide (i) proof of payment, as
described in paragraph (e)(6) of section
6, and (ii) a copy of the IRS compliance
statement.
7.4

Purchases, Sales and Exchanges

(a) Purchase of an Asset (Including Real
Property) by a Plan From a Party in
Interest
(1) Description of Transaction. A plan
purchased an asset with cash from a
party in interest with respect to the
plan, in a transaction to which no
prohibited transaction exemption
applies.
(2) Correction of Transaction. (i) The
plan may sell the asset back to the party
in interest who originally sold the asset
to the plan 17 or to a person who is not
a party in interest. Whether the asset is
sold to a person who is not a party in
interest with respect to the plan or is
sold back to the original seller, the plan
must receive the higher of (A) the fair
market value (FMV) of the asset at the
time of resale, without a reduction for
the costs of sale, plus restoration to the
plan of the party in interest’s investment
return from the proceeds of the sale, to
the extent they exceed the plan’s net
profits from owning the property; or (B)
the Principal Amount, plus the greater
of (1) Lost Earnings on the Principal
Amount as described in section 5(b), or
(2) the Restoration of Profits, if any, as
described in section 5(b).
(ii) As an alternative to the correction
described in paragraph (a)(2)(i) above,
the plan may retain the asset and
17 The resale of the same property to the party in
interest from whom the asset was purchased is a
reversal of the original prohibited transaction. The
resale is not a new prohibited transaction and
therefore does not require an exemption.

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receive (A) the greater of (1) Lost
Earnings or (2) the Restoration of Profits,
if any, as described in section 5(b), on
the Principal Amount, but only to the
extent that such Lost Earnings or
Restoration of Profits exceeds the
difference between the FMV of the asset
as of the Recovery Date and the original
purchase price; and (B) the amount by
which the Principal Amount exceeded
the FMV of the asset (at the time of the
original purchase), plus the greater of (1)
Lost Earnings or (2) Restoration of
Profits, if any, as described in section
5(b), on such excess; 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 described in
paragraph (a)(2)(i) above.
(iii) For this transaction, the Principal
Amount is the plan’s original purchase
price.
(iv) The principles of paragraph (a)(2)
of this section are illustrated in the
following examples:
Example 1: A plan purchased a parcel of
real property from the plan sponsor. The plan
does not lease the property to any person.
Instead, the plan uses the property as an
office. The plan paid $120,000 for the
property and $5,000 in transaction costs. As
part of the correction, the Plan Official
obtains two appraisals from a qualified,
independent appraiser in order to determine
the FMV of the property at the time of the
purchase and at the time of the correction
(the ‘‘Recovery Date’’). The FMV of the
property at the time of purchase was
$100,000 ($20,000 less than the plan paid for
the property). As of the Recovery Date, the
appraiser values the property at $110,000. To
correct the transaction, the plan sponsor
repurchases the property for $120,000 with
no reduction for the costs of sale and
reimburses the plan for the $5,000 in initial
costs of sale. The plan sponsor also must pay
the plan the greater of the plan’s Lost
Earnings or the sponsor’s investment return
on these amounts. The determination of an
independent fiduciary is not required
because the applicant is correcting the
transaction by selling the asset back to the
party in interest pursuant to paragraph
(a)(2)(i) of this Section.
Example 2: On February 1, 2002, a plan
purchased from a party in interest a parcel
of commercial real estate for $120,000, and
incurred $5,000 in costs of sale. The plan
initially uses the property as an office. At the
same time it is discovered that the original
purchase was a prohibited transaction, the
plan enters into a lucrative lease with an
unrelated party for use of the property to
begin January 1 of the following year. Due to
commercial developments in adjacent
properties, the Plan Official believes that the
property will increase in value and that the
plan would be able to obtain substantially
increasing rental payments for the use of the
property. As part of the correction, the Plan
Official obtains two appraisals from a
qualified, independent appraiser in order to

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determine the FMV of the asset at the time
of the purchase and at the time of the
correction (the ‘‘Recovery Date’’). The FMV
of the property at the time of purchase was
$120,000 (the same as the original purchase
price). As of the Recovery Date, the property
is valued at $150,000. Lost Earnings are
calculated through September 30, 2005, the
anticipated Recovery Date. The Online
Calculator determined that Lost Earnings is
$26,098.23 on the Principal Amount of
$125,000 (purchase price plus transaction
costs). There were no determinable profits.
The increase in the FMV, $30,000, is greater
than Lost Earnings or Restoration of Profits.
Because the property is rapidly appreciating
in value, and because the Plan Official
expects to realize significant rental income
from the property, the Plan Official would
like to correct by retaining the property
pursuant to paragraph (a)(2)(ii) of this
Section rather than selling the asset back to
the party in interest pursuant to paragraph
(a)(2)(i) of this Section. The Plan Official
must obtain a determination by an
independent fiduciary that the plan will
realize a greater benefit by retaining the asset
than by selling the asset back to the party in
interest. Because the original purchase price
was the same as the FMV, and the increase
in the FMV is greater than any earnings or
investment return on the original purchase
price, the only cash payment to the plan
involved in this correction is the $5,000 in
costs of sale, plus Lost Earnings.

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) Documentation of the plan’s
purchase of the asset, including the date
of the purchase, the plan’s purchase
price, and the identity of the seller;
(ii) A narrative describing the
relationship between the original seller
of the asset and the plan;
(iii) The qualified, independent
appraiser’s report addressing the FMV
of the asset purchased by the plan, both
at the time of the original purchase and
at the recovery date; and
(iv) If applicable, a report of the
independent fiduciary’s determination
that the plan will realize a greater
benefit by receiving the correction
amount described in paragraph (a)(2)(ii)
of this section than by reselling the asset
pursuant to paragraph (a)(2)(i) of this
section.

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(b) Sale of an Asset (Including Real
Property) by a Plan to a Party in Interest
(1) Description of Transaction. A plan
sold an asset for cash to a party in
interest with respect to the plan, in a
transaction to which no prohibited
transaction exemption applies.
(2) Correction of Transaction. (i) The
plan may repurchase the asset from the
party in interest 18 at the lower of (A) the
18 The repurchase of the same property from the
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price for which it originally sold the
property or (B) the FMV of the property
as of the Recovery Date plus restoration
to the plan of the party in interest’s net
profits from owning the property, to the
extent they exceed the plan’s
investment return from the proceeds of
the sale.
(ii) As an alternative to the correction
described in paragraph (b)(2)(i) above,
the plan may receive the Principal
Amount plus the greater of (A) Lost
Earnings as described in section 5(b) or
(B) the Restoration of Profits, if any, as
described in section 5(b), provided an
independent fiduciary determines that
the plan will realize a greater benefit
from this correction than it would from
the repurchase of the asset described in
paragraph (b)(2)(i).
(iii) For this transaction, the Principal
Amount is the amount by which the
FMV of the asset (at the time of the
original sale) exceeds the original sale
price.
(iv) The principles of paragraph (b)(2)
of this section are illustrated in the
following examples:
Example 1: A plan sold a parcel of
unimproved real property to the plan
sponsor. The sponsor did not make any profit
on the use of the property. As part of the
correction, the Plan Official obtains an
appraisal of the property reflecting the FMV
of the property as of the date of sale from a
qualified, independent appraiser. The
appraiser values the property at $130,000,
although the plan sold the property to the
plan sponsor for $120,000. The plan did not
incur any transaction costs during the
original sale. As of the Recovery Date, the
appraiser values the property at $140,000.
The plan corrects the transaction by
repurchasing the property at the original sale
price of $120,000, with the party in interest
assuming the costs of the reversal of the sale
transaction. The determination of an
independent fiduciary is not required
because the applicant is correcting the
transaction by repurchasing the property
from the party in interest pursuant to
paragraph (b)(2)(i) of this section.
Example 2: Assume the same facts as in
Example 1, except that the appraiser values
the property as of the Recovery Date at
$100,000, and the plan fiduciaries believe
that the property will continue to decrease in
value based on environmental studies
conducted in adjacent areas. Based on the
determination of an independent fiduciary
that the plan will realize a greater benefit by
receiving the Principal Amount (FMV of the
asset at the time of the original sale less the
original sales price equals $10,000) plus the
greater of Lost Earnings or Restoration of
Profits, as described in section 5(b), the
transaction is corrected by cash settlement
pursuant to paragraph (b)(2)(ii) of this
reversal of the original prohibited transaction. The
repurchase is not a new prohibited transaction and
therefore does not require an individual prohibited
transaction exemption.

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section, rather than by repurchasing the
asset.

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) Documentation of the plan’s sale of
the asset, including the date of the sale,
the sales price, and the identity of the
original purchaser;
(ii) A narrative describing the
relationship of the purchaser to the asset
and the relationship of the purchaser to
the plan;
(iii) The qualified, independent
appraiser’s report addressing the FMV
of the property at the time of the sale
from the plan and as of the Recovery
Date; and
(iv) If applicable, a report of the
independent fiduciary’s determination
that the plan will realize a greater
benefit by receiving the correction
amount described in paragraph (b)(2)(ii)
of this section than by repurchasing the
asset pursuant to paragraph (b)(2)(i) of
this section.
(c) Sale and Leaseback of Real Property
to Employer
(1) Description of Transaction. The
plan sponsor sold a parcel of real
property to the plan, which then was
leased back to the sponsor, in a
transaction that is not otherwise
exempt.
(2) Correction of Transaction. (i) The
transaction must be corrected by the
sale of the parcel of real property back
to the plan sponsor or to a person who
is not a party in interest with respect to
the plan.19 The plan must receive the
higher of (A) FMV of the asset at the
time of resale, without a reduction for
the costs of sale; or (B) the Principal
Amount, plus the greater of (1) Lost
Earnings on the Principal Amount as
described in section 5(b), or (2) the
Restoration of Profits, if any, as
described in section 5(b).
(ii) For purposes of this transaction,
the Principal Amount is the plan’s
original purchase price.
(iii) If the plan has not been receiving
rent at FMV, as determined by a
qualified, independent appraisal, the
sale price of the real property should
not be based on the historic belowmarket rent that was paid to the plan.
(iv) In addition to the correction
amount in subparagraph (1), if the plan
was not receiving rent at FMV, as
19 If the plan purchased the property from the
plan sponsor, the sale of the same property back to
the plan sponsor is a reversal of the prohibited
transaction. The sale is not a new prohibited
transaction and therefore does not require an
individual prohibited transaction exemption, as
long as the plan did not make improvements while
it owned the property.

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determined by a qualified, independent
appraiser, the Principal Amount also
includes the difference between the rent
actually paid and the rent that should
have been paid at FMV. The plan
sponsor must pay to the plan this
additional Principal Amount, plus the
greater of (A) Lost Earnings or (B)
Restoration of Profits resulting from the
plan sponsor’s use of the Principal
Amount, as described in section 5(b).
(v) The principles of paragraph (c)(2)
of this section are illustrated in the
following example:
Example: The plan purchased at FMV from
the plan sponsor an office building that
served as the sponsor’s primary business site.
Simultaneously, the plan sponsor leased the
building from the plan at below the market
rental rate. The Plan Official obtains from a
qualified, independent appraiser an appraisal
of the property reflecting the FMV of the
property and rent. To correct the transaction,
the plan sponsor purchases the property from
the plan at the higher of the appraised value
at the time of the resale or the original sales
price and also pays the Lost Earnings.
Because the rent paid to the plan was below
the market rate, the sponsor must also make
up the difference between the rent paid
under the terms of the lease and the amount
that should have been paid, plus Lost
Earnings on this amount, as described in
section 5(b).

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(3) Documentation. In addition to the
documentation required by Section 6,
submit the following documents:
(i) Documentation of the plan’s
purchase of the real property, including
the date of the purchase, the plan’s
purchase price, and the identity of the
original seller;
(ii) Documentation of the plan’s sale
of the asset, including the date of sale,
the sales price, and the identity of the
purchaser;
(iii) A narrative describing the
relationship of the original seller to the
plan and the relationship of the
purchaser to the plan;
(iv) A copy of the lease;
(v) Documentation of the date and
amount of each lease payment received
by the plan; and
(vi) The qualified, independent
appraiser’s report addressing both the
FMV of the property at the time of the
original sale and at the Recovery Date,
and the FMV of the lease payments.
(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
(1) Description of Transaction. A plan
acquired an asset from a person who is
not a party in interest with respect to
the plan, without determining the
asset’s FMV. As a result, the plan paid
more than it should have for the asset.

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(2) Correction of Transaction. The
Principal Amount is the difference
between the actual purchase price and
the asset’s FMV at the time of purchase.
The plan must receive the Principal
Amount plus the Lost Earnings, as
described in Section 5(b).
(i) The principles of paragraph (d)(2)
of this Section are illustrated in the
following example:
Example: A plan bought unimproved land
without obtaining a qualified, independent
appraisal. Upon discovering that the
purchase price was $10,000 more than the
appraised FMV, the Plan Official pays the
plan the Principal Amount of $10,000, plus
Lost Earnings as described in section 5(b).

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) Documentation of the plan’s
original purchase of the asset, including
the date of the purchase, the purchase
price, and the identity of the seller;
(ii) A narrative describing the
relationship of the seller to the plan;
and
(iii) A copy of the qualified,
independent appraiser’s report
addressing the FMV at the time of the
plan’s purchase.
(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
(1) Description of Transaction. A plan
sold an asset to a person who is not a
party in interest with respect to the
plan, without determining the asset’s
FMV. As a result, the plan received less
than it should have from the sale.
(2) Correction of Transaction. The
Principal Amount is the amount by
which the FMV of the asset as of the
Recovery Date exceeds the price at
which the plan sold the property. The
plan must receive the Principal Amount
plus Lost Earnings as described in
section 5(b).
(i) The principles of paragraph (e)(2)
of this section are illustrated in the
following example:
Example: A plan sold unimproved land
without taking steps to ensure that the plan
received FMV. Upon discovering that the sale
price was $10,000 less than the FMV, the
Plan Official pays the plan the Principal
Amount of $10,000 plus Lost Earnings as
described in section 5(b).

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) Documentation of the plan’s
original sale of the asset, including the
date of the sale, the sale price, and the
identity of the buyer;

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(ii) A narrative describing the
relationship of the buyer to the plan;
and
(iii) A copy of the qualified,
independent appraiser’s report
addressing the FMV at the time of the
plan’s sale.
(f) Holding of an Illiquid Asset
Previously Purchased by a Plan
(1) Description of Transaction. A plan
is holding an asset previously
purchased from (i) a party in interest
with respect to the plan in an
acquisition for which relief was
available under a statutory or
administrative prohibited transaction
exemption, (ii) a party in interest with
respect to the plan at no greater than
FMV at that time in an acquisition to
which no prohibited transaction
exemption applied, (iii) a person who
was not a party in interest with respect
to the plan in an acquisition in which
a plan fiduciary failed to appropriately
discharge his or her fiduciary duties, or
(iv) a person who was not a party in
interest with respect to the plan in an
acquisition in which a plan fiduciary
appropriately discharged his or her
fiduciary duties. Currently, a plan
fiduciary determines that such asset is
an illiquid asset because: (A) The asset
failed to appreciate, failed to provide a
reasonable rate of return, or caused a
loss to the plan; (B) the sale of the asset
is in the best interest of the plan; and
(C) following reasonable efforts to sell
the asset to a person who is not a party
in interest with respect to the plan, the
asset cannot immediately be sold for its
original purchase price, or its current
FMV, if greater. Examples of assets that
may meet this definition include, but
are not limited to, restricted and thinly
traded stock, limited partnership
interests, real estate and collectibles.
(2) Correction of Transaction. (i) The
transaction may be corrected by the sale
of the asset to a party in interest,
provided the plan receives the higher of
(A) the FMV of the asset at the time of
resale, without a reduction for the costs
of sale; or (B) the Principal Amount,
plus Lost Earnings as described in
section 5(b). The Plan Official may
cause the plan to sell the asset to a party
in interest. This correction provides
relief for both the original purchase of
the asset, if required, and the sale of the
illiquid asset by the plan to a party in
interest; relief from the prohibited
transaction excise tax also is provided if
the Plan Official satisfies the applicable
conditions of the VFC Program class
exemption.
(ii) For this transaction, the Principal
Amount is the plan’s original purchase
price.

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(iii) The principles of paragraph (f)(2)
of this section are illustrated in the
following examples:

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Example 1. A plan purchases undeveloped
real property from a party in interest with
respect to the plan for $60,000 in June 1999.
In April 2004, Plan Officials determine that
the property is an illiquid asset. A qualified,
independent appraiser appraises the property
at a current FMV of $20,000. The plan
sponsor pays the plan the Principal Amount
of $60,000 plus Lost Earnings as described in
section 5(b), and Plan Officials transfer the
property from the plan to the plan sponsor.
The Plan Officials also comply with the
applicable terms of the related exemption.
Example 2. A plan purchases a limited
partnership interest for $60,000 in June 1999
from an unrelated party after plan fiduciaries
properly fulfill their fiduciary duties with
respect to the purchase. In April 2004, Plan
Officials determine that the interest is an
illiquid asset because the interest has failed
to generate a reasonable rate of return. A
qualified, independent appraiser appraises
the interest at a current FMV of $80,000. The
plan sponsor pays the plan the FMV of
$80,000 without a reduction for the costs of
the sale, which is greater than the Principal
Amount plus Lost Earnings, and Plan
Officials transfer the interest from the plan to
the plan sponsor. The Plan Officials also
comply with the applicable terms of the
related exemption.

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) Documentation of the plan’s
original purchase of the asset, including
the date of the purchase, the plan’s
purchase price, the identity of the
original seller, and a description of the
relationship, if any, between the original
seller and the plan;
(ii) The qualified, independent
appraiser’s report addressing the FMV
of the asset purchased by the plan at the
recovery date;
(iii) A narrative describing the plan’s
efforts to sell the asset to persons who
are not parties in interest with respect
to the plan and any documentation of
such efforts to sell the asset;
(iv) A statement from a Plan Official
attesting that: (A) The asset failed to
appreciate, failed to provide a
reasonable rate of return, or caused a
loss to the plan; (B) the sale of the asset
is in the best interest of the plan; (C) the
asset is an illiquid asset; and (D) the
plan made reasonable efforts to sell the
asset to persons who are not parties in
interest with respect to the plan without
success; and
(v) In the case of an illiquid asset that
is a parcel of real estate, a statement
from a Plan Official attesting that no
party in interest owns real estate that is
contiguous to the plan’s parcel of real
estate on the Recovery Date.

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7.5

Benefits

(a) Payment of Benefits Without
Properly Valuing Plan Assets on Which
Payment is Based
(1) Description of Transaction. A
defined contribution pension plan pays
benefits based on the value of the plan’s
assets. If one or more of the plan’s assets
are not valued at current value, the
benefit payments are not correct. If the
plan’s assets are overvalued, the current
benefit payments will be too high. If the
plan’s assets are undervalued, the
current benefit payments will be too
low.
(2) Correction of Transaction. (i)
Establish the correct value of the
improperly valued asset for each plan
year, starting with the first plan year in
which the asset was improperly valued.
Restore to the plan for distribution to
the affected plan participants, or restore
directly to the plan participants, the
amount by which all affected
participants were underpaid
distributions to which they were
entitled under the terms of the plan,
plus Lost Earnings as described in
section 5(b) on the underpaid
distributions. File amended Annual
Report Forms 5500, as detailed below.
(ii) To correct the valuation defect, a
Plan Official must determine the FMV
of the improperly valued asset per
section 5(a) for each year in which the
asset was valued improperly.
(iii) Once the FMV has been
determined, the participant account
balances for each year must be adjusted
accordingly.
(iv) The Annual Report Forms 5500
must be amended and refiled for (A) the
last three plan years or (B) all plan years
in which the value of the asset was
reported improperly, whichever is less.
(v) The Plan Official or plan
administrator must determine who
received distributions from the plan
during the time the asset was valued
improperly. For distributions that were
too low, the amount of the
underpayment is treated as a Principal
Amount for each individual who
received a distribution. The Principal
Amount and Lost Earnings must be paid
to the affected individuals. For
distributions that were too high, the
total of the overpayments constitutes the
Principal Amount for the plan. The
Principal Amount plus the Lost
Earnings, as described in section 5(b),
must be restored to the plan or to any
participants who received distributions
that were too low.
(vi) The principles of paragraph (a)(2)
of this section are illustrated in the
following examples:

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Example 1. On December 31, 1995, a profit
sharing plan purchased a 20-acre parcel of
real property for $500,000, which
represented a portion of the plan’s assets.
The plan has carried the property on its
books at cost, rather than at FMV. One
participant left the company on January 1,
1997, and received a distribution, which
included her portion of the value of the
property. The separated participant’s account
balance represented 2% of the plan’s assets.
As part of the correction for the VFC
Program, a qualified, independent appraiser
has determined the FMV of the property for
1996, 1997, and 1998. The FMV as of
December 31, 1996, was $400,000. Therefore,
this participant was overpaid by $2,000
(($500,000 ¥ $400,000) multiplied by 2%).
The Plan Officials corrected the transaction
by paying to the plan the $2,000 Principal
Amount plus Lost Earnings as described in
section 5(b).
The plan administrator also filed an
amended Form 5500 for plan years 1996 and
1997, to reflect the proper values. The plan
administrator will include the correct asset
valuation in the 1998 Form 5500 when that
form is filed.
Example 2. Assume the same facts as in
Example 1, except that the property had
appreciated in value to $600,000 as of
December 31, 1996. The separated
participant would have been underpaid by
$2,000. The correction consists of locating
the participant and distributing to her the
$2,000 Principal Amount plus Lost Earnings
as described in section 5(b), as well as filing
the amended Forms 5500.

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:
(i) A copy of the qualified,
independent appraiser’s report for each
plan year in which the asset was
revalued;
(ii) A written statement confirming
the date that amended Annual Report
Forms 5500 with correct valuation data
were filed;
(iii) If losses are restored to the plan,
proof of payment to the plan and copies
of the adjusted participant account
balances; and
(iv) If supplemental distributions are
made, proof of payment to the
individuals entitled to receive the
supplemental distributions.
7.6

Plan Expenses

(a) Duplicative, Excessive, or
Unnecessary Compensation Paid by a
Plan
(1) Description of Transaction. A plan
used plan assets to pay compensation,
including commissions or fees, to a
service provider (such as an attorney,
accountant, recordkeeper, actuary,
financial advisor, or insurance agent),
and the compensation was:
(i) Excessive in amount for the
services provided to the plan;

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(ii) Duplicative, in that a plan paid
two or more providers for the same
service; or
(iii) Unnecessary for the operation of
the plan, in that the services were not
helpful and appropriate in carrying out
the purposes for which the plan is
maintained.
(2) Correction of Transaction. (i)
Restore to the plan the Principal
Amount, plus the greater of (A) Lost
Earnings or (B) Restoration of Profits
resulting from the use of the Principal
Amount, as described in section 5(b).
(ii) (A) For the transactions described
in paragraph (a)(1)(i) above, the
Principal Amount is the difference
between (1) the amount of
compensation paid by the plan to the
service provider and (2) the reasonable
market value of such services.
(B) For the transactions described in
paragraph (a)(1)(ii) above, the Principal
Amount is the difference between (1)
the total amount of compensation paid
to the service providers and (2) the least
amount of compensation paid to one of
the service providers for the duplicative
services.
(C) For the transactions described in
paragraph (a)(1)(iii) above, the Principal
Amount is the amount of compensation
paid by the plan to the service provider
for the unnecessary services.
(iii) The principles of paragraph (a)(2)
of this section are illustrated in the
following examples:
Example 1. Excessive compensation. A
plan hired an investment advisor who
advised the plan’s trustees about how to
invest the plan’s entire portfolio. In
accordance with the plan document, the
trustees instructed the advisor to limit the
plan’s investments to equities and bonds. In
exchange for his services, the plan paid the
investment advisor 3% of the value of the
portfolio’s assets. If the trustees had inquired,
they would have learned that comparable
investment advisors charged 1% of the value
of the assets for the type of portfolio that the
plan maintained. To correct the transaction,
the plan must be paid the Principal Amount
of 2% of the value of the plan’s assets, plus
the higher Lost Earnings or Restoration of
Profits, as described in section 5(b).
Example 2. Unnecessary Compensation. A
plan paid a travel agent to arrange a fishing
trip for the plan’s investment advisor as a
way of rewarding the advisor because the
plan’s investment return for the year
exceeded the plan’s investment goals by
10%. An internal auditor discovered the
charge on the plan’s record books. To correct
the transaction, the plan must be paid the
Principal Amount, which is the total amount
paid to the travel agent, plus the higher of
Lost Earnings or Restoration of Profits as
described in section 5(b).

(3) Documentation. In addition to the
documentation required by section 6,
submit the following documents:

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(i) For the transactions described in
paragraph (a)(1)(i) above, a written
estimate of the reasonable market value
of the services and the estimator’s
qualifications; and
(ii) The cost of the services at issue
during the period that such services
were provided to the plan.
(b) Expenses Improperly Paid by a Plan
(1) Description of Transaction. 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 (such as
an attorney, accountant, recordkeeper,
actuary, financial advisor, or insurance
agent) for:
(i) Services provided in connection
with the administration and
maintenance of the plan (‘‘plan
expenses’’ 20) in circumstances where a
plan provision requires that such plan
expenses be paid by the plan sponsor,
or
(ii) Services provided in connection
with the establishment, design, or
termination of the plan (‘‘settlor
expenses’’ 21), which relate to the
activities of the plan sponsor in its
capacity as settlor.
(2) Correction of Transaction. (i)
Restore to the plan the Principal
Amount, plus the greater of (A) Lost
Earnings or (B) Restoration of Profits
resulting from the use of the Principal
Amount, as described in section 5(b).
(ii) The Principal Amount is the entire
amount improperly paid by the plan to
the service provider for expenses that
should have been paid by the plan
sponsor.
(iii) The principles of paragraph (b)(2)
of this section are illustrated in the
following example:
Example. Employer X, the plan sponsor of
Plan Y, is considering amending its defined
contribution plan to add a 5% matching
contribution. Employer X operates in a
competitive industry, and a human resources
consultant has recommended, among other
improvements, that Employer X provide a
competitive matching contribution to help
attract and retain a highly qualified
workforce. Employer X hired an actuary to
estimate the cost of providing this matching
contribution over the next ten years. In
exchange for these services, the plan paid the
actuary $10,000. Several months after the
actuary’s bill has been paid, a Plan Official
realizes that one of Employer X’s employees
erroneously paid the bill from the defined
contribution plan’s assets. The bill should
have been paid by Employer X, because the
bill related to settlor expenses incurred by
Employer X in analyzing whether to add a
matching contribution to the plan. To correct
20 See Advisory Opinion 2001–01A (Jan. 18,
2001).
21 See id.

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20281

the transaction, the plan must be paid the
Principal Amount ($10,000), plus Lost
Earnings or Restoration of Profits, as
described in section 5(b).

(3) Documentation. In addition to the
documentation required by Section 6,
submit copies of the plan’s accounting
records which show the date and
amount of expenses paid by the plan to
the service provider.
(c) Payment of Dual Compensation to a
Plan Fiduciary
(1) Description of Transaction. A plan
used plan assets to pay compensation to
a fiduciary for services rendered to the
plan when the fiduciary already
receives full-time pay from an employer
or an association of employers, whose
employees are participants in the plan,
or from an employee organization
whose members are participants in the
plan. The plan’s payments to the plan
fiduciary are not reimbursements of
expenses properly and actually incurred
by the fiduciary in the performance of
his or her fiduciary duties.
(2) Correction of Transaction. (i)
Restore to the plan the Principal
Amount, plus the greater of (A) Lost
Earnings or (B) Restoration of Profits
resulting from the fiduciary’s use of the
Principal Amount, as described in
section 5(b).
(ii) The Principal Amount is the
amount of compensation paid to the
fiduciary by the plan.
(iii) The principles of paragraph (c)(2)
of this section are illustrated in the
following example:
Example. A union sponsored a health plan
funded through contributions by employers.
The union president receives $50,000 per
year from the union in compensation for his
services as union president. He is appointed
as a trustee of the health plan while retaining
his position as union president. In exchange
for acting as plan trustee, the union president
is paid a salary of $200 per week by the plan
while still receiving the $50,000 salary from
the union. Since $50,000 is full-time pay, the
plan’s weekly salary payments are improper.
To correct the transaction, the plan must be
paid the Principal Amount, which is the
$200 weekly salary amount for each week
that the salary was paid, plus the higher of
Lost Earnings or Restoration of Profits, as
described in section 5(b).

(3) Documentation. In addition to the
documentation required by section 6,
submit copies of the plan’s accounting
records which show the date and
amount of compensation paid by the
plan to the identified fiduciary.
Appendix A—Sample VFC Program No
Action Letter
Applicant (Plan Official)
Address
Dear Applicant (Plan Official):

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Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices

Re: VFC Program Application No. xx–
xxxxxx
The Department of Labor, Employee
Benefits Security Administration (EBSA), has
responsibility for administration and
enforcement of Title I of the Employee
Retirement Income Security Act of 1974, as
amended (ERISA). EBSA has established a
Voluntary Fiduciary Correction (VFC)
Program to encourage the correction of
breaches of fiduciary responsibility and the
restoration of losses to the plan participants
and beneficiaries.
In accordance with the requirements of the
VFC Program, you have identified the
following transactions as breaches, or
potential breaches, of Part 4 of Title I of
ERISA, and you have submitted
documentation to EBSA that demonstrates
that you have taken the corrective action
indicated.
[Briefly recap the violation and correction.
Example: Failure to deposit participant
contributions to the XYZ Corp. 401(k) plan
within the time frames required by ERISA,
from lll(date) to lll(date). All
participant contributions were deposited by
lll(date) and lost earnings on the
delinquent contributions were deposited and
allocated to participants’ plan accounts on
lll(date).]
Because you have taken the abovedescribed corrective action that is consistent
with the requirements of the VFC Program,
EBSA will take no civil enforcement action
against you with respect to this breach.
Specifically, EBSA will not recommend that
the Solicitor of Labor initiate legal action
against you, and EBSA will not impose the
penalties in section 502(l) or section 502(i) of
ERISA on the amount you have repaid to the
plan.
EBSA’s decision to take no further action
is conditioned on the completeness and
accuracy of the representations made in your
application. You should note that this
decision will not preclude EBSA from
conducting an investigation of any potential
violations of criminal law in connection with
the transaction identified in the application
or investigating the transaction identified in
the application with a view toward seeking
appropriate relief from any other person.
[If the transaction is a prohibited transaction
for which no exemptive relief is available,
add the following language: Please also be
advised that pursuant to section 3003(c) of
ERISA, 29 U.S.C. section 1203(c), the
Secretary of Labor is required to transmit to
the Secretary of the Treasury information
indicating that a prohibited transaction has
occurred. Accordingly, this matter will be
referred to the Internal Revenue Service.]
In addition, you are cautioned that EBSA’s
decision to take no further action is binding
on EBSA only. Any other governmental
agency, and participants and beneficiaries,
remain free to take whatever action they
deem necessary.
If you have any questions about this letter,
you may contact the Regional VFC Program
Coordinator at applicable address and
telephone number.

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Appendix B—VFC Program Checklist
(Required)
Use this checklist to ensure that you are
submitting a complete application. The
applicant must sign and date the checklist
and include it with the application. Indicate
‘‘Yes’’, ‘‘No’’ or ‘‘N/A’’ next to each item. A
‘‘No’’ answer or the failure to include a
completed checklist will delay review of the
application until all required items are
received.
ll1. Have you reviewed the eligibility,
definitions, transaction and correction, and
documentation sections of the VFC Program?
ll2. Have you included the name,
address and telephone number of a contact
person familiar with the contents of the
application?
ll3. Have you provided the EIN, Plan
Number, and address of the plan sponsor and
plan administrator?
ll4. Have you provided the date that the
most recent Form 5500 was filed by the plan?
ll5. Have you enclosed a signed and
dated certification under penalty of perjury
for the plan fiduciary with knowledge of the
transactions and for each applicant and the
applicant’s representative, if any?
ll6. Have you enclosed relevant portions
of the plan document and any other pertinent
documents (such as the adoption agreement,
trust agreement, or insurance contract) with
the relevant sections identified?
ll7. If applicable, have you provided
written notification to EBSA of any current
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 by the PBGC, any state
attorney general, or any state insurance
commissioner?
ll8. Where applicable, have you
enclosed a copy of an appraiser’s report?
ll9. Have you enclosed supporting
documentation, including:
lla. A detailed narrative of the Breach,
including the date it occurred;
llb. Documentation that supports the
narrative description of the transaction;
llc. An explanation of how the Breach
was corrected, by whom and when, with
supporting documentation;
lld. A list of all persons materially
involved in the Breach and its correction
(e.g., fiduciaries, service providers,
borrowers, lenders);
lle. Specific calculations demonstrating
how Principal Amount and Lost Earnings or
Restoration of Profits were computed, or, if
the Online Calculator was used, a copy of the
‘‘Print Viewable Results’’ page(s) after
completing use of the Online Calculator;
llf. Proof of payment of Principal
Amount and Lost Earnings or Restoration of
Profits; and
llg. If application concerns delinquent
employee contributions or loan repayments,
a statement from a Plan Official identifying
the earliest date on which participant
contributions/loan repayments reasonably
could have been segregated from the
employer’s general assets and supporting
documentation on which the Plan Official
relied?

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ll10. If you are an eligible applicant and
wish to avail yourself of excise tax relief
under the VFC Program Class Exemption:
lla. Have you made proper arrangements
to provide within 60 calendar days after
submission of this application a copy of the
Class Exemption notice to all interested
persons and to the EBSA Regional Office to
which the application is filed; or
llb. If you are relying on the exception
to the notice requirement in section IV.C. of
the Class Exemption because the amount of
the excise tax otherwise due would be less
than or equal to $100.00, have you provided
to the appropriate EBSA Regional Office a
copy of a completed IRS Form 5330 or other
written documentation containing the
information required by IRS Form 5330 and
proof of payment?
ll11. In calculating Lost Earnings, have
you elected to use:
lla. The Online Calculator; or
llb. A manual calculation performed in
accordance with Section 5(b)?
ll12. Where applicable, have you
enclosed a description demonstrating proof
of payment to participants and beneficiaries
whose current location is known to the plan
and/or applicant, and for individuals who
need to be located, have you demonstrated
how adequate funds have been segregated to
pay missing individuals and commenced the
process of locating the missing individuals
using either the IRS and SSA locator services,
or other comparable means?
ll13. For purposes of the three
transactions covered under Section 7.1, has
the plan implemented measures to ensure
that such transactions do not recur?
Signature of Applicant and Date Signed:
llllllllllllllllllll
Name of Applicant: lllllllllll
Title/Relationship to the Plan: llllll
Name of Plan, EIN and Plan Number:
lllllllllllllllllllll
Paperwork Reduction Act Notice
The information identified on this form is
required for a valid application for the
Voluntary Fiduciary Correction Program of
the U.S. Department of Labor’s Employee
Benefits Security Administration (EBSA).
You must complete this form and submit it
as part of the application in order to receive
the relief offered under the Program with
respect to a breach of fiduciary responsibility
under Part 4 of Title I of ERISA. EBSA will
use this information to determine that you
have satisfied the requirements of the
Program. EBSA estimates that completing
and submitting this form will require an
average of 2 to 4 minutes. This collection of
information is currently approved under
OMB Control Number 1210–0118. You are
not required to respond to a collection of
information unless it displays a currently
valid OMB Control Number.

Appendix C—EBSA Regional Offices
Submit your VFC Program application to
the appropriate EBSA Regional Office:
Atlanta Regional Office, 61 Forsyth Street,
SW, Suite 7B54, Atlanta, GA 30303,
telephone (404) 562–2156, fax (404) 562–
2168; jurisdiction: Alabama, Florida,

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Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices
Georgia, Mississippi, North Carolina,
South Carolina, Tennessee, Puerto Rico.
Boston Regional Office, J.F.K. Building,
Room 575, Boston, MA 02203, telephone
(617) 565–9600, fax: (617) 565–9666;
jurisdiction: Connecticut, Maine,
Massachusetts, New Hampshire, central
and western New York, Rhode Island,
Vermont.
Chicago Regional Office, 200 West Adams
Street, Suite 1600, Chicago, IL 60606,
telephone (312) 353–0900, fax (312) 353–
1023; jurisdiction: northern Illinois,
northern Indiana, Wisconsin.
Cincinnati Regional Office, 1885 Dixie
Highway, Suite 210, Ft. Wright, KY
41011–2664, telephone (859) 578–4680,
fax (859) 578–4688; jurisdiction:
southern Indiana, Kentucky, Michigan,
Ohio.
Dallas Regional Office, 525 Griffin Street,
Rm. 900, Dallas, TX 75202–5025,
telephone (214) 767–6831, fax (214) 767–
1055; jurisdiction: Arkansas, Louisiana,
New Mexico, Oklahoma, Texas.
Kansas City Regional Office, 1100 Main
Street, Suite 1200, Kansas City, MO
64105, telephone (816) 426–5131, fax
(816) 426–5511; jurisdiction: Colorado,
southern Illinois, Iowa, Kansas,
Minnesota, Missouri, Montana,
Nebraska, North Dakota, South Dakota,
Wyoming.
Los Angeles Regional Office, 1055 E.
Colorado Boulevard, Suite 200,
Pasadena, CA 91106–2341, telephone
(626) 229–1000, fax (626) 229–1097;
jurisdiction: 10 southern counties of
California, Arizona, Hawaii, American
Samoa, Guam, Wake Island.
New York Regional Office, 33 Whitehall
Street, Suite 1200, New York, NY 10004,
1st day

telephone (212) 607–8600, fax (212) 607–
8681; jurisdiction: southeastern New
York, northern New Jersey.
Philadelphia Regional Office, The Curtis
Center, 170 S. Independence Mall West,
Suite 870 West, Philadelphia, PA 19106–
3317, telephone (215) 861–5300, fax
(215) 861–5347; jurisdiction: Delaware,
Maryland, southern New Jersey,
Pennsylvania, Virginia, Washington, DC,
West Virginia.
San Francisco Regional Office, 71 Stevenson
St., Suite 915, San Francisco, CA 94105,
telephone (415) 975–4600, fax (415) 975–
4589; jurisdiction: Alaska, 48 northern
counties of California, Idaho, Nevada,
Oregon, Utah, Washington.
Please verify current telephone numbers
and addresses on EBSA’s Web site, http://
www.dol.gov/ebsa/.

Appendix D—Lost Earnings Example
(Manual Calculation)
Delinquent Participant Contributions
Company A’s pay periods end every other
Friday. Each pay period, participant
contributions total $10,000, which
reasonably can be segregated from Company
A’s general assets by ten business days
following the end of each pay period.
Company A should have remitted participant
contributions for the pay period ending
March 2, 2001 to the plan by March 16, 2001,
the Loss Date, but actually remitted them on
April 13, 2001, the Recovery Date. In early
2004, a Plan Official discovers that
participant contributions for this pay period
were not remitted on a timely basis. To
comply with the Program, the Plan Official
determined that she would repay all Lost
Earnings on January 30, 2004.

To

Underpmnt.
rate
(percent)

Days

Rev. proc.
table

Based on the above facts:
• Principal Amount is $10,000.
• Loss Date is March 16, 2001.
• Recovery Date is April 13, 2001.
• Number of Days Late is 28 (Recovery
Date less Loss Date).
The basic formula for computing earnings
using the applicable factors under IRS
Revenue Procedure 95–17 is: Dollar Amount
* IRS factor
Step 1. The Plan Official must calculate
Lost Earnings, based on the Principal
Amount, that should have been paid on the
Recovery Date.
The first period of time is from March 16,
2001 to March 31, 2001 (15 days). The Code
underpayment rate is 9%. Using Revenue
Procedure 95–17, the factor for 15 days at 9%
is 0.003705021 from table 23.
$10,000 * 0.003705021 = $37.05
The plan is due $10,037.05 as of March 31,
2001. The second period of time is April 1,
2001 through April 13, 2001 (13 days). The
Code underpayment rate is 8%. Using
Revenue Procedure 95–17, the factor for 13
days at 8% is 0.002853065 from table 21.
$10,037.05 * 0.002853065 = $28.64
Therefore, Lost Earnings of $65.69 ($37.05
plus $28.64) must be paid to the plan.
Step 2. If Lost Earnings are paid to the plan
after the Recovery Date, the Plan Official
must calculate the amount of interest on the
Lost Earnings (determined in Step 1) that
must also be paid to the plan. This
calculation is shown by the following chart:
(The ‘‘Interest’’ column is the previous time
period’s ‘‘Amnt. Due’’ multiplied by the
Factor. ‘‘Amnt. Due’’ is the previous ‘‘Amnt.
Due’’ plus ‘‘Interest’’. The calculation in the
first row is based on the $65.69 Lost
Earnings.)
Factor

Interest

Amnt. due

14/14/01 ............................................
7/1/01 ................................................
10/1/01 ..............................................
1/1/02 ................................................
4/1/02 ................................................
7/1/02 ................................................
10/1/02 ..............................................
1/1/03 ................................................
4/1/03 ................................................
7/1/03 ................................................
10/1/03 ..............................................
1/1/04 ................................................

6/30/01
9/30/01
12/31/01
3/31/02
6/30/02
9/30/02
12/31/02
3/31/02
6/30/03
9/30/03
12/31/03
1/30/04

78
92
92
90
91
92
92
90
91
92
92
30

8
7
7
6
6
6
6
5
5
5
4
4

21
19
19
17
17
17
17
15
15
15
13
61

.017240956
.017798686
.017798686
.014903267
.015070101
.015236961
.015236961
.012404225
.012542910
.012681615
.010132630
.003283890

1.132558
1.189354
1.210523
1.031640
1.058736
1.086591
1.103147
0.911742
0.933372
0.955530
0.773152
0.253110

66.82256
68.01191
69.22243
70.25408
71.31281
72.39940
73.50255
74.41429
75.34766
76.30319
77.07634
77.32945

Total Interest ..............................

....................

................

..................

....................

........................

11.64

........................

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Note that the last factor comes from the Revenue Procedure 95–17 tables for leap years.
The plan is also owed $11.64. This is the
amount of interest on $65.69 (Lost Earnings
on the Principal Amount) accrued between
April 13, 2001, the Recovery Date, when the
Principal Amount $10,000 was paid to the
plan, and January 30, 2004, the date chosen
to repay Lost Earnings.
Therefore, the Plan Official must pay
$77.33 to the plan on January 30, 2004, as
Lost Earnings ($65.69) plus interest on Lost
Earnings ($11.64) for the pay period ending

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18:54 Apr 18, 2006

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March 2, 2001, in addition to the Principal
Amount ($10,000) that was paid on April 13,
2001. This total corresponds with the final
Total Due in the above chart (emphasized).

Appendix E—Model Application Form
(Optional)
Voluntary Fiduciary Correction Program
Application Form
This application form provides a
recommended format for your VFC Program

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application. Please make sure you have
attached all documents identified on the VFC
Program Checklist (for example, proof of
payment). Submit your application to the
appropriate EBSA field office. For full
application procedures, consult
www.dol.gov/ebsa/.
Applicant Name(s) and Address(es)
List separately: lllllllllllll
lllllllllllllllllllll

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List Transaction(s) Corrected
Check which transaction(s) listed in the
VFC Program you have corrected:
llDelinquent Participant Contributions
and Participant Loan Repayments to Pension
Plans
llDelinquent Participant Contributions
to Insured Welfare Plans
llDelinquent Participant Contributions
to Welfare Plan Trusts
llLoan at Fair Market Interest Rate to a
Party in Interest
llLoan at Below-Market Interest Rate to
a Party in Interest
llLoan at Below-Market Interest Rate to
a Non-Party in Interest
llLoan at Below-Market Interest Rate
Due to Delay in Perfecting Plan’s Security
Interest
llLoans Failing to Comply with Plan
Provisions for Amount, Duration or Level
Amortization
llDefault Loans
llPurchase of an Asset by a Plan from a
Party in Interest
llSale of an Asset by a Plan to a Party
in Interest
llSale and Leaseback of Real Property to
Employer
llPurchase of Asset by a Plan from a
Non-Party in Interest at More Than Fair
Market Value
llSale of an Asset by a Plan to a NonParty in Interest at Less Than Fair Market
Value
llHolding of an Illiquid Asset Previously
Purchased by a Plan
llPayment of Benefits Without Properly
Valuing Plan Assets on Which Payment is
Based
llDuplicative, Excessive, or Unnecessary
Compensation Paid by a Plan
llExpenses Improperly Paid by a Plan
llPayment of Dual Compensation to a
Plan Fiduciary
Correction Amount
Principal Amount: $ lllll
Date Paid ll /ll /ll
Lost Earnings/Restoration of Profit: $
lllll
Date Paid ll/ll /ll
Narrative and Calculations
List:
(1) All persons materially involved in the
Breach and its correction (e.g., fiduciaries,
service providers):
lllllllllllllllllllll
lllllllllllllllllllll
lllllllllllllllllllll
(2) An explanation of the Breach, including
the date(s) it occurred (attach separate sheets
if necessary):
lllllllllllllllllllll
lllllllllllllllllllll
lllllllllllllllllllll
(3) An explanation of how the Breach was
corrected, by whom, and when (attach
separate sheets if necessary):
lllllllllllllllllllll
lllllllllllllllllllll
lllllllllllllllllllll
lllllllllllllllllllll

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18:54 Apr 18, 2006

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lllllllllllllllllllll
(4) For correction of Delinquent Remittance
of Participant Funds, provide a statement
from a Plan Official identifying the earliest
date on which participant contributions/loan
repayments reasonably could have been
segregated from the employer’s general assets
(attach supporting documentation on which
Plan Official relied):
Number of days used to determine the date
on which participant contributions/loan
repayments withheld from employees’ pay
could reasonably have been segregated from
the employer’s general assets: ll
Description of how this was determined:
lllllllllllllllllllll
(5) For correction of Delinquent Remittance
of Participant Funds, provide a narrative
describing the applicant’s contribution and/
or repayment remittance practices before and
after the period of unpaid or late
contributions and/or repayments: (attach
separate sheets if necessary)
lllllllllllllllllllll
lllllllllllllllllllll
lllllllllllllllllllll
lllllllllllllllllllll
(6) Specific calculations demonstrating
how Principal Amount and Lost Earnings or
Restoration of Profits were calculated (attach
separate sheets if necessary): If the Online
Calculator was used, you only need to
indicate this and attach a copy of the
‘‘Printable Results’’ page.
ll Online Calculator—‘‘Printable
Results’’ page attached
ll Manual calculation—see attached
calculations

requirement contained in section IV.C. of
PTE 2002–51, provide a copy of a completed
IRS Form 5330 or other written
documentation and proof of payment.
llNo
(8) Proof of Payment
llCanceled check
llExecuted wire transfer
llSigned, dated receipt from the
recipient of funds transferred to the plan
(such as a financial institution)
llBank statements for the plan’s account
llOther:
lllllllllllllllllllll
(9) Disclosure of a current investigation or
examination of the plan by an agency, to
comply with Section 3(b)(3)(v):
llPBGC
llAny state attorney general
State:
lllllllllllllllllllll
Any state insurance commissioner
State:
lllllllllllllllllllll
Contact person for the agency identified:
lllllllllllllllllllll
(10) In order to help us improve our
service, please indicate how you learned
about the VFC Program:
lllllllllllllllllllll

Supplemental Information
(1) Plan Sponsor Name:
lllllllllllllllllllll
EIN: llllllllllllllllll
Address: llllllllllllllll
(2) Plan Name:
lllllllllllllllllllll
Plan Number: llllllllllllll
(3) Plan Administrator Name:
lllllllllllllllllllll
EIN: llllllllllllllllll
Address: llllllllllllllll
(4) Name of Authorized Representative:
(Submit written authorization signed by the
Plan Official.)
lllllllllllllllllllll
Address: llllllllllllllll
Telephone: lllllllllllllll
(5) Name of Contact Person:
Address: llllllllllllllll
Telephone: lllllllllllllll
(6) Date of Most Recent Annual Report
Form 5500 Filing: l/l/ l for Plan Year
Ending: l/l /l
(7) Is Applicant Seeking Relief Under PTE
2002–51?
llYes—Either:
llSubmit a copy of the notice to
interested parties within 60 calendar days of
this application and indicate date of the
notice if not on the notice itself; or lIf you
are relying on the exception to the notice

Penalty of Perjury Statement
The following statement must be signed
and dated by a plan fiduciary with
knowledge of the transaction that is the
subject of the application and by the
authorized representative, if any. Each Plan
Official applying under the VFC Program
must also sign and date the statement, which
must accompany any subsequent additions to
the application.
‘‘Under penalties of perjury I certify that I
am not Under Investigation (as defined in
VFC Program Section 3(b)(3)) and that I have
reviewed this application, including all
supporting documentation, and to the best of
my knowledge and belief the contents are
true, correct, and complete.’’
lllllllllllllllllllll
Name and Title
Signature
lllllllllllllllllllll
Date llllllllllllllllll
llllllllllllllllllll
Name and Title lllllllllllll
Signature
lllllllllllllllllllll
Date llllllllllllllllll

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Authorization of Preparer
I have authorized (insert name of
authorized representative) to represent me
concerning this VFC Program application.
Name of Plan Official
lllllllllllllllllllll
Signature of Plan Official
lllllllllllllllllllll

Paperwork Reduction Act Notice
The information identified on this form is
required for a valid application for the
Voluntary Fiduciary Correction Program of
the U.S. Department of Labor’s Employee

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Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices
Benefits Security Administration (EBSA).
You are not required to use this form;
however, you must supply the information
identified in order to receive the relief
offered under the Program with respect to a
breach of fiduciary responsibility under Part
4 of Title I of ERISA. EBSA will use this
information to determine whether you have
satisfied the requirements of the Program.
EBSA estimates that assembling and
submitting this information will require an
average of 6 to 8 hours. This collection of
information is currently approved under
OMB Control Number 1210–0118. You are
not required to respond to a collection of
information unless it displays a currently
valid OMB Control Number.

wwhite on PROD1PC65 with NOTICES2

VFC Program Checklist
Use this checklist to ensure that you are
submitting a complete application. The
applicant must sign and date the checklist
and include it with the application. Indicate
‘‘Yes’’, ‘‘No’’ or ‘‘N/A’’ next to each item. A
‘‘No’’ answer or the failure to include a
completed checklist will delay review of the
application until all required items are
received.
ll1. Have you reviewed the eligibility,
definitions, transaction and correction, and
documentation sections of the VFC Program?
ll2. Have you included the name,
address and telephone number of a contact
person familiar with the contents of the
application?
ll3. Have you provided the EIN, Plan
Number, and address of the plan sponsor and
plan administrator?
ll4. Have you provided the date that the
most recent Form 5500 was filed by the plan?
ll5. Have you enclosed a signed and
dated certification under penalty of perjury
for the plan fiduciary with knowledge of the
transactions and for each applicant and the
applicant’s representative, if any?
ll6. Have you enclosed relevant portions
of the plan document and any other pertinent
documents (such as the adoption agreement,
trust agreement, or insurance contract) with
the relevant sections identified?

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ll7. If applicable, have you provided
written notification to EBSA of any current
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 by the PBGC, any state
attorney general, or any state insurance
commissioner?
ll8. Where applicable, have you
enclosed a copy of an appraiser’s report?
ll9. Have you enclosed supporting
documentation, including:
lla. A detailed narrative of the Breach,
including the date it occurred;
llb. Documentation that supports the
narrative description of the transaction;
llc. An explanation of how the Breach
was corrected, by whom and when, with
supporting documentation;
lld. A list of all persons materially
involved in the Breach and its correction
(e.g., fiduciaries, service providers,
borrowers, lenders);
lle. Specific calculations demonstrating
how Principal Amount and Lost Earnings or
Restoration of Profits were computed, or, if
the Online Calculator was used, a copy of the
‘‘Print Viewable Results’’ page(s) after
completing use of the Online Calculator;
llf. Proof of payment of Principal
Amount and Lost Earnings or Restoration of
Profits; and
llg. If application concerns delinquent
employee contributions or loan repayments,
a statement from a Plan Official identifying
the earliest date on which participant
contributions/loan repayments reasonably
could have been segregated from the
employer’s general assets and supporting
documentation on which the Plan Official
relied?
ll10. If you are an eligible applicant and
wish to avail yourself of excise tax relief
under the VFC Program Class Exemption:
lla. Have you made proper arrangements
to provide within 60 calendar days after
submission of this application a copy of the
Class Exemption notice to all interested
persons and to the EBSA Regional Office to
which the application is filed; or

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20285

llb. If you are relying on the exception
to the notice requirement in section IV.C. of
the Class Exemption because the amount of
the excise tax otherwise due would be less
than or equal to $100.00, have you provided
to the appropriate EBSA Regional Office a
copy of a completed IRS Form 5330 or other
written documentation containing the
information required by IRS Form 5330 and
proof of payment?
ll11. In calculating Lost Earnings, have
you elected to use:
lla. The Online Calculator; or
llb. A manual calculation performed in
accordance with Section 5(b)?
ll12. Where applicable, have you
enclosed a description demonstrating proof
of payment to participants and beneficiaries
whose current location is known to the plan
and/or applicant, and for individuals who
need to be located, have you demonstrated
how adequate funds have been segregated to
pay missing individuals and commenced the
process of locating the missing individuals
using either the IRS and SSA locator services,
or other comparable means?
ll13. For purposes of the three
transactions covered under Section 7.1 has
the plan implemented measures to ensure
that such transactions do not recur?
Signature of Applicant and Date Signed:
lllllllllllllllllllll
Name of Applicant: lllllllllll
Title/Relationship to the Plan: llllll
Name of Plan, EIN and Plan Number:
lllllllllllllllllllll
Signed at Washington, DC, this 12th day of
April, 2006.
Ann L. Combs,
Assistant Secretary for Employee Benefits
Security Administration, U.S. Department of
Labor.
[FR Doc. 06–3674 Filed 4–18–06; 8:45 am]
BILLING CODE 4510–29–P

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