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Employee Benefits Security Administration

EBSA Federal Register Notice

Voluntary Fiduciary Correction Program Under the Employee Retirement Income Security Act of 1974; Notice [04/19/2006]

[PDF Version]

Volume 71, Number 75, Page 20261

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

RIN 1210-AB03

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

AGENCY: Employee Benefits Security Administration, DOL.

ACTION: Adoption of Updated Voluntary Fiduciary Correction Program.

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

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

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

SUPPLEMENTARY INFORMATION:

A. Background

    The Voluntary Fiduciary Correction Program was adopted by EBSA of 
the Department of Labor (Department) on a permanent basis in March 2002 
(the original VFC Program).\1\ The VFC Program is designed to encourage 
employers and plan fiduciaries to voluntarily comply with ERISA and 
allows those potentially liable for certain specified fiduciary 
violations under ERISA to voluntarily apply for relief from enforcement 
actions and certain penalties, provided they meet the VFC Program's 
criteria and follow the procedures outlined in the VFC Program. Many 
workers have also benefited from the VFC Program as a result of the 
restoration of plan assets and payment of promised benefits.
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    \1\ 67 FR 15062 (March 28, 2002). Prior to adoption in March 
2002, the VFC Program was made available on an interim basis during 
which the Department invited and considered public comments on the 
Program. (See 65 FR 14164, March 15, 2000).
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    The VFC Program describes how to apply for relief, the specific 
transactions covered,\2\ acceptable methods for correcting violations, 
and examples of potential violations and corrective actions. Eligible 
applicants that satisfy the terms and conditions of the VFC Program 
receive a ``no-action letter'' from EBSA and are not subject to civil 
monetary penalties. In 2002, the original VFC Program was further 
expanded to include a class exemption (PTE 2002-51) providing excise 
tax relief for four specific VFC Program transactions.\3\
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    \2\ EBSA acknowledges, based on its experience, that certain 
transactions may fit within one or more of the listed categories of 
transactions, even if not specifically named in the category, for 
example certain transactions involving contributions in kind under 
section 7.4(a) of the Program. EBSA encourages potential applicants 
to discuss eligibility and similar issues with the appropriate 
regional VFC Program coordinator.
    \3\ PTE 2002-51 published at 67 FR 70623 (November 25, 2002).
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    In April 2005, EBSA published revisions to the VFC Program (the 
April 2005 VFC Program) \4\ containing, among other amendments, several 
new covered transactions, on which EBSA invited public comment. EBSA 
believed that these revisions, designed to both simplify and expand the 
original Program, were needed to further encourage utilization of the 
Program. EBSA made the April 2005 VFC Program effective upon 
publication to permit use of the simplified processes and new covered 
transactions during the interim period prior to the adoption of final 
changes to the Program. Concurrently, EBSA proposed an amendment to the 
related class exemption, PTE 2002-51,\5\ to accommodate a new 
transaction contained in the April 2005 VFC Program. However, the 
excise tax relief afforded by the amendments to PTE 2002-51 was not 
immediately available and could not be relied upon for relief during 
the interim period.
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    \4\ 70 FR 17516 (April 6, 2005).
    \5\ 70 FR 17476 (April 6, 2005).
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    EBSA received six comment letters in response to the April 2005 VFC 
Program and related class exemption. Copies of these comments are 
posted on EBSA's Web site.\6\
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    \6\ http://www.dol.gov/ebsa/regs/cmt_vfcp.html.

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    After careful consideration of the issues raised by the comment 
letters and input from EBSA Regional Office personnel charged with 
administering the Program, EBSA is adopting final changes to the 
Program (the final VFC Program) in this Notice. EBSA believes these 
modifications will facilitate both the correction of violations of 
ERISA's fiduciary responsibility and prohibited transaction rules and 
the restoration of losses to participants resulting from the Breaches 
(as defined in the VFC Program). The final VFC Program will continue to 
be administered in EBSA Regional Offices. In tandem with today's 
publication of the final VFC Program, EBSA is publishing a final 
amendment to PTE 2002-51 in response to comments received and to 
conform with certain revisions in the final VFC Program. This amendment 
also appears in the Notice section of today's Federal Register.

B. Overview of Changes in the Final VFC Program

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

(1) Scope of Relief

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

[[Page 20263]]

(2) Covered Transactions

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

[[Page 20264]]

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

(3) Definitions

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

(4) Correction Methodology

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

(5) Program Calculations

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

[[Page 20265]]

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

(6) Documentation Requirements

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

(7) EBSA Procedures

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

(8) Miscellaneous

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

[[Page 20266]]

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

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

D. Effective Date

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

E. Impact of Program Amendments

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f) of the Executive 
Order, a ``significant regulatory action'' is an action that is likely 
to result in a rule (1) having an annual effect on the economy of $100 
million or more, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. OMB has 
determined that this action is significant under section 3(f)(4) 
because it raises novel legal or policy issues arising from the 
President's priorities. Accordingly, the Department has assessed the 
costs and benefits of the regulation. OMB has reviewed this regulatory 
action.
    As stated in its previous analysis in the preamble to the April 
2005 Program published in April, 2005, the Department believes that the 
benefits of the VFC Program justify its costs. The Program is designed 
to provide an efficient, cost-effective method for correcting a variety 
of fiduciary Breaches and prohibited transactions and receiving 
Departmental recognition of the correction. The methods of correction 
set out in the Program provide the required conditions for correction, 
which are adequate and protective of the rights of participants and 
beneficiaries. Participation in the Program is voluntary. The 
Department believes that the costs to a plan and its fiduciaries of 
correcting a potential fiduciary Breach through voluntary participation 
in the VFC Program are lower than if correction were imposed in 
connection with a civil action; further, correction of potential 
fiduciary Breaches and prohibited transactions through the Program 
satisfactorily protects the assets of the participating plans.
    The VFC Program imposes costs only when Plan Officials choose to 
use the Program to correct a potential fiduciary Breach. Such costs to 
Plan Officials generally include payment of the correction amount 
required by the Program and preparation and submission of the 
application to the Department. Benefits for Plan Officials who apply 
for relief under the Program include elimination of risks arising from 
an otherwise uncorrected fiduciary Breach, as well as savings of 
resources that otherwise might have been needed to defend against a 
civil action based on the Breach.
    An additional and significant benefit of the VFC Program accrues to 
participants and beneficiaries through the correction of fiduciary 
violations and the restoration to the plan of amounts representing 
losses or improperly generated profits arising from impermissible 
transactions, resulting in greater security of plan assets and future 
benefits.
    The Department expects that the improvements to the final VFC 
Program published today will increase efficiency and accessibility for 
potential applicants. These improvements, described above, include: 
Extending to welfare plans the summary documentation requirements 
permitted for certain delinquent participant contributions to pension 
plans; clarifying the availability of a correction for the improper use 
of plan assets to pay expenses that should have been paid by a plan 
sponsor based on a plan provision or that are properly characterized as 
settlor expenses; expanding the correctable categories of

[[Page 20267]]

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

Paperwork Reduction Act

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

[[Page 20268]]

copy of the notice by mail, using certified or overnight delivery 
services and that this copy will be included in the application package 
described above under costs for the VFC Program. The annual mailing 
costs for notices to interested persons and the Department is therefore 
estimated at $4,427. In total, the paperwork burden costs entailed by 
PTE 2002-51, as amended, is $13,052 ($8,625 + $4,427).
    In summary, the categories in the table below encompass the numbers 
for both the final VFC Program and the amended class exemption:
    Type of Review: Revision of currently approved collection of 
information.
    Agency: Department of Labor, Employee Benefits Security 
Administration.
    Title: Voluntary Fiduciary Correction Program.
    OMB Number: 1210-0118.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Respondents: 1,250.
    Frequency of Response: On occasion.
    Responses: 11,790.
    Estimated Total Burden Hours: 5,625.
    Total Annual Cost (Operating and Maintenance): $109,302.
    Persons are not required to respond to the revised information 
collection unless it displays a currently valid OMB control number.

Regulatory Flexibility Act

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

Congressional Review Act

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

Unfunded Mandates Reform Act

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

F. Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by Federal agencies in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This Program would not have federalism 
implications because it has no substantial direct effect on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. Section 514 of ERISA provides, with certain 
exceptions specifically enumerated that are not pertinent here, that 
the provisions of Titles I and IV of ERISA supersede any and all laws 
of the States as they relate to any employee benefit plan covered under 
ERISA. The requirements implemented in this Program do not alter the 
fundamental provisions of the statute with respect to employee benefit 
plans, and as such would have no implications for the States or the 
relationship or distribution of power between the national government 
and the States.

    Authority: Secretary of Labor's Order 1-2003, 68 FR 5374 
(February 3, 2003). ERISA Sec. 502(a)(2) and (a)(5) also issued 
under 29 U.S.C. 1132(a)(2) and (a)(5), ERISA Sec. 506(b) also issued 
under 29 U.S.C. 1136(b).

Voluntary Fiduciary Correction Program

Section 1. Purpose and Overview of the VFC Program
Section 2. Effect of the VFC Program
Section 3. Definitions
Section 4. VFC Program Eligibility
Section 5. General Rules for Acceptable Corrections
    (a) Fair Market Value Determinations
    (b) Correction Amount
    (c) Costs of Correction
    (d) Distributions
    (e) De Minimis Exception
Section 6. Application Procedures
Section 7. Description of Eligible Transactions and Corrections 
Under the VFC Program
    7.1 Delinquent Remittance of Participant Funds
    (a) Delinquent Participant Contributions and Participant Loan 
Repayments to Pension Plans
    (b) Delinquent Participant Contributions to Insured Welfare 
Plans
    (c) Delinquent Participant Contributions to Welfare Plan Trusts
    7.2 Loans
    (a) Loan at Fair Market Interest Rate to a Party in Interest 
With Respect to the Plan
    (b) Loan at Below-Market Interest Rate to a Party in Interest 
With Respect to the Plan
    (c) Loan at Below-Market Interest Rate to a Person Who is Not a 
Party in Interest With Respect to the Plan
    (d) Loan at Below-Market Interest Rate Solely Due to a Delay in 
Perfecting the Plan's Security Interest
    7.3 Participant Loans
    (a) Loans Failing to Comply With Plan Provisions for Amount, 
Duration, or Level Amortization
    (b) Default Loans
    7.4 Purchases, Sales and Exchanges
    (a) Purchase of an Asset (Including Real Property) by a Plan 
From a Party in Interest
    (b) Sale of an Asset (Including Real Property) by a Plan to a 
Party in Interest
    (c) Sale and Leaseback of Real Property to Employer
    (d) Purchase of an Asset (Including Real Property) by a Plan 
From a Person Who is Not a Party in Interest With Respect to the 
Plan at a Price More Than Fair Market Value
    (e) Sale of an Asset (Including Real Property) by a Plan to a 
Person Who Is Not a Party in Interest With Respect to the Plan at a 
Price Less Than Fair Market Value
    (f) Holding of an Illiquid Asset Previously Purchased by a Plan
    7.5 Benefits
    (a) Payment of Benefits Without Properly Valuing Plan Assets on 
Which Payment is Based
    7.6 Plan Expenses
    (a) Duplicative, Excessive, or Unnecessary Compensation Paid by 
a Plan
    (b) Expenses Improperly Paid by a Plan
    (c) Payment of Dual Compensation to a Plan Fiduciary
Appendix A. Sample VFC Program No Action Letter
Appendix B. VFC Program Checklist (Required)
Appendix C. List of EBSA Regional Offices
Appendix D. Lost Earnings Example

[[Page 20269]]

Appendix E. Model Application Form (Optional)

Section 1. Purpose and Overview of the VFC Program

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

Section 2. Effect of the VFC Program

    (a) In general. EBSA generally will issue to the applicant a no 
action letter \8\ with respect to a breach identified in the 
application if the eligibility requirements of section 4 are satisfied 
and a Plan Official corrects a breach, as defined in section 3, in 
accordance with the requirements of sections 5, 6 and 7. Pursuant to 
the no action letter it issues, EBSA will not initiate a civil 
investigation under Title I of ERISA regarding the applicant's 
responsibility for any transaction described in the no action letter, 
or assess civil penalties under either section 502(l) or 502(i) of 
ERISA on the correction amount paid to the plan or its participants.
---------------------------------------------------------------------------

    \8\ See Appendix A.
---------------------------------------------------------------------------

    (b) Verification. EBSA reserves the right to conduct an 
investigation at any time to determine (1) the truthfulness and 
completeness of the factual statements set forth in the application and 
(2) that the corrective action was, in fact, taken.
    (c) Limits on the effect of the VFC Program. (1) In general. Any no 
action letter issued under the VFC Program is limited to the breach and 
applicants identified therein. Moreover, the method of calculating the 
correction amount described in this Program is only intended to correct 
the specific breach described in the application. Methods of 
calculating losses other than, or in addition to, those set forth in 
the Program may be more appropriate, depending on the facts and 
circumstances, if the transaction violates provisions of ERISA other 
than those that can be corrected under the Program. If a transaction 
gave rise to violations not specifically described in the Program, the 
relief afforded by the Program would not extend to such additional 
violations.
    (2) No implied approval of other matters. A no action letter does 
not imply Departmental approval of matters not included therein, 
including steps that the fiduciaries take to prevent recurrence of the 
breach described in the application and to ensure the plan's future 
compliance with Title I of ERISA.
    (3) Material misrepresentation. Any no action letter issued under 
the VFC Program is conditioned on the truthfulness, completeness and 
accuracy of the statements made in the application and of any 
subsequent oral and written statements or submissions. Any material 
misrepresentations or omissions will void the no action letter, 
retroactive to the date that the letter was issued by EBSA, with 
respect to the transaction that was materially misrepresented.
    (4) Applicant fails to satisfy terms of the VFC Program. If an 
application fails to satisfy the terms of the VFC Program, as 
determined by EBSA, EBSA reserves the right to investigate and take any 
other action with respect to the transaction and/or plan that is the 
subject of the application, including refusing to issue a no action 
letter.
    (5) Criminal investigations not precluded. Participation in the VFC 
Program will not preclude:
    (i) EBSA or any other governmental agency from conducting a 
criminal investigation of the transaction identified in the 
application;
    (ii) EBSA's assistance to such other agency; or
    (iii) EBSA making the appropriate referrals of criminal violations 
as required by section 506(b) of ERISA.\9\
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    \9\ Section 506(b) provides that the Secretary of Labor shall 
have the responsibility and authority to detect and investigate and 
refer, where appropriate, civil and criminal violations related to 
the provisions of Title I of ERISA and other related Federal laws, 
including the detection, investigation, and appropriate referrals of 
related violations of Title 18 of the United States Code.
---------------------------------------------------------------------------

    (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
---------------------------------------------------------------------------

    \10\ Section 3003(c) provides that, whenever the Secretary of 
Labor obtains information indicating that a party in interest or 
disqualified person is violating section 406 of ERISA, she shall 
transmit such information to the Secretary of the Treasury.
---------------------------------------------------------------------------

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

[[Page 20270]]

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

    \11\ See section 4975(f)(5) of the Code; section 141.4975-13 of 
the temporary Treasury Regulations and section 53.4941(e)-1(c) of 
the Treasury Regulations. The IRS has indicated that the federal tax 
treatment of a breach and correction under the VFC Program 
(including the Federal income and employment tax consequences to 
participants, beneficiaries, and plan sponsors) are determined under 
the Code and that, based on its review of the Program, except in 
those instances where the fiduciary breach or its correction involve 
a tax abuse, a correction under the VFC Program for a breach that 
constitutes a prohibited transaction under section 4975 of the Code 
generally will constitute correction for purposes of section 4975 
and a correction under the VFC Program for a breach that also 
constitutes an operational plan qualification failure generally will 
constitute correction for purposes of the IRS' Employee Plans 
Compliance Resolution System (EPCRS).
---------------------------------------------------------------------------

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

Section 3. Definitions

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

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

[[Page 20271]]

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 
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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (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 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).
---------------------------------------------------------------------------

    \14\ These underpayment rates are displayed on EBSA's Web site 
and will be updated when necessary.
---------------------------------------------------------------------------

    (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

[[Page 20272]]

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 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 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-

[[Page 20273]]

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.

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 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\
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    \15\ Applicants must supply complete copies of the plan 
documents and other pertinent documents if requested by EBSA during 
its review of the application.
---------------------------------------------------------------------------

    (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 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

[[Page 20274]]

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

(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 by the employer and not from 
participant loan repayments.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    (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 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,

[[Page 20275]]

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.
(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 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
    (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

[[Page 20276]]

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.

    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).

    (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).
(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 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:

    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.

    (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).
(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-

[[Page 20277]]

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

(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 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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (ii) As an alternative to the correction described in paragraph 
(a)(2)(i) above, the plan may retain the asset and 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

[[Page 20278]]

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.
(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 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.
---------------------------------------------------------------------------

    \18\ The repurchase of the same property from the party in 
interest to whom the asset was sold is a reversal of the original 
prohibited transaction. The repurchase is not a new prohibited 
transaction and therefore does not require an individual prohibited 
transaction exemption.
---------------------------------------------------------------------------

    (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 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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (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 below-market 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

[[Page 20279]]

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).

    (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.
    (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;
    (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.

[[Page 20280]]

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

    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.

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:

    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;

[[Page 20281]]

    (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:
    (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
---------------------------------------------------------------------------

    \20\ See Advisory Opinion 2001-01A (Jan. 18, 2001).
---------------------------------------------------------------------------

    (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.
---------------------------------------------------------------------------

    \21\ See id.
---------------------------------------------------------------------------

    (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 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):


[[Page 20282]]


     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 ------(date) to ----
--(date). All participant contributions were deposited by ------
(date) and lost earnings on the delinquent contributions were 
deposited and allocated to participants' plan accounts on ------
(date).]

    Because you have taken the above-described 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.

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.

    ----1. Have you reviewed the eligibility, definitions, 
transaction and correction, and documentation sections of the VFC 
Program?
    ----2. Have you included the name, address and telephone number 
of a contact person familiar with the contents of the application?
    ----3. Have you provided the EIN, Plan Number, and address of 
the plan sponsor and plan administrator?
    ----4. Have you provided the date that the most recent Form 5500 
was filed by the plan?
    ----5. 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?
    ----6. 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?
    ----7. 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?
    ----8. Where applicable, have you enclosed a copy of an 
appraiser's report?
    ----9. Have you enclosed supporting documentation, including:
    ----a. A detailed narrative of the Breach, including the date it 
occurred;
    ----b. Documentation that supports the narrative description of 
the transaction;
    ----c. An explanation of how the Breach was corrected, by whom 
and when, with supporting documentation;
    ----d. A list of all persons materially involved in the Breach 
and its correction (e.g., fiduciaries, service providers, borrowers, 
lenders);
    ----e. 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;
    ----f. Proof of payment of Principal Amount and Lost Earnings or 
Restoration of Profits; and
    ----g. 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?
    ----10. If you are an eligible applicant and wish to avail 
yourself of excise tax relief under the VFC Program Class Exemption:
    ----a. 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
    ----b. 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?
    ----11. In calculating Lost Earnings, have you elected to use:
    ----a. The Online Calculator; or
    ----b. A manual calculation performed in accordance with Section 
5(b)?
    ----12. 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?
    ----13. 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:

-----------------------------------------------------------------------

;Name of Applicant:----------------------------------------------------

Title/Relationship to the Plan:----------------------------------------

Name of Plan, EIN and Plan Number:

-----------------------------------------------------------------------
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,

[[Page 20283]]

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, 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.
    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.)

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Underpmnt.
                        1st day                               To         Days       rate      Rev. proc.      Factor         Interest        Amnt. due
                                                                                  (percent)     table
--------------------------------------------------------------------------------------------------------------------------------------------------------
14/14/01...............................................      6/30/01         78           8           21      .017240956        1.132558        66.82256
7/1/01.................................................      9/30/01         92           7           19      .017798686        1.189354        68.01191
10/1/01................................................     12/31/01         92           7           19      .017798686        1.210523        69.22243
1/1/02.................................................      3/31/02         90           6           17      .014903267        1.031640        70.25408
4/1/02.................................................      6/30/02         91           6           17      .015070101        1.058736        71.31281
7/1/02.................................................      9/30/02         92           6           17      .015236961        1.086591        72.39940
10/1/02................................................     12/31/02         92           6           17      .015236961        1.103147        73.50255
1/1/03.................................................      3/31/02         90           5           15      .012404225        0.911742        74.41429
4/1/03.................................................      6/30/03         91           5           15      .012542910        0.933372        75.34766
7/1/03.................................................      9/30/03         92           5           15      .012681615        0.955530        76.30319
10/1/03................................................     12/31/03         92           4           13      .010132630        0.773152        77.07634
1/1/04.................................................      1/30/04         30           4           61      .003283890        0.253110        77.32945
                                                        ------------------------------------------------------------------------------------------------
    Total Interest.....................................  ...........  .........  ..........  ...........  ..............           11.64  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
 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 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 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 http://www.dol.gov/ebsa/
.


Applicant Name(s) and Address(es)

List separately:-------------------------------------------------------

-----------------------------------------------------------------------

[[Page 20284]]

List Transaction(s) Corrected

    Check which transaction(s) listed in the VFC Program you have 
corrected:

    ----Delinquent Participant Contributions and Participant Loan 
Repayments to Pension Plans
    ----Delinquent Participant Contributions to Insured Welfare 
Plans
    ----Delinquent Participant Contributions to Welfare Plan Trusts
    ----Loan at Fair Market Interest Rate to a Party in Interest
    ----Loan at Below-Market Interest Rate to a Party in Interest
    ----Loan at Below-Market Interest Rate to a Non-Party in 
Interest
    ----Loan at Below-Market Interest Rate Due to Delay in 
Perfecting Plan's Security Interest
    ----Loans Failing to Comply with Plan Provisions for Amount, 
Duration or Level Amortization
    ----Default Loans
    ----Purchase of an Asset by a Plan from a Party in Interest
    ----Sale of an Asset by a Plan to a Party in Interest
    ----Sale and Leaseback of Real Property to Employer
    ----Purchase of Asset by a Plan from a Non-Party in Interest at 
More Than Fair Market Value
    ----Sale of an Asset by a Plan to a Non-Party in Interest at 
Less Than Fair Market Value
    ----Holding of an Illiquid Asset Previously Purchased by a Plan
    ----Payment of Benefits Without Properly Valuing Plan Assets on 
Which Payment is Based
    ----Duplicative, Excessive, or Unnecessary Compensation Paid by 
a Plan
    ----Expenses Improperly Paid by a Plan
    ----Payment of Dual Compensation to a Plan Fiduciary

Correction Amount

Principal Amount: $ ----------
    Date Paid ---- /---- /----
Lost Earnings/Restoration of Profit: $ ----------
    Date Paid ----/---- /----

Narrative and Calculations

    List:
    (1) All persons materially involved in the Breach and its 
correction (e.g., fiduciaries, service providers):

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    (2) An explanation of the Breach, including the date(s) it 
occurred (attach separate sheets if necessary):

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    (3) An explanation of how the Breach was corrected, by whom, and 
when (attach separate sheets if necessary):

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    (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: 
----

    Description of how this was determined:

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    (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)
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    (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.

    ---- Online Calculator--``Printable Results'' page attached
    ---- Manual calculation--see attached calculations

Supplemental Information

    (1) Plan Sponsor Name:

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EIN:-------------------------------------------------------------------

Address:---------------------------------------------------------------

    (2) Plan Name:

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Plan Number:-----------------------------------------------------------

    (3) Plan Administrator Name:
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EIN:-------------------------------------------------------------------

Address:---------------------------------------------------------------

    (4) Name of Authorized Representative: (Submit written 
authorization signed by the Plan Official.)
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Address:---------------------------------------------------------------

Telephone:-------------------------------------------------------------

    (5) Name of Contact Person:
Address:---------------------------------------------------------------

Telephone:-------------------------------------------------------------

    (6) Date of Most Recent Annual Report Form 5500 Filing: --/--/ 
-- for Plan Year Ending: --/-- /--
    (7) Is Applicant Seeking Relief Under PTE 2002-51?

    ----Yes--Either:
    ----Submit 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 --If you are relying on the exception 
to the notice 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.
    ----No
    (8) Proof of Payment
    ----Canceled check
    ----Executed wire transfer
    ----Signed, dated receipt from the recipient of funds 
transferred to the plan (such as a financial institution)
    ----Bank statements for the plan's account
    ----Other:
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    (9) Disclosure of a current investigation or examination of the 
plan by an agency, to comply with Section 3(b)(3)(v):
    ----PBGC
    ----Any state attorney general
    State:
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Any state insurance commissioner
    State:
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    Contact person for the agency identified:
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    (10) In order to help us improve our service, please indicate 
how you learned about the VFC Program:
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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

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Signature of Plan Official

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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.''
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Name and Title

Signature

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Date-------------------------------------------------------------------

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;Name and Title--------------------------------------------------------
Signature

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Date-------------------------------------------------------------------

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

[[Page 20285]]

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.

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.

    ----1. Have you reviewed the eligibility, definitions, 
transaction and correction, and documentation sections of the VFC 
Program?
    ----2. Have you included the name, address and telephone number 
of a contact person familiar with the contents of the application?
    ----3. Have you provided the EIN, Plan Number, and address of 
the plan sponsor and plan administrator?
    ----4. Have you provided the date that the most recent Form 5500 
was filed by the plan?
    ----5. 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?
    ----6. 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?
    ----7. 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?
    ----8. Where applicable, have you enclosed a copy of an 
appraiser's report?
    ----9. Have you enclosed supporting documentation, including:
    ----a. A detailed narrative of the Breach, including the date it 
occurred;
    ----b. Documentation that supports the narrative description of 
the transaction;
    ----c. An explanation of how the Breach was corrected, by whom 
and when, with supporting documentation;
    ----d. A list of all persons materially involved in the Breach 
and its correction (e.g., fiduciaries, service providers, borrowers, 
lenders);
    ----e. 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;
    ----f. Proof of payment of Principal Amount and Lost Earnings or 
Restoration of Profits; and
    ----g. 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?
    ----10. If you are an eligible applicant and wish to avail 
yourself of excise tax relief under the VFC Program Class Exemption:
    ----a. 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
    ----b. 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?
    ----11. In calculating Lost Earnings, have you elected to use:
    ----a. The Online Calculator; or
    ----b. A manual calculation performed in accordance with Section 
5(b)?
    ----12. 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?
    ----13. 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:

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Name of Applicant:-----------------------------------------------------

Title/Relationship to the Plan:----------------------------------------

Name of Plan, EIN and Plan Number:

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    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