Workplace retirement plans with late participant contributions or loan repayments could self-correct those errors without launching a formal US Labor Department application process, according to a new agency proposal.
The proposed rule, released Friday, marks the first time the department has added a self-correction component to its Voluntary Fiduciary Correction Program—a significant development that officials said will streamline the corrections process and lead to a better response rate from retirement plan officials called fiduciaries.
“When people correct violations through the VFCP, that frees up resources that we can devote to other matters,” said Lisa M. Gomez, assistant secretary for the Employee Benefits Security Administration. “For an agency as small as ours, that’s a very important part of how we view the success of the VFCP.”
EBSA restated and floated several revisions to its correction program in addition to the self-correction component. The proposal also would expand the kinds of transactions covered under the program and simplify the administrative tasks necessary to receive relief.
The agency additionally proposed a separate rule that would amend the prohibited transaction exemption plans use to correct errors without paying higher taxes. Under the proposal, self-correcting plans would simply inform the agency that a correction has taken place via an online portal—eliminating the need for a formal application and no-action letter.
The Voluntary Fiduciary Correction Program allows retirement plan fiduciaries to avoid civil penalties under the Employee Retirement Income Security Act of 1974 (Pub.L. 93-406) by identifying and correcting plan design and implementation errors.
The IRS is considering an expansion of its own retirement plan correction program that would permit plan sponsors to correct errors before tax regulators launch a plan audit.
EBSA’s proposed self-correction program for delinquent contributions and loan repayments would come with several conditions. Not only would the correction have to take place within 180 days from the date of withholding or receipt, but lost earnings couldn’t exceed $1,000.
Self-correcting plans would be required to use the program’s online calculator to determine lost earnings, as well as an online portal to file a notice of the correction with the agency. Those plans would be required to retain their self-correction record checklist.
The agency isn’t ruling out expanding the self-correction component to cover more than just missed contributions or repayments. The proposed rule restates the VFCP program in its entirety, and Gomez told reporters Friday that she wants input from the rest of the plan benefits community about ways to improve all components of the program, including the stated transaction limits.
“While we work hard here to come up with ideas of transactions that we think would fit under the program, we know that we are not the only source for good ideas, and we definitely want to hear from stakeholders as to other areas where there might be room for correction under this program,” she said during a press conference.
Comments on the department’s proposed rules will be accepted for 60 days following their formal publication in the Federal Register—projected for next week.
The separate proposal on prohibited transaction exemptions would eliminate a cap on the total number of similar voluntary corrections the agency will process for a single plan.
Employer-sponsored plans are currently only allowed to apply for one such voluntary correction every three years. A senior department official said repeat voluntary corrections are rare, and the agency believes it will be able to monitor excess use of the program for possible fiduciary violations.
EBSA adopted the voluntary correction program in 2002 and amended it twice in 2005 and 2006. The agency received more than 27,000 applications for voluntary corrections since the program first launched, resulting in $762 million in restorative payments to plans, Gomez said.
This year alone, the agency has received 1,372 for a total $5.1 million in participant money restored.