Fiduciary correction program available to employee benefit plan sponsors

The US Department of Labor (DOL) provides the Voluntary Fiduciary Correction Program (VFCP) for benefit plan sponsors that need to correct various violations of the Employee Retirement Income Security Act of 1974 (ERISA). Some examples include failing to timely remit participant contributions and loan repayments to the plan, and making below market interest rate loans with parties in interest.

Employee benefit plan sponsors may voluntarily apply for relief from enforcement actions, if they accurately correct the violations. Violations can be fully and correctly resolved in four easy steps.

  1. Identify any violations and determine whether they fall within the transactions covered by the VFCP;
  2. Follow the process for correcting specific violations;
  3. Calculate and restore any losses or profits with interest, if applicable, and distribute any supplemental benefits to participants; and
  4. File an application with the appropriate Employee Benefits Security Administration regional office that includes documentation showing evidence of corrective action taken.

The VFCP provides category descriptions of transactions and methods of correction, such as:

  • Delinquent participant contributions and participant loan repayments
  • Fair market interest rate loans to parties in interest
  • Below market interest rate loans to parties in interest
  • Participant loans failing to comply with plan provisions for amount, duration, or level amortization
  • Defaulted participant loans
  • Purchase of assets by plans from parties in interest
  • Sale of assets by plans to parties in interest
  • Sale and leaseback of property to sponsoring employers
  • Benefit payments based on improper valuation of plan assets
  • Payment of duplicate, excessive, or unnecessary compensation
  • Improper payment of expenses by plan
  • Payment of dual compensation to plan fiduciaries

The program provides rules for making acceptable corrections involving the transactions listed above. Applicants must:

  • Conduct valuations of plan assets using generally recognized markets or obtain written appraisal reports from qualified professionals;
  • Restore to the plans the principal amounts involved plus the lost earnings;
  • Pay the expenses associated with correcting transactions; and
  • Make supplemental distributions when appropriate to former employees or beneficiaries and provide proof of the payments.

Under the VFCP, applicants must provide supporting documentation to the appropriate regional office of Employee Benefits Security Administration. This documentation generally includes:

  • Related plan document copies
  • Supporting transactions documents
  • Lost earnings amounts documents
  • Restored profits documents
  • Proof of payment of required amounts
  • Signed checklists
  • Penalty of perjury statements

The program provides a model application form that should be used to avoid application errors that may result in processing delays or rejections.

Plan sponsors must restore the plans, participants, and beneficiaries to the condition they would have been in had the violation not occurred. A class exemption exists that provides relief from certain excise tax provisions on the Internal Revenue Code, if the terms of the program and exemption are met.

The approval letter received after an effective process is taken provides evidence and support that the violation was accurately corrected for future audits of the plan. More information on this program is available on the US Department of Labor website.


For more information on this topic, or to learn how Baker Tilly employee benefit plan audit specialists can help, contact our team.