Retirement Plans: Government Announces New ERISA Enforcement Plan—And New Program To Correct Violations Without Penalties

The U.S. Department of Labor’s Pension and Welfare Benefits Administration (PWBA) has just released its new enforcement strategy to ensure that pension plans comply with ERISA. The main target: defined contribution programs, particularly 401(k) plans. This means you could be hit with hefty penalties for pension plan administration errors, such as delinquent employee contributions and improper loans. Fortunately, you can avoid fines by taking part in the PWBA’s new Voluntary Fiduciary Correction Program (VFCP), which allows you to disclose and correct problems before the government uncovers them. This report will walk you through the terms of the VFCP, which took effect on April 14, 2000.

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Who’s Eligible To Participate

Any plan official or sponsoring employer may apply to correct violations covered by the program. To qualify, you must find a way to undo the improper transactions, restore any losses they caused and distribute benefits that are owed because of the mistakes. No one involved in a criminal violation or a pending investigation can participate in the VFCP.

How To Remedy Violations

The program lays out five steps for correcting pension plan violations:

1. Identify violations. Thirteen types of improper transactions qualify for the program, including delinquent employee contributions, loans with inadequate collateral and improper sales or purchases of plan assets.

    

2. Fix mistakes. The government has issued detailed instructions about how to correct each type of violation.

    

3. Calculate and restore any losses and profits. Determine how much money, including interest, the plan or participants would have received if the violation hadn’t occurred.

    

4. Notify participants and beneficiaries in writing. The notice must state that plan participants can obtain a copy of your VFCP application from your plan administrator. You also have to include the address and phone number of the PWBA office where the application was filed.

    

5. File an application with the PWBA. Include a detailed narrative describing the errors, the names of the individuals involved and the corrective action taken. The application must contain a signed, sworn statement that you complied with all program conditions. Plus, you have to attach documentation showing how you corrected the violations.

After properly completing the five-step program, you’ll receive a “no-action letter” signifying that the PWBA won’t penalize you for the violations.

Proceed With Caution

If you participate in the VFCP, you must follow the rules meticulously. The government will review all applications for completeness and accuracy, and you’ll be subject to penalties for violations that were not fully disclosed and corrected when you submitted your application. To avoid surprises, consider hiring an expert to audit your plan before submitting a VFCP application.Note that you’re only protected from fines for the specific types of transactions covered by the program. For example, the government could still penalize you if it discovers that you filed an incorrect annual report Form 5500. And it can report the information disclosed in your VFCP application to the IRS.