Friend or Foe? The Pros and Cons of the New Department of Labor Voluntary Fiduciary Correction Program

by Marcia S. Wagner, Esq. and Deanna H. Niño, Esq.

Copyrighted by, and reprinted with the permission of Tax Management, Inc.

Footnotes in [ ] appear at the end of this article

Major References:
65 Fed. Reg. 14164 (March 15, 2000); ERISA §§ 404, 405, 406, 409, 502.

Summary:

On March 15, 2000, the U.S. Department of Labor's ("DOL") Pension & Welfare Benefits Administration ("PWBA") published a notice in the Federal Register 1 (otherwise herein referred to as the "notice") informing the public of the newly adopted Voluntary Fiduciary Correction Program ("VFC Program"). This program enables plan officials 2 to identify specific transactions 3 which constitute violations of the fiduciary provisions of ERISA 4 and to voluntarily correct those specific violations using the PWBA "blue print" 5 of approved correction methodologies as detailed in the VFC Program.

If the correction of the specific transaction(s) is considered by PWBA to be full and accurate correction in accordance with the notice, PWBA will issue a "no action letter" 6 to that specific applicant with respect to that specific transaction, and no 502(l) civil penalty will be assessed with regard to such correction.

INTRODUCTION:

The long awaited and greatly anticipated VFC Program was recently announced by PWBA in a notice published in the Federal Register on March 15, 2000. Due to a sense of DOL urgency concerning the need for such a program, the VFC Program was implemented thirty (30) days after such publication of the notice in the Federal Register. This allows plan officials to correct violations during the period in which written comments are being received by the DOL. All comments must be received by May 15, 2000. [7]

The VFC Program was adopted by PWBA based upon its experience with the success of the Pension Payback Program. [8] However, to date the VFC Program is the first program of its kind which has been implemented by PWBA.[9] One reason for the PWBA's adoption of this program is the extraordinarily large amount of money which exists in private pension plan assets requiring the need for enhanced supervision of fiduciary duties with regard those plan assets.

Currently, the amount of money held in private pension plan assets exceeds $4.9 trillion, or "represents nearly one-sixth of the financial assets in the U.S. economy and far exceeds the total Gross Domestic Product of most other nations." [10]With this astronomical amount of money invested in private pension plans, along with the number of workers who are participants in such plans, it is imperative that fiduciaries comply with the requirements of ERISA, and that existing ERISA violations are corrected. PWBA views this program as a proactive initiative to ensure fiduciary responsibility by detailing fiduciary violations and encouraging adequate correction of existing violations, thereby protecting ERISA plan assets. [11]

PWBA intends to operate this program indefinitely and is receptive to modifying the program upon the completion of the written comments period. [12] It is interesting to note that Jeffrey Monhart, the national coordinator of the program, anticipates that most applications submitted to the Regional Offices pursuant to the VFC Program will be related to pension plans, as opposed to welfare plans. [13] Although, Mr. Monhart noted that welfare plans might seek a "no action letter" with regard to addressing violations concerning unnecessary plan expenses. [14] Perhaps in the future, after the written commentary period, the thirteen (13) ERISA violations specified in the notice will be expanded to include some violations specific to welfare plans.

BACKGROUND:

As detailed in the notice, PWBA [15] enforces the fiduciary duties and responsibilities of Title I of ERISA.[16] Specifically, Congress bestowed upon the DOL jurisdiction for civil enforcement of Title I under §§502(a)(2) and 502(a)(5). Sections 404 and 406 of ERISA detail the fiduciary duties with which plans must comply, and the prohibited transactions which may not be entered into between a plan and a "party-in-interest ("PII")" to a plan.[17] Although the DOL, the Department of Treasury and the Pension Benefit Guaranty Corporation ("PBGC") all have shared enforcement authority over the various titles of ERISA, the DOL (more specifically, PWBA) has primary enforcement authority over the fiduciary duties and prohibited transaction provisions embodied in Part 4, Title I of ERISA.

Additionally, ERISA §409 imposes personal liability upon fiduciaries for breaches of Part 4, Title 1 of ERISA, to "make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary." [18] Additionally, co-fiduciary joint and several liability exists where one fiduciary knows or should have known of another fiduciary's liability, and fails to take appropriate corrective action.[19] Due to the possibility of incurring personal liability and/or co-fiduciary liability, fiduciaries must take their duties and responsibilities very seriously.

Prior to the inception of the VFC Program, plan officials were dissuaded from voluntarily approaching PWBA, as such a confession of one's sins with regard to ERISA violations may have resulted in enforcement action through the initiation of an investigation, or referral to the Solicitor of Labor. Once an investigation is initiated, or a referral to the Solicitor's Office is made (which might ultimately give rise to civil litigation matters) most monetary corrections (in the majority of cases) would result in the imposition of a 502(l) civil penalty. This penalty is a mandatory civil penalty equal to twenty percent (20%) of the "applicable recovery amount" restored to the plan under any "settlement agreement" with the Secretary of Labor ("Secretary"), or "court order" in any action initiated by the Secretary with respect to a fiduciary breach of Part 4, Title 1. [20] This hefty 502(l) civil penalty [21] assessed against the breaching fiduciary effectively acted as a deterrent for many plan officials in notifying PWBA of fiduciary violations.

Under the VFC Program, these same plan officials may be more willing to voluntarily correct such fiduciary breaches and properly restore plan losses, thereby making plans "whole," because of the absence of the otherwise statutorily imposed 502(l) civil penalty. In the presence of full and complete voluntary correction with regard to a specific transaction, PWBA may not impose a 502(l) civil penalty with respect to that transaction, as there is no negotiation with PWBA officials concerning such correction. However, any additional correction required by PWBA pursuant to negotiation in addition to any correction amount already paid to the plan or to participants in accordance with the VFC Program application would be subject to the 502(l) civil penalty. [22]

Since this program applies only to certain specific transactions with precise correction methodologies, PWBA anticipates that the VFC Program will assist in furthering its mission by notifying plan officials of ERISA fiduciary requirements, providing acceptable correction methodologies, and aiding in deterring future ERISA violations through enhanced public awareness of potential violations. [23]

PWBA reserves the right to reject any application if warranted under the facts and circumstances as detailed in the application, [24] or to conduct an investigation to determine the completeness and veracity of the application. PWBA will not issue a "no action letter" and reserves the right to rescind an already issued letter, in situations where material misrepresentations occur, potential criminal violations exist, or VFC Program applications are incomplete. [25]

OVERVIEW OF VFC PROGRAM:

In order to participate in this self-correction program, essentially "anyone" [26] who is in the position to correct a plan breach of the fiduciary responsibilities contained in Part 4, Title 1 of ERISA, may correct the specific ERISA violation detailed in the notice and submit an application to the local PWBA Regional Office [27] requesting a "no action letter."

There are two (2) caveats [28] to the above-mentioned meaning of "anyone." [29] First, neither the plan in question, nor the applicant, can be currently "[u]nder [i]nvestigation" (which is defined in the notice as meaning an investigation "pursuant to ERISA §504(a) or any criminal statute affecting a transaction which involves an employee benefit plan"). [30] Second, it is not permissible for a party to participate in the program if the application in question contains evidence of criminal violations.

With regard to the impermissible use of the program in situations where the applicant or plan are "[u]nder [i]nvestigation," [31] the penalty of perjury statement further provides as detailed in the notice that a plan fiduciary must " further certify under penalty of perjury that at the date of this certification neither the Department nor any other Federal agency has informed [them] of an intention to investigate or examine the plan or otherwise made inquiry with respect to the transaction described in this application." [32] This "[u]nder [i]nvestigation" definition appears to include any governmental agency, such as, for example, the IRS or the Securities and Exchange Commission ("SEC"), with respect to the transaction detailed in the application narrative. [33]

In order to successfully participate in the program, each VFC Program application must contain the following: a detailed narrative that identifies the specific transaction which is in violation of ERISA, the facts and circumstances surrounding the specific transaction, and the individuals involved in the above-mentioned transaction; evidence that the specific transaction has been fully and adequately corrected using the specified PWBA correction guidance, including, but not limited to, the restoration of any identified losses with interest, disgorgement of profits by plan officials, and the payment of supplemental benefits to participants; a copy of the written sample notice [34] to be furnished to each participant [35] entitled to receive benefits under the plan [36] detailing the correction under the program; a signed and dated VFC Program checklist; [37] a current fidelity bond; the date the plan's most recent Form 5500 was filed; [38] a copy of the plan document and other pertinent plan documentation; and a signed and dated penalty of perjury statement from the plan fiduciary. [39]

The cost of correction of the violation specified in the application may not be paid with plan assets, unless such cost would have otherwise been paid from the plan (assuming the plan document permits such payment of reasonable and necessary expenses to be paid from the trust). For instance, in a situation where the plan assets are under-valued or over-valued for the 1995 plan year, correction in 1999 might include obtaining an appraisal in 1999 from an independent appraiser for the assessment of the fair market value of the plan asset as of 1995. In such a circumstance, the cost of the 1999 appraisal may be paid with plan assets at the price it would have cost for an appraisal in 1995. If the value of the 1999 appraisal costs more than the 1995 appraisal would have cost, the plan should be charged merely the price of the 1995 appraisal. [40] In other words, the plan (and/or the participants and beneficiaries), should be placed in the same position as it (and/or they) would have been in "but for" the fiduciary breach.

THIRTEEN (13) SPECIFIC VIOLATIONS PERMISSIBLE FOR CORRECTION UNDER VFC PROGRAM:

There are thirteen (13) specific transactions which may be corrected under the program as specified in the notice. These specific transactions, which are eligible [41] for the VFC Program, have been grouped into five (5) subcategorizes in the Federal Register, as follows:

  1. Contributions
    • unpaid employee contributions; and
    • delinquent or late contributions.
  2. Loans
    • loan at fair market interest rate to a PII;
    • loan at below-market interest rate to a PII;
    • loan at below-market interest rate to non-PII; and
    • loan at below-market interest rate due solely to delay in perfecting plan's security interest.
  3. Purchases, Sales and Exchanges
    • purchase of an asset (including real property) by a plan from a PII;
    • sale of an asset (including real property) by a plan to a PII;
    • sale and leaseback of real property to employer;
    • purchase of an asset (including real property) by a plan from a non-PII at a price other than fair market value; and
    • sale of an asset (including real property) by a plan to a non-PII at a price less than fair market value.
  4. Benefits
    • payment of benefits without properly valuing plan assets on which payment is based (under-valuation and over-valuation of plan assets).
  5. Plan Expenses

Each of the above-mentioned specific violations are identified in the notice, along with the formalized correction guidance, which must be specifically adhered to and documented to PWBA. [43] The notice also provides detailed examples of each violation specified above and the required correction for each violation. [44]

Virginia Smith, the PWBA Director of Enforcement, stated "[the DOL] tried to identify common fiduciary breaches that are easily correctable. All of these are very straightforward violations." [45] Additionally, Smith stated, "[w]e do not intend to use this program as a targeting mechanism." [46] This is important, because if plan officials were to anticipate increased exposure to PWBA enforcement action as a result of participation in the program, it will most likely have a chilling effect on the utilization of the VFC Program.

The approved correction methodology of the specific fiduciary breach in the notice is not necessarily consistent with the correction methodology as desired by Code §4975. However, "the IRS has indicated that except in those instances where the fiduciary breach or its correction results in a tax abuse situation or a plan qualification failure, correction under the VFC Program will generally be acceptable under the [Code]." [47] This is significant, because if plan officials fear that correction pursuant to the VFC Program will not suffice as adequate correction with regard to the IRS, and that such participation in the VFC program may expose the plan to additional IRS correction, the program's success would be compromised.

Please note, however, as detailed in this article's Section entitled Cons of the VFC Program, a plan's participation in this program will result in a referral to the IRS and most likely the imposition of IRS excise taxes.

PROS OF THE VFC PROGRAM:

Benefits to Plan Officials:

One benefit of the program is that the applicant obtains a "no action letter" with regard to the specific transaction detailed in the application. This "no action letter" states that PWBA will not initiate an investigation with respect to the specific transaction addressed in the application, nor refer the matter to the Solicitor of Labor. [48] Thus, the applicant can obtain closure [49] with regard to the violation.

Additionally, as noted previously, if the correction is complete and adequate, a significant benefit of the program is that the twenty percent (20%) 502(l) civil penalty will not be imposed on the specific transaction in the application. [50]

Situations Where the VFC Program Might be Desirable:

Any decision to enter into this program and voluntarily disclose breaches of fiduciary duty(ies) to the DOL, requires careful consideration of the individual factual circumstances surrounding the plan and the transaction(s) in question. However, certain factual scenarios exist which might be ideal for participation in such a program. One such circumstance is in a corporate merger and acquisition situation (especially a stock transaction). Often, the acquiring company requires that correction of a fiduciary violation occur pre-deal or post-deal, making a "no action letter" and participation in the VFC Program very desirable.[51]

Additionally, the VFC Program might be ideal in successor fiduciary or co-fiduciary situations, where such a successor fiduciary or subsequent co-fiduciary is apprehensive about the violations of a prior fiduciary and desires closure with respect to the prior fiduciary's ERISA violation(s). [52]

Similarly, in the multi-employer plan arena, this program might be advantageous in circumstances where a larger plan is acquiring a smaller plan. In these types of plan mergers, there is often a "turnover"[53] of plan fiduciaries. These new fiduciaries frequently desire to shield themselves from PWBA action with respect to a specific ERISA violation(s), and might desire a "no action letter" from PWBA with regard to the prior fiduciary(ies) breach(es). [54]

Benefits to the Private Pension World:

With a formalized correction initiative, plan fiduciaries are provided with information as how to remedy thirteen (13) specific violations. Even if a particular violation is not one of the specified thirteen (13) in the program, the notice provides guidance as to the types of PWBA approved correction methodologies. These methodologies might be extrapolated to other violations. [55]

The VFC Program will most likely deter future violations by creating awareness of ERISA fiduciary breaches and educating the public of such violations. [56] Perhaps most ideal, the program will result in the increased correction of breaches and the increased restoration of plan assets, thereby protecting the financial security of millions of participants. PWBA estimates the benefit of the VFC Program to participants and beneficiaries will total approximately $80 million. [57]

PWBA will be able to focus its time and energy on investigations where violations are more complicated and egregious. This would result in PWBA utilizing its limited resources more efficiently, thus resulting in additional security to private pension plan assets.

CONS OF THE VFC PROGRAM:

One disadvantage of the program is that the 502(l) civil penalty will be applied to any additional recovery amount repaid to the plan or participants in the correction of the breach(es). [58] Thus, even a plan official's "good faith" effort to fully remedy a breach (utilizing the correction methodology in the application) could potentially result in additional repayments subject to a civil penalty.

Additionally, PWBA reserves the right to reject a VFC Program application and may pursue enforcement action with regard to the transaction delineated in the application, if, for example, such transaction is not eligible for the program. Also, PWBA reserves the right to investigate the truthfulness or veracity of any application. [59]

Additionally, the desired result of participation in the program is PWBA's issuance of a "no action letter." However, this "no action letter" provides relief only from further action by PWBA with respect to the specific transaction subject to the application, and solely for the applicant who submitted the VFC Program application. This "no action letter" does not protect the applicant from actions or claims brought by third parties, or by other governmental agencies. [60]

Arguably, however, if one has adhered to the correction methodology in the notice, there is no monetary remedy to be sought by a third party. [61] Nonetheless, an equitable remedy may be sought and is not protected by the "no action letter." Additionally, in the situation of a third party action against a plan official for the breach remedied through the VFC Program application, the application itself might be construed as an evidentiary "admission against interest" against the plan official in a court proceeding. [62] One reason the application, if construed as an "admission against interest," would be clearly problematic would be in a situation where the plan official is correcting a "potential" violation, since the VFC Program is available to correct actual breaches and/or potential breaches of ERISA. [63] The possible use of an application as an admission of a fiduciary wrongdoing or ERISA breach, must be considered prior to entering into the VFC Program in a situation where the plan official is correcting a "potential" breach. [64]

However, if the applicant is in possession of a PWBA "no action letter," a court would most likely look favorably upon the correction methodology adhered to by the plan officials and give deference to the "no action letter" in the third party court action. [65] The VFC application might be advantageous to the applicant in a third party action as it provides evidence that the correction methodology adhered to pursuant to the VFC Program is "adequate correction." In certain circumstances this "no action letter" might be a basis for resolving legal action by third parties. [66] Additionally, a court might give deference to the "no action letter" as issued by PWBA and view such letter, although not binding, as persuasive authority. [67]

The "no action letter" is not binding on the DOL, unlike an IRS closing agreement under the Employee Plans Compliance Resolution System ("EPCRS"). [68] However, experience dictates that PWBA generally will not reopen a "closed" investigation once the agency has issued a closing letter with respect to a violation. Thus, it can be assumed that once PWBA issues a "no action letter" stating no further enforcement action will be taken by PWBA with regard to the corrected violation described in the narrative, it will stand by its promise. Although, technically in court, this "no action letter," (although persuasive evidence of the PWBA's intention not to pursue further action) is not a document which binds the applicant, or PWBA. [69]

Perhaps the biggest disadvantage for most plan officials is the requirement that participants be notified of the fiduciary breach and ensuing correction pursuant to the VFC Program. Additionally, this written notice must detail that participants may obtain a copy of the VFC application with all supporting documentation which was submitted to PWBA from the plan administrator. [70] The VFC Program requires that plan officials "in effect 'broadcast' their ERISA mistakes to plan participants a step that they are not required to make when they go through the standard voluntary compliance procedure during a department investigation. Moreover, notice to participants is not mandated when a Labor Department lawsuit against a plan results in a consent judgment, although information is available to plan participants who seek it." [71]

Plan officials often desire to correct their ERISA violations, but do not desire to publicize such errors to the participants. This notice requirement creates a disincentive to plan officials to utilize the VFC Program. [72] Although there are no detailed specifications as to what type of written notice must be given to participants regarding the correction [73], such notification to plan participants would most likely prove to be a human relations nightmare for the plan sponsor and/or plan official. Nonetheless, such a written notice is a requirement which must be adhered to in order to participate in the program.

Additionally, Alan Lebowitz, PWBA Deputy Assistant Secretary for Program Operations, stated "plans that correct fiduciary breaches under the program also will be required to disclose the fact in their annual Form 5500 report." [74] Thus, correction under the VFC Program is open to public scrutiny by plan participants who receive the written correction notice and/or request a copy of the plan's annual Form 5500 return. Although, Mr. Monhart stated, "[t]he "no action" letters PWBA issues to plan officials will not be made public." [75]

PWBA is required, pursuant to ERISA §3003(c), to refer the plan to the IRS for possible excise tax on each prohibited transaction corrected through the VFC Program. Excise tax, as stated by Virginia Smith, is "simply a requirement of law."[76] She further stated, "[i]f they [meaning plan officials] want to make themselves right, they've got to make themselves right all around." [77]

Circumstances Where VFC Program Might Not be Desirable:

In troubled plan situations where multiple violations occur and some are not correctable under the VFC Program, it would be unwise to utilize the VFC Program because plan officials would be voluntarily exposing the plan to PWBA enforcement action and a 502(l) civil penalty with regard to the violations not covered under the VFC Program. [78]

Additionally, there may be situations where plan officials might not be amenable to performing as much as is required by way of correction as specified in the VFC Program. [79] Often a decision to utilize the VFC Program would ultimately be one of a cost/benefit analysis. [80] Specifically, the cost and effort of complying strictly with the VFC Program (such as the following: the cost of correcting the breach [81], including the expense for independent persons as required in many of the PWBA correction methodologies under the VFC Program; the human relations cost for issuing a correction notice to participants, etc.) versus the benefits associated with a successful VFC Program application (such as the non-application of 502(l) civil penalty; the presumptive closure that a "no action letter" would bring to the plan officials, the avoidance of costly enforcement action by PWBA, etc.). [82]

In situations where one is uncertain as to whether any material misrepresentations might exist within the VFC Program application, plan officials should be wary that they may be committing perjury by signing a statement under the penalty of perjury without knowing certain material facts which might render the application false or misleading. [83] This might occur in a situation where parties to the original breach might not be involved in the application and might not know all of the facts surrounding the breach. The result of such material misrepresentations in the application is a rending void of the PWBA "no action letter," and the possibility of an initiation of PWBA, or other governmental agency, enforcement action with regard to the material misrepresentation. [84]

RECOMMENDATIONS AND CONCLUSIONS

There are many advantages and disadvantages to the VFC Program which must be weighed by plan officials and practitioners prior to entering into the VFC Program.

One recommendation which would most likely increase the use of this program and its effectiveness in obtaining voluntary compliance and utilization of the VFC Program would be to allow for "John/Jane Doe" submissions. [85] To date, there is no such ability for plan officials to submit applications under the VFC Program anonymously.

The VFC Program might be perceived as too rigid [86], since it details the exact correction methodology which must be adhered to in order to participate in the program. EPCRS allows for negotiation between the IRS and the plan official and demonstrates correction principles, citing examples of possible correction methodologies, but does not provide the only acceptable methods of correction resulting in an "all or nothing proposition" [87] as is the case in the VFC Program.

The written notice requirement to the participants, as well as the referral to the IRS under Section 3003(c) of ERISA, should be reconsidered in the VFC Program, in light of plan officials' potential resulting hesitancy to utilize the program.

With those additional modifications, the VFC Program would prove to be even more beneficial and successful for plans, plan officials, the private pension community, as well as PWBA. More practitioners and plan officials would be willing to enter into the VFC Program and correct ERISA breaches in accordance with PWBA correction methodologies. Currently, it appears that most practitioners and plan officials will adopt a "wait and see" [88] approach prior to using the VFC Program until all issues have been resolved through the notice and comments period or through the initial usage of the program.

* Marcia S. Wagner, Esq., is the managing director at Marcia S. Wagner, Esq. & Associates, P.C., a boutique law firm in Boston that specializes in ERISA, employee benefits and executive compensation. Deanna H. Niño, Esq. is an associate at Marcia S. Wagner, Esq. & Associates, P.C. Prior to joining Marcia S. Wagner, Esq. & Associates, P.C., Ms. Niño, worked as a PWBA Investigator in the Boston Regional Office.

Footnotes:

1 65 Fed. Reg. 14164 (March 15, 2000).

2 This definition is broader than "plan fiduciary" and is defined in the notice as meaning a "plan fiduciary, plan sponsor, party-in-interest with respect to the plan, or other person who is in a position to correct a [b]reach." 65 Fed. Reg. 14164, 14170.

3 There are thirteen (13) specific transactions which are delineated in the notice, and detailed herein, that are eligible for correction under the VFC Program.

See 65 Fed. Reg. 14164.

4 Employee Retirement Income Security Act of 1974, as amended. Please note that all section references herein are to the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder, unless otherwise stated.

5 This phrase or term was used to describe the VFC Program by Virginia Smith in White, "New Labor Department Compliance Program Will Help Plans Voluntarily Address Breaches," 27 Pension & Benefits Reporter, No. 11, p. 705.

6 See 65 Fed. Reg. 14164, Appendix A.

7 Additionally, the DOL intends to publish the final version of the VFC Program by January 1, 2001, which is within 160 days following the receipt of all of the written comments due May 15, 2000. 65 Fed. Reg. 14164.

8 61 Fed. Reg. 9203 (March 7, 1996). Unlike the Pension Payback Program, the VFC Program does not exempt plans from violations under § 4975 of the Internal Revenue Code of 1986, as amended (the "Code"). 65 Fed. Reg. 14164, 14165.

9 Please note, there is a separate DOL program entitled the Delinquent Filer Voluntary Compliance Program ("DFVC") for reporting and disclosure violations, which enables late and non-filers of Forms 5500 to correct such violations with reduced civil penalties. DOL Procedure, 60 Fed. Reg. 20874, Thursday, April 27, 1995.

10 Prepared Testimony of Leslie B. Kramerich, Acting PWBA Assistant Secretary, before the House Education and Workforce Committee Subcommittee on Employer-Employee Relations, Federal News Service, April 4, 2000.

11 What You Should Know About DOL's New Fiduciary Correction Program, ABA-CLE Teleconference, April 20, 2000.

12 PWBA Questions and Answers, Voluntary Fiduciary Correction Program, March 14, 2000.

13 Please note cafeteria plans are not welfare plans, existing pursuant to Code §125 and not ERISA, and therefore are not eligible for correction under the VFC Program.

14 White, "PWBA Voluntary Compliance Program Enables Plans to Right 13 Types of Wrongs," 27 Pension & Benefits Reporter 12, p. 753.

15 PWBA is the agency within the DOL that enforces Part 4, Title 1 of ERISA.

16 29 U.S.C. §1001 et seq.

17 "Party-in-interest" is defined in §3(14) of ERISA.

18 ERISA § 409(a).

19 ERISA § 405.

20 ERISA § 502(l).

21 The Secretary may waive or reduce the 502(l) civil penalty, within its sole discretion, based upon evidence of the plan fiduciary's or other person's severe financial hardship or evidence of acting in "good faith." ERISA §502(l)(3).

22 65 Fed. Reg. 14164, 14169.

23 "DOL Adopts Program Allowing Fiduciaries to Self-Correct Violations Without Penalty," Pension & Benefits Week, March 20, 2000, p. 2.

24 65 Fed. Reg. 14164, 14169.

25 PWBA Fact Sheet (March 14, 2000).

26 The exact wording in the notice is "other person who is in a position to correct a [b]reach," which essentially means "anyone who is in a position to correct a breach." 65 Fed. Reg. 14164, 14170.

27 There are ten (10) PWBA Regional Offices throughout the United States as listed in Appendix C of the notice. 65 Fed. Reg. 14164, Appendix C.

28 White, supra note 5, at 705.

29Supra note 25.

30 A PWBA investigation is defined as including oral or written notification of such an investigation to a plan official (or their authorized representative). However, notification of an investigation does not include mere contact or inquiry by PWBA officials, unless such contact relates to the underlying transaction described in the VFC Program application. 65 Fed. Reg. 14164, 14170.

31 65 Fed. Reg. 14164, 14170.

32 65 Fed. Reg. 14164, 14173.

33ee 65 Fed. Reg. 14164, 14172.

34 There is no guidance as to the specific type or format of the required notice. The notice must be given no later than due date of the furnishing of the plan's Summary Annual Report ("SAR") following the date of submission of the application. A special notice is required in situations where supplemental distributions are made to participants, explaining the supplemental distribution. The notice may be furnished by regular mail, posting or electronic mail so long as the method results in a manner which is reasonably calculated to inform plan participants. Presumably, the notice may be given within and as part of the SAR. 65 Fed. Reg. 14164, 14172.

35 It is important to note that the notice requirement of Section 5(e) of the VFC Program does not mention beneficiaries or alternate payees as entitled to receive a written notice of the correction under the VFC Program. See 65 Fed. Reg. 14164, 14172.

36 Please note, a written correction notice must be given to "all" plan participants, not merely "affected" participants. The VFC Program as detailed in the Federal Register is contradictory in that Section 5(e) specifies that notice must be given to "all" plan participants and Section 6(e)(viii) states that the application must include "a copy of the sample notification to all affected participants." See 65 Fed. Reg. 14164, 14172. Nonetheless, PWBA's Press Release dated March 14, 2000, states that notice must be given to "participants," which implies all participants, whether or not affected by the transaction.

37 65 Fed. Reg. 14164, Appendix B.

38 In the case of a correction regarding the under-valuation or over-valuation of plan assets, the correction includes the filing of amended Forms 5500. 65 Fed. Reg. 14164, 14177.

39 65 Fed. Reg. 14164, 14172.

40 65 Fed. Reg. 14164, 14172.

41 Please note, there are no dollar limitations or percentages of plan asset limitations for eligibility in the VFC Program, and there are no filing fees or user fees as required in the IRS voluntary compliance programs (with the exception of the Administrative Policy Regarding Self-Correction). See 65 Fed. Reg. 14164, 14170.

42 65 Fed. Reg. 14164, 14173-78.

43 Unlike IRS guidance under the Employee Plans Compliance Resolution System ("EPCRS"), which provides proposed correction methodologies, and allows for flexibility in the actual correction approaches. With the VFC Program, there is no flexibility regarding correction methodology. White, supra note 14, at 755.

44 Please note, the correction may not include the entering into of an additional "prohibited transaction" of ERISA as defined in ERISA §406, but may include the reversal of the prior prohibited transaction. 65 Fed. Reg. 14164, 14175, n. 8

45 White, supra note 5, at 705.

46 White, supra note 14, at 754.

47Supra note 23, at 4.

48 65 Fed. Reg. 14164, 14169.

49 The "no action letter" only provides relief to the applicant by PWBA with respect to the specific transaction. 65 Fed. Reg. 14164, 14169. Thus, it can be assumed that if the application is submitted by the board of directors or trustees, ERISA counsel should be careful to name all members of the above-mentioned board.

50 65 Fed. Reg. 14164, 14169. See also ERISA §502(l).

51 White, supra note 14, at 756; Supra note 11.

52 Supra note 11.

53 Term used in ABA-CLE Teleconference. Id.

54 Supra note 11.

55 White, supra note 14, at 756.

56 See 65 Fed. Reg. 14164, 14166.

57 65 Fed. Reg. 14164, 14166.

58 65 Fed. Reg. 14164, 14164

59 65 Fed. Reg. 14164, 14169.

60Id.

61 White, supra note 5, at 706.

62 Supra note 11.

63 Id.; See also supra note 23, at 3.

64 Supra note 11.

65 Id.

66Id.

67Id.

68 Id.; See also Code §7121.

69Supra note 11.

70 65 Fed. Reg. 14164, 14172.

71 White, supra note 14, at 754.

72 Id., at 755.

73 See 65 Fed. Reg. 14164, 14172.

74 White, supra note 5, at 705.

75 Congel, "ABA Benefits Teleconference Highlights PWBA Voluntary Compliance Program," 27 Pension & Benefits Reporter, No. 17, at 1059.

76 White, supra note 14, at 753. Quoting Smith in the PWBA March 14, 2000 news briefing.

77 Id.

78 Supra note 11.

79 Id.

80 Id.

81 See supra note 23, at 5.

82 Supra note 14, at 754; See also 65 Fed. Reg. 14164, 14166.

83 Supra note 11.

84 Id.

85 White, supra note 5, at 705; White, supra note 14, at 755.

86 White, supra note 14, at 755.

87 Id.

88 Id., at 754.