The ERISA Industry Committee (ERIC) has submitted comments supporting and recommending improvements to the Department of Labor’s (DOL) proposed changes to the Voluntary Fiduciary Correction Program.
In its comment letter, ERIC writes on several enhancements added to the amended and reinstated Program, including the new Self-Correction Component (SCC), updates to the original covered transactions, and clarifications on the Program’s eligibility criteria. ERIC also says it supports the DOL’s proposed amendments to Prohibited Transaction Exemption 2002-51, including the removal of the three-year “frequency of use” limitation on the use of that exemption.
The Committee did note that while it supported these changes, there were several improvements that could be made to the proposal, including an increase on the cap correction amounts, extending the permissible correction period, and eliminating or providing additional information regarding an unnecessary notice to the DOL.
“The DOL proposed rule amending its Voluntary Fiduciary Correction Program will make it simpler for employers to comply with the complex rules governing employee benefit plans,” said Andy Banducci, senior vice president of Retirement and Compensation Policy for ERIC. “While we strongly support the proposal, DOL can improve it further by adding additional flexibility and working to harmonize with related Internal Revenue Service rules.”
Additionally, ERIC proposed expanding the correction program to issues related to missing participants and further coordinating the DOL program with the Internal Revenue Service’s (IRS) Employee Plans Compliance Resolution System (EPCRS).
Section 305 of SECURE 2.0 expands the EPCRS to “allow more types of errors to be corrected internally through self-correction, apply to inadvertent IRA errors, and exempt certain failures to make required minimum distribution (RMDs) from the otherwise applicable excise tax,” according to text in the Act.
In its letter, ERIC recommends the DOL to expand the SCC to include self-correction of plan loan failures in accordance with EPCRS. The comments also call on the DOL to expand the SCC for other “eligible inadvertent failures,” once the IRS provides further guidance on its meaning and how such failures can be self-corrected under EPCRS.
“This proposal, when coupled with related provisions in the recently enacted SECURE 2.0 Act, shows that policymakers understand how hard plan sponsors work to comply with the myriad rules and regulations affecting employee benefits. We urge the Department to enhance and quickly finalize the proposal,” Banducci added.
The proposed changes on the Program were announced in late 2022, in an effort to encourage correction of fiduciary breaches for plan sponsors and avoid potential DOL civil enforcement actions and civil penalties, as long as fiduciaries voluntarily correct eligible transactions in a manner that meets the requirements of the Program.
The Employee Benefits Security Administration (EBSA) identified several changes to the Program that would make it easier for, and more useful to, employers wanting to avoid penalties.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
