Prohibited Transaction Exemption (PTE) 2002-51 To Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program

<RULE> DEPARTMENT OF LABOR <SUBAGY>Employee Benefits Security Administration</SUBAGY> <CFR>29 CFR Part 2550</CFR> <DEPDOC>[Application No. D-11799]</DEPDOC> <RIN>RIN 1210-ZA23</RIN> <SUBJECT>Prohibited Transaction Exemption (PTE) 2002-51 To Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Employee Benefits Security Administration, Labor. <HD SOURCE="HED">ACTION:</HD> Exemption amendment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document amends Prohibited Transaction Exemption 2002-51, an exemption for certain transactions identified in the Department of Labor's Voluntary Fiduciary Correction Program (VFC Program or Program). The VFC Program is designed to encourage correction of fiduciary breaches and compliance with the law by permitting persons to avoid potential Department of Labor civil enforcement actions and civil penalties if they voluntarily correct eligible transactions in a manner that meets the requirements of the Program. PTE 2002-51 is a related class exemption that allows excise tax relief from excise taxes imposed by the Internal Revenue Code of 1986, as amended, for certain eligible transactions corrected pursuant to the VFC Program. This amendment to PTE 2002-51 is being finalized in connection with the Department's amendment and restatement of the VFC Program, published elsewhere in this issue of the <E T="04">Federal Register</E> (2025 VFC Program). These amendments simplify and expand the VFC Program and exemptive relief to make the Program and exemption easier to use and more useful for employers and others who wish to avail themselves of the relief provided. The amendment to PTE 2002-51 affects plans, participants and beneficiaries of such plans, and certain other persons engaging in such transactions. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This amendment will be in effect on March 17, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Emily Harris, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, telephone number (202) 693-8540. Brian J. Buyniski or Yolanda Wartenberg, Office of Regulations and Interpretations, Employee Benefits Security Administration (EBSA), (202) 693-8500, for questions regarding the VFC Program amendments. James Butikofer, Office of Research and Analysis, EBSA, (202) 693-8410, for questions regarding the regulatory impact analysis. (These are not toll-free numbers.) <E T="03">For general questions regarding the VFC Program:</E> contact Dawn Miatech-Plaska, Office of Enforcement, EBSA, (202) 693-8691. For questions regarding specific applications and self-corrections under the VFC Program: contact the appropriate EBSA Regional Office listed in appendix C to the 2025 VFC Program. (These are not toll-free numbers.) <E T="03">Customer Service Information:</E> Individuals interested in obtaining information from the Department concerning the Employee Retirement Income Security Act of 1974 (ERISA) and employee benefit plans may call the Employee Benefits Security Administration's Toll-Free Hotline, at 1-866-444-EBSA (3272) or visit the Department's website ( <E T="03">www.dol.gov/ebsa</E> ). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> <HD SOURCE="HD2">History of the VFC Program and Class Exemption</HD> The VFC Program gives plans and fiduciaries a ready means to correct violations of ERISA, without the transaction costs and burden associated with enforcement actions for violations of the fiduciary standards in title I of ERISA. As an enforcement policy, the VFC Program simultaneously promotes compliance with the law, correction of violations, and the efficient use of scarce enforcement resources. The Department also has the authority under ERISA section 408(a) to issue exemptions from the prohibited transaction rules in ERISA sections 406 and 407 and Internal Revenue Code (Code) section 4975. <SU>1</SU> <FTREF/> Accordingly, in tandem with an amendment to the VFC Program published elsewhere in this issue of the <E T="04">Federal Register</E> , the Department is publishing this associated amendment to Prohibited Transaction Exemption (PTE) 2002-51, which implements important components of the VFC Program. <FTNT> <SU>1</SU>  Under Reorganization Plan No. 4 of 1978, 5 U.S.C. App., the authority of the Secretary of Treasury to issue exemptions pursuant to Code section 4975 was transferred, with certain exceptions not relevant here, to the Secretary of Labor. </FTNT> The Department of Labor's Employee Benefits Security Administration (EBSA) originally adopted the VFC Program in 2002, and later revised it in 2005 and 2006. <SU>2</SU> <FTREF/> EBSA designed the VFC Program to encourage employers and plan fiduciaries to voluntarily comply with ERISA and allow those potentially liable for certain specified fiduciary breaches under ERISA to voluntarily apply for relief from enforcement actions and certain penalties, provided they meet the VFC Program's criteria and follow the procedures outlined in the VFC Program. <FTNT> <SU>2</SU>  67 FR 15062 (March 28, 2002); 70 FR. 17516 (April 6, 2005); 71 FR. 20262 (April 19, 2006). </FTNT> The VFC Program describes how to apply for relief and lists the specific transactions covered and the acceptable methods for correcting fiduciary breaches under the Program. The most frequently corrected transaction under the Program is the correction of delinquent participant contributions. The Program provides a model application form, a checklist, and an online calculator for determining amounts to be restored to plans. The VFC Program has been, and will continue to be, administered in EBSA's Regional Offices. The Department granted PTE 2002-51 in connection with the VFC Program. Some of the breaches that may be corrected under the VFC Program are also prohibited transactions subject to excise tax under Code section 4975. Reorganization Plan No. 4 of 1978 transferred the authority of the Secretary of Treasury to issue exemptions from the prohibited transaction provisions of Code section 4975 to the Secretary of Labor. <SU>3</SU> <FTREF/> The exemption allows excise tax relief for certain specified breaches under the VFC Program. PTE 2002-51 is subject to several general conditions, including that the breach be appropriately corrected and the party applying must satisfy all the conditions of the VFC Program. The exemption also includes certain transaction-specific conditions. <FTNT> <SU>3</SU>  5 U.S.C. App. </FTNT> <HD SOURCE="HD2">2022 Proposal</HD> On November 21, 2022, the Department published in the <E T="04">Federal Register</E> proposed revisions to the VFC Program with a request for public comments. <SU>4</SU> <FTREF/> The 2022 VFC Program proposed revisions would establish a self-correction feature for certain delinquent participant contributions and loan repayments to pension plans (the SCC). On the same date, the Department also published in the <E T="04">Federal Register</E> a proposed amendment to PTE 2002-51 that would make certain conforming amendments to the class exemption. <SU>5</SU> <FTREF/> The Department received seven comments on the proposed amendment. <FTNT> <SU>4</SU>  87 FR 71164 (Nov. 21, 2022). </FTNT> <FTNT> <SU>5</SU>  87 FR 70753 (Nov. 21, 2022). </FTNT> On February 14, 2023, the Department reopened the comment period on both the 2022 Program VFC Program proposed revisions and the proposed amendment to PTE 2002-51 in light of section 305(b)(2) of the SECURE 2.0 Act of 2022 (SECURE 2.0 Act. <SU>6</SU> <FTREF/> This provision requires the Department to treat eligible inadvertent failures related to participant loans that are self-corrected under the Employee Plans Compliance Resolution System  <SU>7</SU> <FTREF/> (IRS's EPCRS) as meeting the requirements of the VFC Program “if, with respect to the violation of the fiduciary standards of the ERISA, there is a similar loan error eligible for correction under EPCRS and the loan error is corrected in such manner.” The Department requested comments on what revisions, if any, it should make to the VFC Program and exemption to reflect the treatment of corrections of loans to participants as described in SECURE 2.0 Act. Only one commenter addressed PTE 2002-51 in response and stated that no further amendments are required to the exemption. <FTNT> <SU>6</SU>  Enacted on December 29, 2022, as Division T of the Consolidated Appropriations Act, 2023, Public Law 117 328, 136 Stat. 4459 (2022). </FTNT> <FTNT> <SU>7</SU>  As described in Rev. Proc. 2021-30, or any successor guidance). </FTNT> <HD SOURCE="HD2">2025 VFC Program</HD> The Department is finalizing the amendment to the VFC Program elsewhere in this edition of the <E T="04">Federal Register</E> . With these amendments, EBSA intends to facilitate more efficient and less costly corrections of fiduciary breaches under the VFC Program, encourage greater participation in the VFC Program, and respond to requests from stakeholders for adjustments based on their experiences using the VFC Program. In this regard, the amendments are designed to simplify the VFC Program and make it easier to use by employers and others who wish to avail themselves of the relief provided. Notably, the new self-correction procedures will apply to the transaction most frequently corrected under the VFC Program—the delinquent transmittal of participant contributions and loan repayments to pension plans—as well as to certain participant loan failures that are self-corrected under the IRS's EPCRS. The Department anticipates that many users of the amended Program will find it improved and less resource intensive to comply with, without sacrificing protect ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 42k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━