November 22, 2002

WASHINGTON, D.C.-- The U. S. Department of Labor today announced publication of the final class exemption providing relief from the excise taxes imposed on prohibited transactions corrected as part of the Voluntary Fiduciary Correction (VFC) Program.

Assistant Secretary of Labor Ann L. Combs said, "By expanding the scope of relief from excise taxes in the final exemption, more employers and service providers will be encouraged to bring their plans into compliance with federal employee benefits law. Increased compliance with the law means more security for workers’ health and retirement benefits."

The final exemption provides relief from the excise taxes imposed under the Internal Revenue Code for four transactions covered by the VFC Program. Relief is available provided plan officials satisfy the conditions of the exemption. The transactions include:
• Late transmittal of employee contributions and participant loan repayments to plans
• Loans between plans and related parties at fair market interest rates
• Purchases or sales of assets between plans and related parties at fair market value
• The sale and leaseback of property between plans and employers for fair market value and fair market rental value.

On March 28, 2002, the department included the proposed class exemption in its expanded VFC program to allow applicants to avoid imposition of excise taxes which otherwise discourage voluntary compliance. Based on public comments, the department made several changes to the proposal. One change expands the transaction relating to employee contributions to cover delinquent transmittal of participant loan repayments to plans. The other changes allow service providers to use the exemption more frequently than once every three years and let certain VFC applicants give the required notice to an unrelated plan fiduciary as a representative of plan participants and beneficiaries.

The VFC Program allows plan officials, sponsoring employers or parties to affected transactions to voluntarily correct specific violations of the Employee Retirement Income Security Act. Applicants must fully correct any prohibited transactions, calculate any losses and restore those losses with interest or profits, and distribute any supplemental benefits owed to eligible participants and beneficiaries. If properly corrected, plan officials will receive a "no action" letter indicating there will be no further enforcement action by the Labor Department on the corrected transaction.

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