View Rule

Statement of Need: The VFC Program is a key element in PWBA's effort to encourage and facilitate fiduciary voluntary correction of certain breaches of fiduciary responsibility. Under the Program, plan officials will be relieved of the possibility of investigation and civil action by the Department and imposition of civil penalties, to the extent that they satisfy the conditions for correcting breaches described in the Program.

Summary of the Legal Basis: Section 409 of ERISA provides that an employee benefit plan fiduciary who breaches any of the responsibilities, obligations, or duties imposed upon him or her by part 4 of title I of ERISA shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits that such fiduciary may have made through use of the assets of the plan. The Department has the authority under section 504 of ERISA to conduct investigations to deter and correct violations of title I of ERISA and under sections 502(a)(2) and 502(a)(5) of ERISA to bring civil actions to enforce the provisions thereof. Section 502(1) of ERISA requires the assessment of a civil penalty in the amount equal to 20 percent of the applicable recovery amount with respect to any breach of fiduciary responsibility under (or other violation of) part 4 by a fiduciary.

Alternatives: The VFC Program is essentially a deregulatory initiative, and participation in the Program is entirely voluntary. PWBA has determined that this approach is more flexible, efficient and protective of plans than regulatory alternatives which do not serve to encourage voluntary correction of fiduciary breaches.

Anticipated Costs and Benefits: Participation in the VFC Program is entirely voluntary and, as such, it is assumed that plan officials will elect to participate only when the potential benefits to them are expected to exceed the costs of participation. Benefits may include the reduction of exposure to the risk of investigation and subsequent litigation, the potential cost of which cannot be specifically quantified, and the savings of penalties under section 502(1) of ERISA which would otherwise be payable on amounts required to be restored to plans by fiduciaries pursuant to a settlement agreement with the Department or court order.

Risks: Failure to adopt the VFC Program would deprive plan officials of significant opportunities to voluntarily correct fiduciary breaches and to avoid costly litigation and civil penalties. Because the VFC Program encourages and facilitates compliance with the law, failure to implement the VFC Program may serve as a disincentive to the proper management of employee benefit plans.