EBSA Expects to Finalize Voluntary Correction Update in ‘Next Few Months’

The Department of Labor should be finalizing its proposed update to the Voluntary Fiduciary Correction Program in “the next few months,” according to a representative of the Employee Benefit Security Administration speaking at a conference on Tuesday.

Ali Khawar, the principal deputy assistant secretary for EBSA, at the Small Business Retirement Summit hosted by the U.S. Chamber of Commerce and Paychex Inc., spoke about the VFCP and other regulatory items, including the DOL’s retirement security proposal.

The VFCP allows fiduciaries to document administrative errors and then submit a correction to EBSA in order to receive a no-action letter from the agency. Under current regulations, “certain transactions such as prohibited purchases, sales and exchanges; improper loans; delinquent participant contributions; and improper plan expenses” may be corrected using the VFCP.

The DOL proposed in November 2022 to permit certain errors to be self-corrected: A fiduciary could fix the error and inform EBSA after the fact, instead of seeking pre-approval. Eligible errors would include employee contributions that are invested or loan repayments that are deposited in an untimely manner, provided the cost of error does not exceed $1,000 and is not more than 180 days old. This is believed by EBSA to represent the majority of the fiduciary errors made in plan administration.

Khawar explained that many errors are made by small businesses that are not acting recklessly or in bad faith. He said that, in some cases, the plan’s bookkeeper simply took a vacation, and the backup bookkeeper needed more training.

He added that permitting plan fiduciaries to fix these issues without resorting to enforcement action is a “win-win,” and he anticipates final rules to be issued in the coming months.

Khawar also spoke briefly about the retirement security proposal. He noted that small businesses are not considered retail investors and are therefore not protected by the Securities and Exchange Commission’s Regulation Best Interest when paying for advice on investment menu design, which the retirement security proposal would address.

Tim Hauser, the deputy assistant secretary for program operations of the Employee Benefits Security Administration, also highlighted this element of the proposal, which would subject one-time investment menu sales to fiduciary standards under the Employee Retirement Income Security Act, in a recent interview with PLANSPONSOR. A comment letter from Morningstar to the DOL on the proposal estimated that small businesses often overpay on such fees, which could cost them as much as $55 billion per year in unnecessary fees.