DOL Wants Feedback on Retirement Plan Loan Fixes
Secure 2.0 widens "the range of operational failures for which self-correction is available," attorneys say.
The Labor Department said Monday it would reopen the comment period on its voluntary correction program for retirement plans in light of changes to the program as set out in the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act.
Comments will be taken on amendments to Labor’s Voluntary Fiduciary Correction Program and the proposed amendment to the associated class Prohibited Transaction Exemption 2002-51, which exempts certain transactions that are corrected under Labor’s VFC program from the 15% IRS penalty.
Secure 2.0, Labor explained, “includes a provision that requires the program to cover certain violations related to participant loans if self-corrected violations align with the IRS’ Employee Plans Compliance Resolution System.”
Reopening the comment period will allow the Employee Benefits Security Administration “to obtain important public input on implementing the changes mandated by Congress,” Lisa Gomez, assistant secretary for Employee Benefits Security, said Monday in statement.
Attorneys at Faegre Drinker explained in an alert that Secure 2.0 “significantly expands the availability of self-correction by widening the range of operational failures for which self-correction is available, including plan loan errors.”
EBSA is reopening the comment period for 60 days. The notice will be published in the Federal Register Tuesday.
Labor states that it’s seeking comments on what revisions, if any, should be made to the VFC Program “to reflect the treatment of corrections of loans to participants” as described in Secure 2.0 section 305(b).
“Specifically, how should the VFC Program be modified in the future to implement the new deeming provision” in Secure 2.0 section 305(b)(2)? Labor asks.
Labor explained that if plans voluntarily correct eligible transactions and meet the specified requirements, the program and exemption together allow the plans to avoid potential civil enforcement actions and penalties.
On Nov. 21, 2022, EBSA published proposals and invited comments on the proposed program and exemption updates, “including a self-correction component for employers who fail to send employee salary withholding contributions or participant loan repayments to retirement plans in a timely manner,” Labor said.
The comment period for the proposals closed on Jan. 20, 2023.