ARLINGTON, Va. - The American Society of Pension Actuaries has proposed that the Labor Department establish a program allowing pension plan sponsors to voluntarily fix breaches of fiduciary duty without the threat of legal action or onerous penalties, said Brian H. Graff, executive director.
The proposal - which is modeled along the lines of the Internal Revenue Service's voluntary compliance resolution program - would allow plan sponsors to fix breaches and present the corrections to the Labor Department for its approval. The Voluntary Fiduciary Correction program proposal would allow the Labor Department to require plan sponsors to file a formal application and pay a fee for pre-emptively fixing problems.
"What it is intended to do is to give people encouragement to correct," Mr. Graff said. If the Labor Department adopts the proposal, it would have to issue guidance to plan sponsors on how to use the program, he said.
The regulator, he added, "is very interested" in the proposal.
Under the program, plan sponsors would submit an application to make a voluntary correction and the Labor Department would review the application. If the proposed fix is not acceptable, regulators could negotiate another form of correction with the plan sponsor. If the Labor Department accepts the correction, it would then issue the plan sponsor a letter stating that it will not take any legal action or impose any fines.
However, the program would only protect plan sponsors from the disclosed violations of law and would not prevent the Labor Department from suing the plan sponsor for other breaches of fiduciary duty.
Under existing laws, plan sponsors face a steep penalty, which the new tax law last month raised to 15% from 10%, for engaging in activities banned by federal pension law. In addition, fiduciaries must pay 20% of the value of the recoverable amount. But the penalty acts as a deterrent to many plan sponsors that would like to fix mistakes, Mr. Graff said.
"People make mistakes. But if it's a sizable penalty, many plan sponsors just aren't able to correct," he said.