Question on VFCP eligibility

I am seeking guidance on whether the Plan Sponsor can submit an application to VFCP for funds that were moved back and forth from the plan to the corporation over the course of 3 years.  Turns out one of the owner/trustee was mishandling funds unbeknownst to the other owner/trustees.  This is a family business and they trusted him.  All funds have been restored and lost interest deposited and excise taxes paid with 5330 forms.  The company recently sold and the buyers attorney is requiring they apply for relief through VFCP.  She claims it qualifies for this program under one of the 19 categories that states "the use of plan assets for corporate purposes is a prohibited loan to a party in interest."  I don't see where she sees this category on the application form.  I explained the situation to a DOL agent in Washington D.C. and Los Angeles and both of them told me the application would be rejected if there is any indication that there was fraudulent activity.  Is the attorney confused or am I?  I would appreciate any comments and/or guidance in this matter. 

Is this about a proposed sale, or a concluded sale?

Did the buyer buy shares or other capital interests of the seller?

Or did the buyer buy assets from the seller?

Did the buyer assume the seller’s plan?

Did the seller terminate or discontinue the seller’s plan before the closing?

Did the seller’s executives (including perhaps two or more of the breaching fiduciaries) become executives of the buyer?

Why does the buyer want the seller plan’s breaching fiduciaries to get relief from ERISA civil penalties (on a correction amount already paid)?

(Unlike a tax-law correction, which might protect a plan’s treatment as a tax-qualified plan, VFCP no-action relief protects a breaching fiduciary regarding the breach disclosed and corrected. About VFCP’s essential relief, an ERISA § 502(i) or § 502(l) penalty is imposed on a party-in-interest or a fiduciary, not the plan.)

If the answers to those questions don’t end someone’s desire for a VFCP application, consider also whether perceptions about relevant facts and circumstances differ.

For example, might the buyer’s lawyer have assumed there was a loan? While you assume the corporation had the money with no legally enforceable obligation to repay?

Likewise, might the buyer’s lawyer have assumed there was no theft from the plan? While you assume there was a theft from the plan?

Voluntary Fiduciary Correction Program https://www.govinfo.gov/content/pkg/FR-2006-04-19/pdf/06-3674.pdf

{Underlining not mine}

Thank you Peter.  The sale concluded in September.   The Buyer purchased the stock of the selling company. The Plan was terminated prior to the conclusion of the sale and all benefits will be distributed.  There is one owner/fiduciary of the selling company who will be an executive with the buyer's company.  He purchased some of the Buyers stock.  I do not know any other details with respect to the purchase other than they were requiring the Seller to correct the fiduciary breach by filing the 5330, pay the penalties and restore lost interest.  I don't fully understand why they want the Seller to apply for penalty relief through the VFCP and I still don't think this situation qualifies.  They may have assumed there was a loan or didn't fully understand the breach, but I doubt that because all of this was communicated to them during the negotiations of the sale.

Perhaps you have a better understanding with the additional information I have given you?

While I don’t know the buyer’s reasoning, let’s imagine one possibility.

The seller company (now owned by the buyer) might have been at least a party-in-interest and, perhaps, a fiduciary—whether a named fiduciary, such as plan administrator, or a functional fiduciary—of the discontinued (but not yet ended) seller plan. If so, not only the humans but also the company remains exposed to one or both § 502 civil penalties (even if one assumes all bad transactions are fully corrected). And that’s so even if the seller plan becomes terminated.

Each of the seller company’s former owners might want his or her lawyers’ advice about whether an after-closing provision obligates the former owner to apply for VFCP no-action relief, and what consequences might result from breaching the provision.

Or the seller company’s former owners might welcome a VFCP application (if feasible) because the no-action relief, including nonassertion of civil penalties, could protect a breaching fiduciary who did the bad transactions and another fiduciary who failed to meet her direct or cofiduciary responsibilities.

About whether VFCP no-action relief could be obtained, that’s fact-sensitive. Each of the seller company’s former owners might want his or her lawyers’ advice about that too.

Thank you.  I pass along this information.

Renee H, you can call the DOL to discuss without identifying your client. Ph #'s are listed in the guidance. 

This is a continuation of the same PT plan issue.  We received confirmation from several agents at DOL that the breach does not qualify for VFCP.  The seller filed the 5330's, paid the penalties and restored lost interest.  What they did not do is report the PT on the 2019 5500-SF form.  My question is should they file an amended 2019 or report the PT on the final 5500-SF form and include an explanation of the breach and how it was corrected (this was already reported in the 5330).  The Buyer is giving them the option but would prefer they report it on the final 5500-SF.    I would love to hear your recommendations.

Was this known at the time the 2019 Form 5500 was prepared and filed?