Prohibited Transaction Exemption (PTE) 2002-51 To Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program
Published Date: 1/15/2025
Rule
Summary
The Department of Labor is updating a special rule that helps fix mistakes in retirement plans without penalties. This change makes it easier and more helpful for employers and others to correct errors and avoid taxes on those fixes. The new rules kick in on March 17, 2025, and affect retirement plans, their participants, and anyone involved in these corrections.
Analyzed Economic Effects
6 provisions identified: 4 benefits, 1 costs, 1 mixed.
Self‑correction with excise‑tax relief
Starting March 17, 2025, employers and others may self‑correct certain late participant contributions and loan repayments through a new Self‑Correction Component (SCC). Self‑correctors submit an SCC notice electronically and receive an email acknowledgement (instead of a no‑action letter) and may receive excise tax relief so long as the delinquent amounts were transmitted to the plan within 180 calendar days of receipt or when payable and the lost earnings amount is $1,000 or less.
Removal of the three‑year reuse limit
The Department eliminated the historical rule that generally prevented a plan or fiduciary from using the VFC Program and PTE 2002‑51 for a similar type of transaction if they had used the relief for that transaction within the prior three years; the Department will monitor frequency of use going forward.
No‑posting notice rule; model notice provided
Plan applicants must notify participants and beneficiaries by regular mail, electronic mail, or a combination — posting alone is no longer allowed. The rule requires written notices to be understandable by the average plan participant, gives interested persons 30 calendar days to comment, and the Department published a Model Notice (available in twelve non‑English languages) to help plans comply.
Notice exception and payment requirement for SCC
For self‑corrections under the SCC (limited to lost earnings of $1,000 or less), plans do not have to provide the usual notice to interested persons; instead the self‑corrector must pay the excise tax amount that otherwise would be imposed by Code section 4975 to the plan, allocate it to participant accounts, retain a completed IRS Form 5330 or equivalent documentation, and provide that documentation to the plan administrator.
Expanded sale/leaseback relief for affiliates
The exemption now covers sales of real property to a plan by an affiliate of the sponsoring employer and leasebacks to that affiliate, with 'affiliate' defined in the exemption (including controlled entities and certain officers, directors, partners, employees and family members).
Eligibility limits for exemptive relief
The exemption continues to include numerical eligibility conditions: transactions in sections I.B, I.C, I.D, I.E must not involve in the aggregate more than 10 percent of the plan's fair market value at the time of the transaction; settlor expenses paid from plan assets are limited to the lesser of $10,000 or 5 percent of plan assets.
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