The Voluntary Fiduciary Correction Program (VFCP) has long been a source of reprieve to plan sponsors and fiduciaries from enforcement actions by the Department of Labor (DOL), by allowing the voluntary correction of a number of Employee Retirement Income Security Act (ERISA) violations before potential agency intervention. In coming forward and voluntarily correcting certain errors, the DOL continues to encourage plan sponsors and fiduciaries to engage in such behavior by issuing letters to those who have accepted VFCP submissions stating that the agency will not take any further action and will not pursue civil penalties on those matters. However, VFCP submissions require detailed applications which can be time-consuming and costly to prepare in comparison to the potentially minor correction that they are intended to rectify.
On January 15, 2025, the DOL’s Employee Benefits Security Administration (EBSA) amended and restated the VFCP, including finalized amendments to Prohibited Transaction Exception (PTE) 2002-51, to be effective March 17, 2025.
In line with the DOL’s philosophy of motivating plan sponsors and fiduciaries to voluntarily correct any issues they discover as a result of the amendments, the VFCP will be easier to navigate and more user-friendly by simplifying and expanding the correction program under which plan sponsors and fiduciaries may seek relief for prohibited transaction errors.
One of the key updates is the addition of a streamlined Self-Correction Component (SCC) submission process for:
- delinquent participant contributions and loan repayments to pension plans, and
- eligible inadvertent participant loan failures.
Correction under SCC involves submission of a notice of correction to the DOL through the EBSA webtool, providing the applicable information and executing a penalty of perjury statement. Through this process, a self-corrector circumvents the requirement to provide notice to all interested persons regarding the prohibited transaction and instead must pay the applicable excise tax imposed by Code Section 4975 directly to the plan. Note that self-correctors will receive an email acknowledgment upon their submission of the SCC notice to the DOL instead of a “no action” letter.
Correction of Delinquent Participant Contributions/Loan Repayments
In an effort to minimize the number of VFCP applications used for minor discretions for late or delinquent participant contributions and loan repayments, the SCC allows self-correction if lost earnings on missing amounts total $1,000 or less. Self-correctors must also: (1) compute the lost earnings by using the DOL’s online calculator; (2) remit late payments to the plan’s trust within 180 calendar days of withholding; (3) pay penalties, late fees and other charges; and (4) not already be under investigation.
Correction of Participant Loan Failures
Those who correct inadvertent participant loan failures through the Internal Revenue Service’s Employee Plans Compliance Resolution System (EPCRS) can use the SCC to avoid enforcement action and penalties.
For more information on how to take advantage of the new self-correction component of the VFCP, or to navigate other corrections for any potential errors with your retirement plans, please contact a member of the Faegre Drinker benefits and compensation team.
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