The Department of Labor (DOL) finally amended the Voluntary Fiduciary Correction Program (VFCP), effective March 17, 2025, to allow employers and other plan fiduciaries to self-correct some fiduciary breaches. Notably, the violations eligible for self-correction include late deposit of employee contributions, which is one of the most common compliance violations. This is viewed as a prohibited use of plan assets by the employer. Until now, employers and plan fiduciaries had to file a VFCP application with DOL to avoid paying the prohibited transaction excise tax.and to forestall future challenges by DOL. If approved, DOL issued a "No Action" letter.
The amended VFCP, which includes a new feature called the Self Correction Component (SCC), now allows plan fiduciaries to self-correct certain fiduciary breaches using guidance provided by DOL but without filing an application with DOL. DOL will not issue the "No Action" letter that applicants receive but excise tax relief would still be available.
DOL said the amended VFCP is intended to facilitate more efficient and less costly correction of fiduciary breaches and encourage greater participation in VFCP. In addition to permitting self-correction of delinquent contributions, the most significant VFCP changes add self-correction procedures for loan repayments and coordinate loan repayment failures corrected under the IRS' Employee Plans Compliance Resolution System with VFCP.
Compare This to IRS Self-Correction. DOL stopped short of allowing employers and other fiduciaries to fully self-correct in the manner permitted under IRS correction programs which, in many cases, do not require notifying the IRS of the correction or signing a perjury statement. Under DOL’s new SCC, the employer, fiduciary or other plan official must sign a perjury statement and electronically notify DOL when self-correction is used. An acknowledgement of the notice is issued by DOL instead of a No Action letter.
Requirement for Self-Correction Under VFCP
Self-correction may be used as many times as necessary by any retirement plan regardless of its size or amount of assets as long as lost earnings on late contributions or loan repayments do not exceed $1,000. DOL clarified that this limit applies per payroll period.
Lost earnings must be calculated from the date the contributions or late repayments were withheld or received by the employer.
Late contributions or loan repayments must be transmitted to the plan within 180 days of withholding from the participant or receipt by the employer.
The DOL's online calculator must be used to calculate the amount of lost earnings payable to the plan.
An electronic notice must be transmitted to the DOL containing the plan sponsor's name, email address, employer identification number and plan number, number of affected participants, and the principal amount of the correction, date of the loss, lost earnings and date paid. Delinquent contributions and loan repayments are still required to be reported on Form 5500.
A certification under penalties of perjury by the employer or plan fiduciary is required.
A Retention Record Checklist and related documents must be provided to the plan administrator.
Where the Program May Fall Short.
$1000 Limit. Self-correction is limited to corrections in which lost earnings do not exceed $1,000. Even though DOL clarified that this is determined by payroll period, the largest employers might not always be eligible for SCC. For example, if an entire payroll were to be late due to vacation or leave of the responsible employees, late remittance could result in lost earnings greater than $1,000.
DOL rejected proposals to extend the remittance period beyond 180 days or increase or eliminate the $1,000 cap. DOL said the $1,000 cap along with the 180-day remittance deadline are intended “to exclude delinquencies from the SCC when the amount or length of delinquency suggest a need for EBSA to actively evaluate the circumstances surrounding the breach and the timing of the correction under the VFC Program application process.” DOL said it will monitor the SCC notices it receives to identify frequent use by a plan sponsor or to ensure that corrections are not being made in a way to avoid the $1,000 limit on loss earnings. It would be helpful if guidance on how this monitoring will be done could be provided.
180 Day Deadline. Very often late remittance is not discovered until year end or during the plan’s annual CPA audit. Unfortunately, as SCC is structured now, these discoveries will not be eligible for correction if remittance did not occur within the 180 day window. DOL rejected proposals to extend the remittance period beyond 180 days. DOL said the $1,000 cap and the 180-day remittance deadline are intended “to exclude delinquencies from the SCC when the amount or length of delinquency suggest a need for EBSA to actively evaluate the circumstances surrounding the breach and the timing of the correction under the VFC Program application process.” Hopefully, DOL will reconsider extending the 180-day remittance requirement. .
Again, this approach differs from the IRS correction program which now allows most corrections to be made "at any time" as long as the correction occurs within a reasonable time after the error is first discovered. We encourage employers who wish to use the SCC to establish a procedure to periodically review contribution and loan repayment remittance to ensure that remittance is made within the 180-day remittance period and to retain documentation needed to prepare the Retention Record Checklist to be given to the plan administrator.
Calculating Lost Earnings. DOL also changed the date for calculating lost earnings under SCC. Under VFCP, lost earnings are calculated from the date contributions and loan repayments can reasonably be segregated from the employer's general assets or in the case of small employers, 7 business days from the date the contributions/loan repayments are withheld or received. Under the SCC employers and plan sponsors who self-correct must calculate earnings from the date the contributions or late repayments were actually withheld or received by the employer. They must also use the DOL’s earnings calculator even if there would have been a loss if the contributions had been deposited on time.
Disqualifications. In order to use SCC, the plan, applicant or self-corrector cannot be under a DOL investigation and, with two exceptions, the application cannot contain any evidence of criminal violations.
Additional Observations. While the information that is required to be submitted to DOL under the SCC notice requirement is still significant, it is not as onerous as under VFCP. We hope DOL will reconsider and, like the IRS self-correction program, completely eliminate the notice requirement.
As with VFCP, plan assets including forfeitures cannot be used to pay for the cost of correction. The cost of correction may be paid by the employer, plan fiduciary or other plan official.
Under the amended VFCP, service providers can now submit “bulk applications” to DOL to correct a violation that occurs in multiple plans. The amended VFCP also made some clarifications to existing transactions eligible for correction, expanded the scope of certain transactions currently eligible for correction and simplified certain administrative or procedural requirements for participation in VFCP.