As announced in our previous HR Law Talk blog post, on January 15, the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) published a much anticipated amended and restated version of the Voluntary Fiduciary Correction Program (VFCP) in the Federal Register, which now includes two self-correction features. The VFCP, initially adopted in 2002 and last amended in 2006, allows ERISA plan administrators, plan sponsors, and other plan officials to correct certain fiduciary breaches and receive relief from potential DOL civil enforcement actions.
Under the revised VFCP, plan sponsors can now self-correct certain delinquent participant contributions and loan repayments as well as eligible participant loan failures that are corrected under the Internal Revenue Service Employee Plans Compliance Resolution System (EPCRS). Self-correction of these failures was not previously available under the VFCP. Further, EBSA amended the Prohibited Transaction Exemption (PTE) 2002-51 to expand relief from certain excise taxes to self-corrected delinquent participant contributions and loan repayments. The recent changes to the VFCP will become effective on March 17, 2025.
Self-Correction Under the VFCP
The self-correction component (SCC) requires a less formal process of electronically notifying EBSA of the correction via a web tool in lieu of submitting a full VFCP application for EBSA approval, which often required gathering and submitting extensive data and waiting for EBSA to respond. With these changes, self-correctors will receive an automated email from EBSA acknowledging the SCC submission instead of waiting months and sometimes longer to receive a no-action letter. Compliance with the SCC terms and conditions and receipt of the automated email acknowledgment will provide relief from future enforcement action by the DOL.
Self-Correction of Delinquent Participant Contributions or Loan Repayments
According to the SCC, any plan, regardless of participant count or plan assets, that is not “under investigation” (as defined by the VFCP) may self-correct an eligible delinquent contribution transaction.
For a transaction to be eligible, there are two broad requirements:
- Lost earnings on the delinquent contribution or loan repayment (calculated, using the online calculator, from the date of withholding or receipt) must be $1,000 or less (excluding excise taxes).
- The contribution or loan repayments (i.e., the principal amount) must have been remitted to the plan within 180 calendar days from the date of withholding or receipt.
Importantly, in response to comments regarding the lost earnings requirement, the DOL clarified that it generally treats each pay period as a separate transaction, which should result in more transactions being eligible for self-correction. Unfortunately, the amended and restated VFCP did not provide for the de minimis exception that many practitioners had hoped for. This means that even small failures will need to be fully corrected under the new procedures.
To comply with the VFCP terms and receive excise tax relief, self-correctors are required to do the following:
- Submit an SCC notice to the EBSA through a new online web tool. The notice must include the self-corrector’s name and contact information, the plan name, the plan sponsor’s employer identification number (EIN) and the plan’s three-digit number (PN), the amount of principal and lost earnings, the date of withholding or receipt, the date lost earnings were repaid and the number of affected participants.
- Complete an SCC Record Retention Checklist (Appendix F to the revised VFCP) and retain the checklist and all supporting documentation.
- Complete and retain a penalty of perjury statement.
- Calculate the amount of the excise tax that otherwise would have been imposed and contribute the equivalent sum directly to the plan, where it must be allocated in the same manner as the lost earnings contributed as part of the correction.
- Retain (and provide to the plan administrator) copies of either Form 5330 or other written documentation supporting the amount paid to the plan along with proof of payment.
Going forward, applicants and self-correctors who received excise tax relief for a VFCP delinquent contribution correction may obtain excise tax relief on a subsequent correction, regardless of when the relief was granted because the amended PTE 2002-51 removes the limit on the frequency of excise tax relief for similar transactions.
Self-Correction of Inadvertent Participant Loan Failures
In addition to self-correction of delinquent contributions and loan repayments, the revised VFCP also permits self-correction and EBSA enforcement action relief for the following inadvertent participant loan failures that have been self-corrected under EPCRS:
- Loans that do not comply with plan terms incorporating IRC Section 72(p) limits concerning amount, duration, or level amortization.
- Loans that defaulted due to a failure to withhold loan repayments.
- Loans that failed to obtain spousal consent.
- Loans that exceed the number of loans permitted under the plan.
In harmony with corrections under EPCRS, a plan or self-corrector under investigation may still utilize the VFCP’s SCC for an inadvertent loan failure if that failure is still eligible to be self-corrected under the EPCRS.
Under the SCC, such loans must be corrected under EPCRS and then a self-corrector must submit an SCC notice to the EBSA through the new online web tool. The notice for an inadvertent loan failure will require a self-corrector to provide and retain information identifying the self-corrector, the plan name, the type of loan failure, the date the failure was detected and the corrective action to be taken. A self-corrector must create and retain a penalty of perjury statement, although no record retention checklist is required.
If you have further questions about the revised VFCP or potential errors that may need to be corrected, please contact a member of our Employee Benefits team.