The U.S. Department of Labor (DOL) has announced changes to its Voluntary Fiduciary Correction Program (VFCP). The updates include a self-correction component (SCC) employers can use to fix a failure to forward participant contributions or loan repayments to a retirement plan in a timely manner and another component for loan failures that are self-corrected under the IRS’s Employee Plans Compliance Resolution System (EPCRS). In addition, the DOL clarifies some existing transactions that are eligible for correction under the program and expands the scope of other transactions currently eligible for correction. The DOL also updated a prohibited transaction exemption (PTE 2002-51), which provides excise tax relief in certain situations. A DOL Fact Sheet summarizing the program is available.
The VFCP is a voluntary program that allows plan sponsors and fiduciaries to self-correct specific fiduciary violations that arise when operating an ERISA plan, thus avoiding civil enforcement and penalties. In addition, for a subset of VFCP-covered transactions, PTE 2002-51 provides an opportunity to obtain excise tax relief related to violations that would otherwise be considered prohibited transactions.
Before the latest changes, relief from enforcement action was only available if the plan official submitted a formal request to the DOL. While corrections could always be made outside the VFCP, doing so left plan officials vulnerable to DOL penalties and enforcement actions. As a result, plan officials have sometimes struggled with whether to file a VFCP application for certain issues (such as small amounts of delinquent loan contributions).
In 2022, the DOL proposed updates to its VFCP. Those updates have now been finalized. The most significant change in the VFCP is the addition of the SCC related to delinquent participant contributions and loan repayments to retirement plans — the most corrected transactions under VFCP.
Except as noted below with respect to loans corrected under EPCRS, the SCC is available only if the following conditions are met:
Unlike the VFCP application process, self-correctors will receive an email acknowledgment instead of a "no action" letter (i.e., a letter stating the government agency will not take any enforcement action against the self-corrector).
The VFCP now accepts certain participant loan failures self-corrected under IRS’s EPCRS. Loans covered by this provision of the VFCP include those that:
EPCRS self-correctors must still notify the Employee Benefits Security Administration of the correction by submitting the SCC notice as required through the DOL’s web tool. They must also complete and retain the penalty of perjury statement. The SCC retention record checklist, however, is not required. As is the case with the SCC described above, EPCRS self-correctors will receive an email acknowledgment instead of a "no action" letter.
The updated VFCP still does not include a correction for delinquent matching contributions. In general, employer contributions are not delinquent until a reasonable period of time after they are legally due, either under the plan terms or, in limited situations involving safe harbor contributions, under the Internal Revenue Code. As a result, in most situations, no correction would be necessary.
The SCC is not available for fixing delinquent participant contributions to insured welfare plans or welfare plan trusts. However, plan officials who don’t qualify for using the SCC may still be able to correct certain violations through the VFCP’s normal DOL application/no-action process.
In addition to the SCC, the DOL made several other modifications and clarifications to the VFCP, including the following:
Some of the more significant changes the DOL has made to PTE 2002-51 are as follows:
An employer plan sponsor that uncovers a fiduciary violation related to any of its benefit plans should consult with legal counsel regarding whether to take corrective actions under the updated VFCP.
