The DOL recently updated the Voluntary Fiduciary Correction Program (VFCP). The VFCP encourages employers to voluntarily correct certain violations of ERISA to avoid DOL civil enforcement penalties. The updates expand and simplify the VFCP and are designed to make the VFCP more useful to employers. Specifically, the updates include a new self-correction option that allows employers to correct delinquent participant deferral contributions and loan repayments to defined contribution plans and certain participant loan failures without submitting a VFCP application to the DOL. Employers are eligible to use the VFCP to correct a violation only if they are not already under investigation by the DOL.
Self-Correction of Delinquent Participant Contributions and Loan Repayments to Defined Contribution Plans.
Employers make delinquent participant contributions and loan repayments to a plan if they retain the payments beyond the time permitted by the DOL regulations. The plan must fully correct any violation by restoring the plan, participants, and beneficiaries to the condition they would have been in had the violation not occurred. This means that the plan will need to provide lost earnings on delinquent participant contributions and loan repayments.
Under the new updates, employers can self-correct such delinquent payments instead of making a filing with the DOL. Self-correction is available for delinquent participant contributions and loan repayments of any size so long as the lost earnings on the payments total no more than $1,000. Applicants may use the VFCP online calculator to determine the correction amounts to be paid to the plan.
To self-correct delinquent contributions under the VFCP, an employer must use the DOL web tool to submit a self-correction notice and required information, including the amount of lost earnings calculated using the online calculator. The DOL will send an email acknowledging receipt of the self-correction notice. Employers and plan administrators must collect records related to the self-correction, including a retention record checklist and penalty of perjury statement.
Self-Correction of Eligible Inadvertent Participant Loan Failures.
Eligible inadvertent participant loan failures include:
- Failure to follow the plan terms, such as the loan amount, duration, or level of amortization of the loan
- Loans that defaulted because of a failure to withhold from the participant's wages
- Failure to obtain spousal consent for a loan and
- Exceeding the number of loans permitted under the plan
The inadvertent failures are both violations of IRS regulations and breaches of fiduciary duties under the jurisdiction of DOL. These failures are eligible for self-correction under the VFCP only if the employer also corrects the failures through the IRS's Employee Plans Compliance Resolution System self-correction program.
To self-correct under the VFCP, an employer must use the DOL web tool to submit a self-correction notice and required information for loan failure correction. The DOL will send an email acknowledging receipt of the self-correction notice. Employers and plan administrators must collect records related to the self-correction, including a penalty of perjury statement.