DOL Issues Updated VFCP with Self-Correction Feature

On January 15, 2025, the US Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) published an updated Voluntary Fiduciary Correction Program (VFCP) and accompanying amendments to Prohibited Transaction Exemption (PTE) 2002-51. In a welcome development for plan sponsors and fiduciaries, the updated VFCP allows employers to self-correct two types of common errors without submitting an application to EBSA:

• Certain delinquent participant contributions and loan repayments to pension plans so long as the amount of lost earnings is $1,000 or less and principal was contributed to the plan within 180 days of when the amounts were received by the employer or when they would have been payable to participants; and
• Eligible inadvertent participant loan failures if the failures could be self-corrected under the Internal Revenue Service’s (IRS’s) Employee Plans Compliance Resolution System (EPCRS).

The updated VFCP and amended PTE 2002-51 take effect March 17, 2025.

Background

The VFCP, established in 2002, allows eligible plan officials who might otherwise be liable for certain fiduciary breaches to apply to EBSA for relief from civil enforcement actions and penalties after taking corrective measures.  Successful use of the VFCP program will result in EBSA issuing a no-action letter.

The most common category of breach corrected under the VFCP is delinquent remittance of participant contributions and loan repayments to a plan.  DOL guidance provides that participant contributions and loan repayments must be deposited into the plan as soon as they reasonably can be segregated from an employer’s general assets and, in any event, no later than the 15^th business day of the month following the month of the pay date at issue.  An employer who is late in remitting amounts to a plan must fund not only the contributions but also lost earnings calculated from the earliest date on which the contributions or loan payments could reasonably have been segregated from the employer’s general assets (i.e., the date on which the contributions become plan assets under DOL Regulation §2510.3-102).  After funding these late amounts, and in order to get approval from EBSA regarding the correction, a plan official was required to file a VFCP application with EBSA that included details about the cause of delay and correction.

Although EPCRS has long offered plan officials a self-correction program, as noted, the VFCP has required specific application to EBSA for approval of any correction.  EBSA first released a proposed VFCP amendment featuring a limited self-correction component in 2022 and subsequently reopened the comment period after passage of the SECURE 2.0 Act, which required the VFCP to offer a self-correction option for certain participant loan failures that could be self-corrected under EPCRS and generally emphasized a preference for allowing plan officials to self-correct certain errors. 

Updated 2025 VFCP

The updated VFCP generally simplifies administrative and procedural requirements, clarifies the transactions eligible for correction through VFCP, and expands coverage of transactions eligible to be corrected under the Program.  The most notable change is the implementation of the self-correction components (SCCs), which cover two of the 19 types of transactions that may be corrected through VFCP.  Both SCCs require the self-corrector to inform EBSA about the correction.  A plan official who elects to use an SCC will not receive a no-action letter but instead will receive an acknowledgment email from EBSA, and EBSA will not initiate a civil investigation under Title I of ERISA regarding the self-corrector’s responsibility for the breach identified in the SCC notice or assess civil penalties under section 502(l) or 502(i) of ERISA on the correction amount paid to the plan or its participants.  The plan official will receive an email acknowledgment and summary of the SCC notice submission.

SCC – Delinquent Participant Contributions/Loan Repayments

Conditions

Under the updated VFCP, plan officials can self-correct failures to timely transmit participant contributions and participant loan repayments but only if:

• The amount of lost earnings due as a result of the late funding is $1,000 or less (exclusive of any excise tax due to the plan under amended PTE 2002-51), calculated in accordance with the DOL Lost Earnings Calculator;
• The principal amount of delinquent participant contributions/loan payments were remitted to the plan within 180 days from the date withheld from the participants’ paychecks or received by the employer; and
• Neither the plan nor the applicant is “under investigation,” which is generally defined as being under a review or investigation by EBSA, the IRS, or another governmental agency.

Steps

Provided the above conditions are met, a plan official can use the SCC by taking the following required steps:

• Ensure that the Principal Amount of delinquent participant contributions/loan repayments, plus Lost Earnings, are paid to the plan.
• Submit a notice of the SCC to EBSA using a new online webtool. The SCC notice requires:
  • The name and email address of the self-corrector;
  • The plan name, EIN, and plan number;
  • The Principal Amount and date the plan lost use of the Principal Amount (i.e., date of withholding or receipt);
  • The amount of Lost Earnings and date paid to the plan; and
  • The number of participants affected by the correction.
• Complete the SCC Retention Record Checklist and submit the completed checklist (with required documentation) to the plan administrator. The plan administrator must retain copies of the application, checklist, and any correspondence with EBSA for the time period prescribed by section 107 of ERISA (generally, six years). The SCC Retention Record Checklist requires:
  • A brief statement explaining why the participant contributions or loan repayments were retained and not timely forwarded to the plan;
  • Proof that the corrective payments were made (e.g., canceled checks or bank statements from the plan’s account);
  • A copy of the “Printable Results” page from the DOL Online Calculator, used to determine Lost Earnings;
  • A statement describing any policies and procedures that have been put into place to prevent future delinquencies;
  • A copy of the SCC acknowledgment email received from EBSA after submission of the SCC notice;
  • The Penalty of Perjury Statement (discussed below); and
  • If an authorized preparer submitted the SCC notice, the authorization for that preparer to do so.
• Sign and date a penalty of perjury statement attesting to the information submitted and certifying that the plan is not under investigation. (This is required of a plan fiduciary with knowledge of the transaction at issue and each plan official seeking relief.)

There is no limit to the frequency with which the SCC may be used, but EBSA intends to monitor usage of the SCC and may contact frequent self-correctors or open investigations to identify systemic issues resulting in repeated issues transmitting participant contributions.  It is also important to keep in mind that even self-correctors will need to report delinquent participant contributions on the plan’s Form 5500.

SCC – Eligible Inadvertent Participant Loan Failures

Conditions

The second SCC in the updated VFCP applies to certain participant loan failures that are eligible to be self-corrected under EPCRS.  These are loan failures that occur despite the fact that there are practices and procedures in place that meet the standards prescribed by EPCRS, and that fall into any of the following categories of loans:

• With amount, duration, or amortization terms that do not comply with Internal Revenue Code Section 72(p).
• That defaulted due to failure to withhold loan repayments from participant wages.
• With spousal consent failures.
• That exceed the maximum number permitted under the plan.

Steps

The requirements to use the loan SCC are similar to those listed above for delinquent participant contributions:

• Self-correct the loan errors under EPCRS.
• Complete an SCC notice and submit it to EBSA through the new VFCP webtool. The notice must include, among other information, the loan amount, the dates the failure was identified and corrected, and the correction method.
• A plan fiduciary must sign a penalty of perjury statement and the plan administrator must comply with the recordkeeping requirement.

Unlike the delinquent contribution SCC, the loan failure SCC does not require the completion of an SCC Record Retention Checklist.  Additionally, the loan failure SCC is available even if the plan or self-corrector is “under investigation” so long as the self-corrector is eligible to correct under EPCRS.

Updated PTE 2002-51

In connection with correcting a prohibited transaction under VFCP, a plan official is generally also required to pay excise taxes to the IRS and submit a Form 5330 detailing the calculation of those excise taxes.  PTE 2002-51 has historically presented an exception to that requirement by allowing excise tax relief for certain transactions corrected under VFCP, including delinquent participant contributions.  To take advantage of PTE 2002-51, plan officials had to meet a number of conditions, including that they provide written notice to affected participants and that they could not rely on the exemption more than once every three years.

Under amended PTE 2002-51, a plan official who self-corrects delinquent participant contributions is no longer required to provide notice to interested participants.  Further, the once-every-three-years limit on using PTE 2002-51 has been removed.  Self-correctors who wish to use PTE 2002-51 must deposit into the plan the amount that they otherwise would have paid to the IRS in excise taxes, and they must also retain a completed Form 5330 showing calculations of the tax.