DOL touts new self-corrections, more flexibility in VFCP update 

March 17, 2025

In the first updates to the Voluntary Fiduciary Correction Program (VFCP) since 2006, the Department of Labor (DOL) has added a new self-correction option for delinquent participant contributions to retirement plans and provided more flexibility for correcting several other ERISA violations. The agency has also implemented the statutory directive under the SECURE 2.0 Act (Div. T of Pub. L. No. 117-328) to align participant loan corrections with IRS’s Employee Plans Compliance Resolution System (EPCRS). Amendments to the related class prohibited transaction exemption (PTE 2002-51) expand excise tax relief for a subset of VFCP corrections by removing limitations on how often applicants can rely on the PTE. However, DOL deferred action on a broader program expansion that would have included corrections for missing participant issues. The amendments to the VFCP and PTE take effect March 17.

Plan sponsors and fiduciaries can obtain a reprieve from DOL enforcement actions and civil penalties by using VFCP to voluntarily correct any of 19 categories of ERISA violations, including failure to transmit participant contributions or loan payments on time. Traditionally, an applicant making a correction through VFCP had to demonstrate to DOL that the correction satisfied the program’s requirements. DOL would then issue a no-action letter confirming the agency won’t recommend legal action or assess civil penalties against the applicant for the corrected issue.

With the latest VFCP updates, DOL hopes to encourage greater program participation by making the correction process more “efficient and less costly.” To that end, the updates include new “self-correction component” (SCC) options for the delinquent transmittal of participant contributions and loan repayments — by far the most frequently corrected transactions under VFCP — and for certain participant loan failures self-corrected under EPCRS. (The other 17 categories of violations and delinquent contribution errors that don’t qualify for SCC still require an application to DOL.)

The SCC option for delinquent participant contributions and loan repayments is available for both defined contribution and defined benefit plans (but not for employer matching contributions, which aren’t covered by VFCP), subject to the following requirements:

• Eligibility for SCC. To self-correct, plan officials must remit delinquent contributions or loan payments to the plan within 180 days of withholding or receipt, and lost earnings can’t exceed $1,000. DOL believes a “substantial majority” of delinquent contributions will meet these conditions. The preamble to the updated VFCP explains that plan officials generally can treat each payroll period as a separate transaction when applying the $1,000 cap. (In the past, DOL sometimes allowed employers to treat delinquent contributions occurring in more than one pay period as a single transaction under the related PTE, which could only be used once every three years. However, as noted below, the amended PTE no longer includes that three-year usage limitation.)
• Lost earnings calculation. Plan officials must calculate lost earnings from the date of withholding or receipt using DOL’s online VFCP calculator. Notably, this date may precede the date the contributions or payments become ERISA “plan assets.” The updated program allows plan officials other than the sponsor (such as a plan service provider) to pay lost earnings. Until now, only employers could pay these amounts. Plan officials cannot use plan assets — including forfeitures — to pay lost earnings.
• Electronic notice to DOL. Plan officials must use a new online tool to notify DOL about the correction. Instead of a no-action letter, DOL will send an automatic email acknowledging receipt of the submission. The plan administrator must retain supporting documents, including a standard record-retention checklist. A plan fiduciary with knowledge of the transaction being corrected and each plan official seeking SCC relief must also sign a penalty-of-perjury statement that the plan administrator must retain. Both the checklist and penalty-of-perjury statement are in an appendix to the updated VFCP. (Plan administrators will still need to report all delinquent participant contributions — including those corrected through SCC — on Schedules H and I of Form 5500, Annual Return/Report of Employee Benefit Plan.)
• No frequency limit. The program doesn’t limit how often plan officials could use SCC. However, DOL will monitor frequent use of SCC and may open investigations of repeat users, depending on the facts and circumstances.

Not applicable to welfare plans. SCC isn’t available for correcting delinquent participant contributions to insured welfare plans or welfare plan trusts. Correcting delinquent contributions in those plans through VFCP still requires an application to DOL.

The updated VFCP implements a SECURE 2.0 provision directing DOL to treat “eligible inadvertent failures” relating to participant loan transactions corrected under the EPCRS Self-Correction Program (SCP) as meeting VFCP’s requirements, subject to any reporting or other procedural requirements the agency may adopt. VFCP previously conditioned eligibility on correcting participant loan errors under the EPCRS Voluntary Correction Program (VCP).

Eligible inadvertent participant loan failures. This new SCC applies to “eligible inadvertent participant loan failures,” which are participant loan failures that occur despite plan practices and procedures that satisfy the standards for correction under EPCRS, including:

• Loan terms that fail to comply with plan provisions incorporating the amount, duration or level-amortization requirements of IRC Section 72(p)
• Default due to failure to withhold loan repayments from the participant’s wages
• Loans that exceed the maximum number permitted under the plan’s terms
• Failure to obtain spousal consent

Only the first two categories of these loan errors were previously eligible for correction under VFCP. Plan officials can use SCC for participant loan corrections even if they are “under investigation” for VFCP purposes (see below). Participant loan failures that are egregious, relate to the diversion or misuse of plan assets, or directly or indirectly relate to an abusive tax-avoidance transaction aren’t eligible for SCC.

Electronic notice to DOL. As required for reporting delinquent contributions under SCC, plan officials must use the new online tool to notify DOL about the loan correction. The plan administrator must retain supporting documents, including a penalty-of-perjury statement, but needn’t complete the record-retention checklist.

Reliance on IRS interim guidance. Until IRS formally updates EPCRS to account for SECURE 2.0’s expansion of the program, DOL will accept SCP loan corrections based on IRS’s interim guidance in Notice 2023-43 (see The ABCs of IRS FAQs on EPCRS under SECURE 2.0 (June 6, 2023)). DOL will monitor use of the SCC and future changes to EPCRS to determine if further guidance is needed. Updates to certain corrections and eligibility requirements

DOL finalized a number of changes to certain existing corrections and program eligibility requirements. These changes largely track the agency’s 2022 proposal.

DOL made the following updates to the accompanying PTE 2002-51, which gives excise tax relief for six kinds of retirement plan transactions corrected through VFCP, including delinquent contributions and loan payments:

• Elimination of three-year limit. DOL removed the limitation on an applicant’s ability to use the PTE only once every three years for similar transactions.
• Incorporation of new self-correction. The PTE covers correction of delinquent participant contributions and loan payments under the new SCC option. To use the PTE, the self-corrector must remit to the plan the excise tax — no matter how small — otherwise payable to IRS and allocate that payment to participants in the same manner as plan earnings. While self-correctors wouldn’t have to file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, with IRS or provide a copy to DOL, they would have to retain a completed Form 5330 (or other written documentation showing the excise tax calculation), as well as proof of payment to the plan.
• Model notice to interested persons. The PTE generally requires the applicant to furnish a notice to interested persons within 60 days, with exceptions for the new SCC and covered transactions that would have incurred an excise tax of $100 or less. DOL added a model notice as an appendix to the PTE that VFCP applicants can (but don’t have to) use. In the preamble to the amended PTE, DOL explains that plan fiduciaries who know or have reason to know that “an average Plan participant or beneficiary” wouldn’t understand the notice (model or otherwise) in English must take “appropriate action” to inform those participants and beneficiaries of their rights described in the notice. To aid compliance, the agency posted the model notice on its website in 12 non-English languages.

When DOL proposed amending the VFCP in 2022, the agency specifically asked for input on the following items that would broaden the program’s scope:

• Adding a new correction for fiduciary breaches involving missing participants, including participant recordkeeping, communication and benefit payment failures
• Including a correction for overpayments from defined benefit plans, consistent with IRS’s most recent EPCRS updates
• Adopting a preaudit program — similar to IRS’s pre-examination compliance pilot program — under which plan officials could make corrections through VFCP

The agency didn’t include these potential expansions in the updated VFCP but may consider proposing future  changes as a separate project. With respect to missing participant issues, DOL indicated that a future correction may require a sponsor to provide information for the agency’s Retirement Savings Lost and Found Database.

DOL’s 2022 proposal also asked about updating the program to permit or require electronic VFCP applications, but the updated VFCP didn’t include any changes to the submission process. Instead, regional EBSA offices can still decide whether to accept applications by email. DOL intends to continue considering alternative methods for electronic submission of program applications for future implementation.

• Final VFCP amendments (Federal Register, Jan. 15, 2025)
• Final amendment to PTE 2002-51 (Federal Register, Jan. 15, 2025)
• Fact sheet (DOL, Jan. 14, 2025

• User’s guide to SECURE 2.0 (regularly updated)
• The ABCs of IRS FAQs on EPCRS under SECURE 2.0 (June 26, 2023)
• DOL looks to ease some retirement plan corrections, expand others (Jan. 3, 2023)