New Voluntary Fiduciary Correction Program

Posted by Maria T. Hurd, CPA, RPA

The New Voluntary Fiduciary Correction Program went live on March 17, 2025.

Sometimes, Voluntary Can Feel Mandatory

Since 2002, the VOLUNTARY Fiduciary Correction Program (“VFCP”) has given plan sponsors with delinquent deferral deposits the OPTION to submit a filing under the DOL’s Correction Program, in exchange for the official use of the DOL calculator to compute lost earnings and a “no action” letter.

In recent years, the DOL has occasionally sent letters “inviting” and “encouraging” some of our large-plan audit clients who had reported self-correcting late deferrals on the Form 5500’s Schedule of Delinquent Participant Contributions to use the VFCP. Inevitably, the DOL’s “invitation” gives us more business, because the clients see it as an offer they can’t refuse, and they ask us to help them submit a VFCP application for delayed deferral deposits that they have already corrected.

The correction of late deferral deposits is controversial because of the disproportionate amount of cost and resources expended to correct insignificant amounts. Although it is clear that employers should not hold on to their participants’ money, which is effectively a prohibited loan from the plan to the employer, the industry has been asking (the DOL? The IRS?) for a streamlined way to self-correct this common violation.

Specifically, the industry has been asking the DOL for a self-correction mechanism that officially permits the use of the DOL’s online calculator to compute the lost earnings, instead of more complicated computations generally involving the higher of the IRS underpayment rate or the plan’s actual earnings rate for each person or overall as discussed in our blog Calculating Earnings for 401(k) and 403(b) Plan Corrections: Do Your Best to Do Better! As a practical matter, many pension practitioners have been using the DOL calculator even for self-correction, citing the EPCRS’s permission to use reasonable estimates when the administrative cost of determining a precise correction significantly exceeds the correction itself.

According to EPCRS

If either (i) it is possible to make a precise calculation but the probable difference between the approximate and the precise restoration of a participant’s benefits is insignificant and the administrative cost of determining precise restoration would significantly exceed the probable difference or (ii) it is not possible to make a precise calculation (for example, where it is impossible to provide plan data), reasonable estimates may be used in calculating appropriate correction. If it is not feasible to make a reasonable estimate of what the actual investment results would have been, a reasonable interest rate may be used. For this purpose, the interest rate used by the Department of Labor’s VFCP Online Calculator is deemed to be a reasonable interest rate.

However, the DOL’s correction program does not overtly offer a “reasonable estimate” option for practical purposes, unlike the IRS’s correction program, EPCRS, so practitioners have been wanting official permission from the DOL to use the DOL calculator for self-correction.

Permission Granted, but There’s a Catch

The new VFCP, which adds a Self-Correction Component (“SCC”) permits practitioners the use of the DOL Calculator in self-correction as requested, IF:

1. The delinquent participant contributions were deposited within 180 days of withholding
2. The lost earnings on the late deferrals and loan repayments are $1,000 or less,
3. The plan sponsor submits a mandatory online disclosure of the completed correction
4. The plan sponsor maintains a checklist of documents retained and a penalty of perjury statement.

In exchange for the above correction and confession, the plan sponsor will receive an acknowledgment of receipt via email, not a “no-action” letter.

The main difference between the new self-correction submission and a VFCP filing is that the self-correction only requires the retention of all the supporting documents while the filing requires the submission of all the supporting documents that evidence the computation and deposit of the corrective contribution. Self-correctors must still prepare and retain everything as if they were filing a regular VFCP application.

Submission of SCC Notice: The self-corrector must notify EBSA of participation in the SCC by submitting the SCC Notice through the online VFC Program web tool. The SCC Notice must include the following information:

• Self-corrector’s name and email address
• Plan name Plan sponsor’s nine-digit number (EIN) and
• The plan’s three-digit number (PN)
• Principal Amount and Lost Earnings and the date paid to the plan
• Loss Date (date(s) of withholding or receipt)
• Number of participants affected by the correction

EBSA will acknowledge receipt of a properly completed and submitted SCC notice in an email addressed to the self-corrector.

Summary of Documents to be Retained as Required by Appendix F—SCC Retention Record Checklist

A self-corrector must complete and retain a checklist, a penalty of perjury statement, and prepare or collect the listed documents, as follows:

1. A brief statement explaining why the employer failed to timely forward the withholdings to the Plan.
2. Proof of payment, such as canceled checks, executed wire transfers, bank statements for the plan’s account, or other documents showing the actual date the plan received the corrective payment(s)?
   1. If the total amount of delinquent contributions and loan repayments (Principal Amount) was paid separately from the total amount of earnings (Lost Earnings) that would have been earned on the Principal Amount but for the delinquency, the employer must retain proof of payment of both amounts.
   2. Caution—Plan Assets, including charges to participant accounts or plan forfeiture accounts, cannot be used to pay the correction amount or the costs of correction;
3. Other documents (if any) to support proof of payment, such as offsetting overpayments or annotations that provide a clear record of the correction?
4. A copy of the page(s) that results from the “View Printable Results” function of the Online Calculator? Self-correctors must use the Online Calculator to determine Lost Earnings and print a copy of the “View Printable Results” page.
5. A statement describing policies and procedures (if any) that the employer put into place to prevent future delinquencies of participant contributions or loan repayments?
6. A copy of the SCC Notice Acknowledgement and Summary page received from EBSA after submission of the SCC notice?
7. The following Penalty of Perjury Statement from every fiduciary and plan official seeking relief for the relevant transaction(s) and by the authorized representative, if any. In the case of a contributing or adopting employer in a multiemployer plan or multiple employer plan, the employer may sign the Penalty of Perjury statement and, without regard to the employer’s status as a plan fiduciary, no other plan fiduciary need sign:

“Under penalties of perjury, I certify that I am not Under Investigation (as defined in VFC Program section 3(b)(3)) and that I have reviewed the SCC notice acknowledgement and summary, the checklist and all the required documentation, and to the best of my knowledge and belief the contents are true, correct, and complete. “

Name and Title

Signature

Date

A plan official must complete the following authorization, if an authorized preparer was used to submit the SCC notice?

Authorization of Plan Official

I have authorized ______ to submit the VFCP SCC notice.

Name of Plan Official

Signature

Date

Participant Loans Can Also Use SCC

The Self-Correction-Component (SCC) of the VFCP program also allows the correction of participant loan failures that qualify as eligible inadvertent loan failures through EPCRS, including:

• Noncompliance with plan terms, including the amount, duration, or level amortization of the loan
• Loans that defaulted due to failure to withhold from the participant’s wages
• Failure to obtain mandatory spousal consent
• Allowing a loan that exceeds the number of loans permitted under the plan

Don’t Sweat the Small Stuff

Corrective contributions up to $35 can be made to the plan rather than an individual, when the individual has separated from employment and taken a full distribution from the plan. Employers who can prove that the cost of making a distribution to former employees (or their beneficiaries or alternate payees) who do not have an account balance nor the right to a future benefit exceeds the corrective payment amount can make the corrective payment to the plan rather than individual. Make amends with the ones who stay.

SCC- Pay the Penalties to the Participants

Late deferral deposits are subject to an excise tax of 15% on the interest owed to the participants. The penalty is often a very small amount, almost not worth the paper it’s written on. Under SCC, the excise tax calculated on delinquent participant contributions or loan repayments under Internal Revenue Code Section 4975 will be paid to the plan as additional earnings and allocated to participants’ and beneficiaries’ individual accounts. Paying the Penalties to the Participants is a very Practical solution to the Problem. PPPPPerfecto! Although it is not on the checklist, employers using the SCC must retain a completed Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, other written documentation detailing the determination of applicable excise taxes, and proof of payment of the amounts deposited to the plan. Under the SCC, there is no requirement to submit Form 5330 or other documentation to EBSA.

VFCP Filings Were Streamlined Too

Model Notice to Interested Parties Provided but Not Required: The DOL prepared a model notice for applicants that is available, but not required, to inform interested parties of the employer’s application under the VFCP. Employers must send the Notice by mail or email or both.

VFCP Filers Don’t Need to File Form 5330

VFCP filers were exempt from a Form 5330 filing every three years, but the final amendment to the VFCP program eliminates the three-year restriction, such that VFCP filers are always exempt from filing Form 5330.

What’s the Bottom Line for the Plan Sponsor?

Plan sponsors who did not deposit a late deferral within 180 days are not eligible for SCC. For them, the choice is the same as we described at the beginning of this article. They can self-correct without a confession, by depositing lost earnings and Filing a Form 5330 to pay the applicable excise taxes, or they can file through VFCP. Without a VFCP filing, the plan cannot officially use the DOL Online Calculator to determine the lost earnings. The IRS earnings method from EPCRS we discussed in our blog Calculating Earnings for 401(k) and 403(b) Plan Corrections: Do Your Best to Do Better! should be used instead.

Self-correctors through SCC get an acknowledgement email, which includes no assurances.

VFCP filers receive a No Action Letter that guarantees there will not be an investigation with respect to this issue.

Plan sponsors who self-correct outside of a formal program like SCC or VFCP get no assurances, but if they follow correction procedures compliant with the principles of the DOL correction programs, it seems the risk of an investigation would be low. To be conservative, rogue plan sponsors correcting on their own should compute and deposit lost earnings from the pay date, or “loss date” to the deposit date, or “recovery date” . If lost earnings are not paid to the plan on the recovery date along with the principal amount of the delayed deposit, payment of lost earnings must include interest on the amount of lost earnings. Lost earnings cannot be paid from plan assets, including the forfeiture account. Additionally, they must file Form 5330 to pay the Code Section 4975(a) 15% excise tax applied to the earnings amount.

Careful What You Wish For

As requested, SCC-eligible sponsors can now officially use the DOL calculator to compute lost earnings, but the new SCC added an online submission and other paperwork to employers who used to self-correct without telling the government. However, for employers who filed under VFCP and are now eligible for SCC, the Department estimates that the SCC will streamline the process for 73 percent of small and large VFC cases involving Lost Earnings less than or equal to $1,000. Repeat offenders should beware because the DOL has stated they intend to target employers who seem to have systemic challenges that lead to annual deferral deposit delays being reported on the Form 5500, which they now intend to cross-reference to SCC submissions and VFCP filings. Easy lost earnings computations came at the expense of more paperwork and more scrutiny. There is no free lunch.