"Self Correctors" Beware: Expanded DOL Correction

Effective March 17, 2025, the U.S. Department of Labor (“DOL”) finalized several changes to its Voluntary Fiduciary Correction Program (“VFCP”). The DOL highly recommends that all late deposits of salary deferrals or loan payments be corrected under the VFCP and monitors these errors that are required to be reported on Form 5500 filings. The changes include a new VFCP self-correction component (“SCC”) that can be used to correct late deposited contributions and loan payments. The DOL also notes that certain participant loan failures, even if self-corrected under the IRS’ correction program (EPCRS), must be corrected under the VFCP as well. While the introduction of the SCC was a welcome change, it accompanies limitations and requirements. The SCC program is quite limited compared to the self-correction options available under the IRS’ correction program. 

To be eligible for the SCC, as opposed to a full VFCP filing, late deposited contributions or loan repayments must be corrected within 180 days from the applicable paycheck date, and the aggregate amount of lost earnings associated with the late deposits must be $1,000 or less. In addition, an SCC notice and Record Retention Checklist must be filed with the DOL. For certain loan failures correctable under the SCC (which must also be correctable under the IRS’ correction program), an SCC notice, but not the Checklist, is required. For all corrections under the SCC, detailed documentation of the error and related correction must be compiled and retained, and the Plan Administrator must sign a statement that such correction was complete and correct. The signed statement is subject to a penalty of perjury. 

Plan sponsors should be aware that in connection with these changes, the DOL announced that fiduciaries have an obligation to implement a program to monitor, on at least a quarterly basis, that withholdings of deferrals and loan payments are timely deposited. Waiting for such errors to be identified as part of the annual audit process does not align with a fiduciary’s duty of prudence. To take advantage of the correction flexibility under the SCC, plan sponsors should also:

1. Communicate with all staff responsible for participant loan deductions that all corrections associated with participant loans need to be evaluated for accuracy and timeliness; and
2. If late deposits are identified, engage an ERISA expert to assist with verifying that representations made under the SCC Record Retention Checklist and the SCC Notice are accurate and to assist with filing under the SCC.

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