Introduction to the Voluntary Fiduciary Correction Program

The Voluntary Fiduciary Correction Program (VFCP) is a long-standing initiative by the U.S. Department of Labor (DOL) that allows plan sponsors and fiduciaries to voluntarily correct certain violations of the Employee Retirement Income Security Act of 1974 (ERISA) without facing enforcement action or civil penalties. The program provides a structured process for correcting fiduciary breaches related to retirement plans, such as late deposits of employee contributions or improper plan expenses, while promoting compliance and protecting participants’ benefits.

Understanding the 2025 DOL VFCP Self-Correction Component

Effective March 17, 2025, the DOL introduced a self-correction component (SCC) to the VFCP designed to streamline the correction process. This simplified process allows plan sponsors to correct specific violations without the need to submit a full VFCP application.

There are two types of transactions that are eligible for the SCC:

• Delinquent participant contributions and loan repayments
• Eligible inadvertent participant loan failures

Delinquent Participant Contributions and Loan Repayments

Under DOL regulation 29 C.F.R. 2510.3-102, it is required that an employer segregate participant contributions and loan repayments from its general assets as soon as administratively feasible, but in no event later than the 15th business day following the end of the month in which amounts are contributed by employees or withheld from their wages. It’s important to note that the 15-business-day timeframe following the end of the month is not a guaranteed safe harbor for depositing deferrals. Instead, it represents the maximum allowable period only if that duration is the earliest reasonable time by which plan assets can be separated from the employer’s general assets.  In practice, the DOL expects that plan sponsors should be able to make the contribution of employee withholdings in five business days or less.

Key Eligibility Requirements of the Self-Correction Component for Delinquent Participant Contributions and Loan Repayments

‍Lost Earnings Limit: Calculated lost earnings (using the DOL’s online VFCP calculator) on delinquent participant contributions and loan repayments must be below $1,000 (determined per each individual pay period).

Timeliness Requirement: Plan officials must remit all delinquent payments to the plan within 180 days from the date of withholding or receipt.

Penalties: Any penalties, late fees, and other charges must be paid by the employer or plan official and not from participant contributions.

Eligible Inadvertent Participant Loan Failures

Eligible inadvertent participant loan failures refer to unintentional errors in the administration of participant loans that violate ERISA’s fiduciary standards but may be corrected under the IRS’s Employee Plans Compliance Resolution System (EPCRS). The loan error must first be corrected through the EPCRS before using the SCC. The following violations are eligible for correction through the SCC:

• Non-compliance with plan terms that incorporate requirements of the Internal Revenue Code regarding the amount, duration, or level amortization of the loan.
• Loans that defaulted due to a failure to withhold from the participant's wages.
• Failure to obtain spousal consent for a loan.
• Allowing a loan that exceeds the number of loans permitted under the plan.

Self-Correct Component Process

Employers and plan officials using the SCC must submit an SCC Notice with the required information through the Employee Benefits Security Administration’s new web tool to notify the DOL about the correction. Unlike the traditional VFCP application process, instead of receiving a “no action” letter, the DOL will send an email acknowledgment confirming receipt. Along with the SCC notice, employers and plan officials must also collect and retain the following relating to the correction:

• ‍Penalty of Perjury: A penalty of perjury statement must be signed by each official seeking relief under the program.‍
• Record Retention: Self-correctors must complete the Retention Record Checklist (scc-retention-record-checklist.docx) and provide the documentation to the plan administrator for retention. This is not required for eligible inadvertent participant loan failures.

What This Means for Plan Sponsors

The introduction of the Self-Correction Component to the VFCP marks a significant step forward in simplifying fiduciary compliance for retirement plan sponsors. By allowing corrections of minor violations—such as small-dollar delinquent contributions and inadvertent loan failures—without the need for a full VFCP application, the DOL is promoting a more accessible and proactive approach to plan administration. This streamlined process not only reduces administrative burden but also encourages timely resolution of issues that could otherwise result in enforcement actions or participant harm.

Plan sponsors and fiduciaries should take this opportunity to review their internal controls, payroll systems, and loan administration procedures to ensure they are equipped to identify and correct eligible errors efficiently. Establishing a clear protocol for monitoring participant contributions and loan activity, as well as maintaining thorough documentation, will be key to leveraging this program effectively. Ultimately, the SCC empowers employers to uphold their fiduciary responsibilities while protecting the integrity of retirement plan assets and participant benefits.

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