Updates to the Voluntary Fiduciary Correction Program (VFCP)

The Voluntary Fiduciary Correction Program (VFCP) is overseen by the Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor. Through the VFCP, plan fiduciaries are encouraged to voluntary report and correct violations according to the Employee Retirement Income Security Act (ERISA). With this voluntary compliance process, fiduciaries have a structured way they can self-correct violations and better adhere to ERISA regulations. If there is a loss due to a fiduciary breach, for example, this self-reporting technique can ensure that they are restored to the plan in a way that protects plan participants and beneficiaries. Self-reporting also frees up resources for the Department of Labor to focus on violations that are more serious. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

How does the VFCP work?

The VFCP creates a framework fiduciaries can use to identify ERISA violations. Once these violations are found, fiduciaries can take steps to correct them. This can look like recalculating benefits, adjusting plan operations, or restoring losses to the plan, with interest if necessary. After the violations are corrected, fiduciaries can apply for a no-action letter with the EBSA. Not all corrected violations require a no-action letter, but if required and accepted, this means there will be no enforcement action against a fiduciary in relation to the reported violations. .

What types of violations are covered by the VFCP?

Several different violations can be voluntarily reported and corrected under the VFCP, including:

• Delinquent participant contributions: Employee contributions that were not deposited into the plan in a timely manner.
• Improper loans: Loans to parties in interest that don’t fulfill ERISA requirements.
• Prohibited transactions: Transactions that occur between plans and parties in interest that are not allowed under ERISA.
• Improper expenses: Unreasonable or unnecessary payment of plan expenses.

In total, 19 different categories of violations can be addressed under the VFCP.

What are some benefits to participating in VFCP?

By participating in VFCP, fiduciaries can avoid potential penalties and Department of Labor legal actions. This voluntary action also protects plan participants and demonstrates a commitment to compliance with ERISA regulations, boosting trust among plan participants.

Who is eligible to correct violations with the VFCP process?

Plan sponsors, administrators, and other fiduciaries can apply for relief through the VFCP if they are concerned about violations, but if the plan or applicant is “under investigation,” they cannot apply. It’s also important to note that enforcement actions may proceed if the corrections or applications about corrections are incomplete or deemed unacceptable.

What do acceptable corrections under VFCP look like?

While corrections can look different depending on the violation, in general, steps will include assessing the valuation of plan assets, restoring the amount involved in the transaction, paying necessary expenses associated with the transaction, and making supplemental distributions if needed. Corrections need to also include appraisals using generally accepted appraisal standards, consideration of lost earnings and profits, and documented proof of supplemental distributions.

Other documentation can also be required as part of the VFCP application, including a copy of parts of the plan documents that correspond with the correction, transaction records, records of lost earnings and restored profits, proofs of payment, documents associated with specific transactions (per Section 7 of the VFCP), a signed checklist, and a statement signed under penalty of perjury.

What does restitution mean?

When applications work to restore the plan, they have to do it based on the condition the plan would have been in if the violation hadn’t happened. To make the process easier, the VFCP includes a calculator for correction amounts that may need to be paid to a plan.

What are the updates to VFCP as of January 2025?

In January 2025, the Department of Labor published an updated version of the VFCP in the Federal register, which included the self-correction component for certain violations. In some cases, fiduciaries can even make corrections without having to apply for a no-action letter. Updates also included expansions in eligible violations, as well as important clarifications and revisions to the rules and procedures of the program to make it easier for employers and plan administrators to navigate.

Instead of completing an application, some self-correctors will be able to submit a self-correction component (SCC) notice through an online tool provided by EBSA, including specific information, and receive an email from EBSA acknowledging the submission. There are two transactions that are eligible under this new SCC rule:

• Delinquent Participant Contributions and Loan Repayments to Pension Plans: Employers who hold onto employee retirement contributions or loan repayments longer than allowed can use the SCC functionality to correct the problem if lost earnings equal $1,000 or less. To do this, they also need to calculate lost earnings with an online calculator, send the missing money to the plan within 180 days of withholding it from employees, pay any penalties or fees, and ensure the plan nor the individual is under investigation. The SCC Record Retention Checklist is required as part of the submission process.
• Eligible Inadvertent Participant Loan Failures: Eligible loan problems include issues with the loan amount, length, or repayment. They can also include loan defaults from missing payroll deductions, lack of spousal consent, or too many loans. They don’t need to complete the SCC Retention Record Checklist for these types of corrections.

What is PTE 2002-51?

The Prohibited Transaction Exemption (PTE) 2002-5, is a related class exemption that provides conditional relief for fiduciaries regarding payment of excise taxes associated with six specific prohibited transactions, including late contributions/loan repayments, fair market value loans to disqualified persons, and certain asset purchases or sales. The tax break will only take effect if employers meet all VFCP requirements, including getting a no action letter or SCC acknowledgement, as well as follow specific exemption rules of required notifications and documentation.

When does the VFCP update take effect?

Both the VFCP updates and the PTE 2002-51 amendments take effect on March 17, 2025.

Contact Us

The changes to the VFCP are designed to make it easier for plan sponsors to identify and self-correct certain plan errors or violations. Through this program plan sponsors can come clean about potential issues, and in certain cases, receive assurance there will be no enforcement actions taken. If you have questions about the information outlined above, or need assistance with your next plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.