The U.S. Department of Labor (DOL) issued a revised Voluntary Fiduciary Compliance Program (VFCP), a long-awaited update by many in the industry. The most significant change is the introduction of a self-correction component, including self-correction for certain delinquent participant contributions. Based on our experience, late participant deferrals account for approximately 95% of the VFCP corrections we prepare for employers and plan sponsors. Employers are often made aware of these errors by their plan auditors, or the program is brought to light by the DOL through letters urging employers to “voluntarily” utilize the program (and while “voluntary” not utilizing the program can trigger an audit). The new self-correction option is expected to streamline the process for this common error. While the updated guidance is now available, the self-correction component will not be available until March 17, 2025.
If you discover a late deferral error, the first step under the new self-correction component will be to determine if your error is eligible for self-correction. The self-correction component is only available if: (1) the lost earnings amount on the delinquent participant contributions is $1,000 or less, and (2) the delinquent participant contributions or loan repayments were remitted to the plan within 180 calendar days from the date of withholding from participants’ paychecks or receipt by the employer.
In our experience, most employer late deferrals will qualify for self-correction. Errors we typically see are for deferrals that are days or weeks late, and it is rare for us to see an employer not deposit participant contributions or loan repayments for a period that exceeds 180 days. The $1,000 could therefore potentially be a limiting factor, as it is not uncommon to see corrections where total lost earnings are in excess of $1,000. However, the DOL was asked to clarify the timeframe to calculate the lost earnings cap, and responded in the new guidance that it has historically considered each pay period as a separate transaction. In other words, the error would have to result in more than $1,000 of lost earnings to disqualify it from self-correction. Therefore, the conditions for self-correction are very generous, and will give most plan sponsors the opportunity to self-correct late contributions.
The self-correction program is more complicated than just making corrective contributions to the Plan for lost earnings. The plan sponsor must notify the DOL of the self-correction by submitting electronically to the EBSA a notice using a new online VFCP program web tool. Self-correctors are also required to prepare and collect documents listed in the checklist provided by the DOL, which on first glance looks very similar to the proof documents needed for current VFCP submissions.
We will continue to monitor and write blog posts on this new self-correction program as we become more familiar with the new guidance, but if you have any questions now please feel free to contact any of the members of our employee benefits team.
