A Facelift for VFCP

The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) offers a Voluntary Fiduciary Compliance Program (VFCP) allowing ERISA plan fiduciaries to correct certain errors in returns for which penalties would be waived. Recent guidance issued on January 14, 2025, which will become effective March 17, 2025, provides some additional opportunities for corrections. Of particular note, two of the most common fiduciary errors arise from failure to timely deposit participant contributions and loan repayments. As a reminder, participant contributions must be deposited as soon as practicable following the time they are withheld from the individual’s compensation. Under the new rules, plan sponsors can self-correct late deposits of participant contributions and loan repayments without the need to file a formal VFCP application. The self-correction rules require the following:

• Lost Earnings Threshold: The lost earnings must be less than $1,000.
• Timely Remittance: Delinquent contributions or loan repayments must be remitted to the plan within 180 calendar days from the date they were withheld from participants’ paychecks or received by the employer.
• Correction Amount: The correction must include both the principal amount of the delinquent contribution and any associated lost earnings.
• Self-Correction Notice: Plan sponsors must prepare and electronically file a self-correction notice. This notice must include the name and email address of the self-corrector, the plan name, the plan sponsor’s nine-digit employer identification number, the plan’s three-digit number, the principal amount, the amount of lost earnings, the date of withholding or receipt, and the number of affected participants.
• Record Retention: The plan sponsor must complete a “Record Retention Checklist” and execute a penalty of perjury statement attesting to the facts of the self-correction.

Unlike a formal VFCP submission, plan sponsors will not receive a no-action letter. Instead, they will receive an acknowledgment email from EBSA following the submission of the self-correction notice. Notably, there is no limit to the frequency with which a plan sponsor can use self-correction. However, plan sponsors must still report delinquent participant contributions on the plan’s annual Form 5500. Further any penalties, fees or other charges assessed due to the delinquency must be paid by the plan sponsor or other plan official and not from plan assets.

In addition, the new rules extend self-correction to certain loan failures that are eligible for self-correction under the IRS’s Employee Plans Compliance Resolution System (EPCRS). This includes failures related to loan amount, duration, level amortization, or defaults due to a failure to withhold loan repayments from the participant’s wages. If a plan loan failure is eligible for correction under EPCRS, the plan sponsor can use the VFCP’s self-correction procedures to correct the failure.

The VFCP is also available for delinquent participant contributions to welfare benefit plans. These rules do not significantly change the requirements other than to clarify that the delinquent payments must be made to the insurer or trust as applicable. Very importantly, to take advantage of the VFCP program for delinquent participant contributions, meaning those that are not submitted to the insurer or trust, as soon as practicable following segregation from the employer’s general assets, the employer or plan official must certify that in no instance have claims been denied nor has there been a lapse in coverage.

It is important to note, that any penalties, late fees, or other charges necessary to ensure no lapse in coverage must be paid by the employer or plan official and not from plan assets.

If an employer finds that it has failed to timely remit participant contributions to ERISA plans, it may want to consider pursuing VFCP to correct any issues.

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.