Business owners know that managing and staying compliant with employer-sponsored retirement plans, like 401(k)s and pensions, is complex and prone to mistakes. The government understands this as well, but they still expect errors to be corrected.
Since 2002, the U.S. Department of Labor (DOL) has offered a program called the Voluntary Fiduciary Correction Program (VFCP). This program lets businesses voluntarily correct certain errors in retirement plan documents to avoid bigger penalties in relation to Employee Retirement Income Security Act (ERISA) and the Internal Revenue Service violations. Recently, the DOL introduced a “Self-Correction Component” (SCC) that simplifies the process to correct these mistakes.
The Assistant Secretary for Employee Benefits Security, Lisa M. Gomez, stated “The Employee Benefits Security Administration is pleased to provide these improvements to our Voluntary Fiduciary Correction Program so that employers and other plan officials can take advantage of streamlined tools to correct legal violations, and America’s workers get full protection for their hard-earned benefits.”
How the VFCP Works
The VFCP allows plan sponsors and administrators to correct 19 types of ERISA violations, such as participant loan errors, improper asset transactions, excessive compensation payments, and plan expense mismanagement. To correct these errors, applicants must identify the mistakes, verify eligibility, and obtain a valuation of plan assets. Then, they must restore losses or profits with interest, distribute benefits, and cover correction expenses. The final step involves submitting documentation to the Employee Benefits Security Administration (EBSA) regional office. If corrections meet VFCP requirements, the EBSA issues a “no action” letter, confirming that no further sanctions will be imposed. This process helps maintain compliance and protect the interests of plan participants.
How the SCC Helps
Starting March 17, 2025, the new SCC tool will simplify the correction process. Instead of going through the full VFCP application steps, businesses will submit a notice online through the DOL.
Currently, two types of mistakes can be self-corrected under the SCC although the DOL says more correction options may be added soon:
- Situations where an employer accidentally delays payments owed to the retirement plan.
- Certain participant loan mistakes, for example, if an employee loan from the plan unintentionally didn’t meet specific requirements.
Streamlining the Correction Process
This update offers employers a faster and easier way to correct certain mistakes while remaining compliant.
UniqueHR has been helping companies manage their HR tasks while offering benefits and retirement options. For a free consultation, please reach out to us at 800.824.8367 and we’ll be happy to help.
This communication is for informational purposes only; it is not legal, tax or accounting advice; and should not be acted upon as such.
