In November 2022, the U.S. Department of Labor (DOL) proposed changes to its Voluntary Fiduciary Correction Program (VFCP). VFCP allows plan sponsors to voluntarily correct certain fiduciary breaches to avoid civil enforcement actions and civil penalties under the Employee Retirement Income Security Act of 1974 (ERISA). A popular tool for correcting late deposits of participant deferrals and loan repayments, VFCP requires the plan sponsor to submit a paper application with the DOL to obtain the no-action letter relief; self-correction is not available under the current VFCP.
Proposed Self-Correction Component
The most significant proposed change to VFCP is the addition of a self-correction component (SCC) for plan sponsors who fail to timely transmit participant deferrals and loan repayments to retirement plans. To be eligible for the SCC, the plan sponsor must meet the following requirements:
Late deposits that are self-corrected through the SCC component of VFCP will also qualify for IRS excise tax relief under a corresponding change to Prohibited Transaction Exemption 2002-51.
Unlike formal VFCP applications, plan sponsors that correct under the SCC, if adopted, will not receive a “no action” letter from the DOL, but the proposed rule clarifies that self-correction in accordance with the SCC requirements will exempt plan sponsors from penalties or civil enforcement actions under ERISA.
The DOL is accepting comments on the proposed changes through January 20, 2023. The amended and restated VFCP can be found here.
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