U.S. Department of Labor Updates its Fiduciary Correction Program: 

On January 14, for the first time since 2006, the U.S. Department of Labor (“DOL”) published a restatement of its Voluntary Fiduciary Correction Program (“VFCP”). The VFCP is designed to encourage correction of certain fiduciary breaches by permitting persons to avoid potential DOL civil penalties, if they voluntarily correct eligible transactions in a manner that meets the VFCP’s detailed requirements.

The new VFCP (1) includes certain self-correction provisions; (2) clarifies some existing transactions eligible for correction under the VFCP; (3) expands the scope of other transactions currently eligible for correction; and (4) simplifies certain administrative or procedural requirements for participation in and correction of transactions under the VFCP. The DOL states, however, that the “most significant changes to the [VFCP] involve the addition of two new self-correction features.”

The first self-correction feature deals with the late remittance of participants’ contributions and loan repayments, which is the transaction that is most frequently corrected under the VFCP. In this regard:

• Each self-corrector must provide the DOL with a notice via the online VFCP web tool. The notice must include several pieces of information. Those include the name and email address of the self-corrector, principal amount involved, amount of lost earnings and the date paid to the plan, and number of participants affected.
• The DOL will acknowledge receipt of a properly-completed and submitted self-correction notice in an email to the self-corrector.
• The amount of lost earnings resulting from the correction of this transaction must be less than or equal to $1,000, and the applicant must calculate lost earnings via the DOL’s VFCP calculator.
• The untimely-remitted participant contributions or loan repayments must have been remitted to the plan within 180 calendar days from the date such amounts were received by the employer, or the date such amounts otherwise would have been payable to the participants in cash (for amounts withheld by an employer from employees’ paychecks).

The second self-correction feature implements certain sections of SECURE 2.0, by addressing participant loan failures that are self-corrected under the IRS’s Employee Plans Compliance Resolution System (“EPCRS”). Under these provisions:

• Self-correction under the VFCP can be used to address (a) loans for which the terms did not comply with plan provisions and/or Internal Revenue Code requirements concerning the loan amount, duration, level amortization, or number of loans allowed; or (b) loans that defaulted because of a failure to withhold loan repayments from the participant’s wages. However, VFCP self-correction is available only if such transactions are eligible for, and have been self-corrected under, the EPCRS.
• Each self-corrector must provide the DOL with a notice via the online VFCP web tool. The notice must include several pieces of information. Those include the name and email address of the self-corrector, type of participant loan failure, loan amount; correction method, and number of participants affected.

The DOL will not issue a VFCP no-action letter to a self-corrector under the new VFCP. A self- corrector will receive an acknowledgment and summary of the self-correction notice submission by email, however. Also, if the self-corrector satisfies the VFCP’s eligibility requirements and corrects the breach, the DOL will not initiate a civil investigation under ERISA regarding the self-corrector’s responsibility for the breach or assess civil penalties under ERISA on the correction amount paid to the plan or its participants.

Moreover, any self-corrector must collect documents listed in a record retention checklist provided in the new VFCP and must provide those documents to the plan administrator and a plan fiduciary with knowledge of the transaction. Note also that any plan official who seeks relief under the new VFCP must execute a penalty of perjury statement in connection with the correction.

The VFCP’s restatement becomes effective on March 17, 2025.

As part of this VFCP restatement process, on January 14 the DOL also published an amendment to Prohibited Transaction Exemption 2002-51 (“2002-51”). 2002-51 provides relief from certain excise tax provisions of the Internal Revenue Code (if all requirements of the VFCP and 2002-51 are met for eligible transactions). The DOL’s January 14 amendment to 2002-51 extends excise tax relief to both categories of self-corrections that are made pursuant to the new VFCP. Also helpful is the fact that the amended 2002-51 eliminates the requirement that relief under 2002-51 is not available to VFCP applicants who had used the exemption for a similar type of transaction in the previous three years.