Navigating the DOL’s Voluntary Fiduciary Correction Program

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

In the administration of employee benefit plans (EBPs) occasional errors are inevitable. While proactivity, responsiveness and a robust internal control environment help to mitigate the negative effects of these errors, the U.S. Department of Labor (DOL) allows certain errors to be corrected through its Voluntary Fiduciary Correction Program (VFCP).

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The DOL’s VFCP is a program that encourages Employee Retirement Income Security Act of 1974 (ERISA) compliance through self-correction of fiduciary breaches. The VFCP only allows certain fiduciary breaches to be self-corrected. In exchange for a plan electing to self-correct, the DOL will issue a no action letter stating that the transaction covered under the VFCP will not be subject to a civil investigation. Furthermore, the VFCP typically mandates a reduced penalty fee to be paid instead of the full penalty amount a plan would ordinarily be required to pay.

The most common errors covered under the VFCP are:

  • Delinquent participant contributions or loan payments
  • Participant loans failing to comply with plan provisions
  • Participant loans improperly categorized as not in default

In order to qualify for the VFCP, the DOL has set forth several criteria which must be satisfied. First, the individual applying for relief under the VFCP must be a plan official (named fiduciary, plan sponsor, party-in-interest to the plan or any other individual capable of rectifying the fiduciary breach). Second, the plan must seek relief for a prohibited transaction covered under the VFCP. Lastly, neither the individual applying for relief nor the plan can be under civil investigation by the DOL when the application is filed, and the application cannot indicate any criminal activity related to the breach.

The VFCP was designed to lighten the administrative burden of benefit plan administration and to encourage self-enforcement of ERISA regulations. When faced with an operational error covered under the VFCP that was not caught and corrected in a timely fashion, the VFCP represents an inexpensive alternative in comparison to a DOL audit or incurring the full penalty amount. It is important, however, to consult an attorney specializing in ERISA regulations and benefit plan administration if you are unsure about any guidance set forth by the DOL in relation to its VFCP.

Please contact your Henry+Horne advisor with any questions on the Voluntary Fiduciary Correction Program.

Shelby Milburn