On January 14, 2025, the Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor (DOL) issued a notice that the agency adopted an updated and restated Voluntary Fiduciary Correction (VFC) Program, the first update of the program since 2006. The VFC Program is designed to encourage voluntary correction of certain fiduciary violations of eligible transactions and avoid potential DOL enforcement actions and penalties.

The program was simplified and expanded to make it easier to use for less costly corrections, thereby encouraging more plans to voluntarily correct certain breaches of fiduciary duty under Title I of ERISA. Most notably, a self-correction feature was added, previously unavailable under the program, for:

• Delinquent transmittal of participant contributions and loan repayments to employer-sponsored retirement plans
• Eligible inadvertent participant loan failures that are self-corrected under the IRS's Employee Plans Compliance Resolution System (EPCRS) to implement sections 305(b)(2) and (3) of the SECURE 2.0 Act of 2022

The effective date of the amended VFC Program is March 17, 2025.

While the VFC Program changes may apply to ERISA-covered employer-sponsored retirement plans¹ generally, both defined contribution (DC) plans and defined benefit (DB) plans, the most significant changes primarily impact employer-sponsored DC plans covered by ERISA.

VFC Program eligibility

Eligibility to correct under the VFC Program generally requires that the plan, applicant, or self-corrector not be under investigation,² and the application must not contain evidence of potential criminal violations. However, the following two exceptions were added to encourage use of the VFC Program.

• Potential criminal violations relating to delinquent participant contributions and loan repayments. The VFC Program may be used if 1) all funds have been repaid to the plan, 2) the relevant law enforcement agency has been informed of the suspected criminal activity, and 3) a penalty of perjury statement is included with the application certifying that the applicant was not involved in the suspected criminal activity and the contact information for the law enforcement agency is provided, and whether a claim related to the violation has been made under the plan’s ERISA fidelity bond. EBSA reserves the right to reject the application pending their own assessment of the suspected criminal activity.
• Bulk applications. Service providers of 10 or more plans for which the same transaction is being corrected may submit a bulk application to seek relief for themselves, provided they are not under investigation by EBSA, and the corrective action was not due to an EBSA investigation of any of the plans. The penalty of perjury statement certifying they are not under investigation by EBSA may be signed by the applicant rather than each plan’s fiduciary.

Lastly, eligible inadvertent participant loan failures may be self-corrected under the VFC Program from an ERISA standpoint even if the applicant is under investigation, as long as they are eligible to make the correction from a plan qualification standpoint under the IRS’s EPCRS.

New self-correction for delinquent participant contributions and loan repayments

A new self-correction component (SCC) was added for delinquent transmittal of participant contributions and loan repayments, the most common violations corrected under the VFC Program. Through the SCC, employers and plan officials can self-correct these two types of errors using EBSA’s SCC web tool by submitting a SCC notice instead of a full VFC Program paper application, saving the time and expense of such an application to correct violations that often involve small dollar amounts. This feature is available to all eligible employer-sponsored retirement plans regardless of their size and allows for self-correction of delinquencies where the lost earnings on the delinquent amounts are $1,000 or less, excluding any excise taxes paid to the plan under Prohibited Transaction Exemption (PTE) 2002-51, provided that:

• Delinquent contributions and payments are remitted. The delinquent participant contributions or loan repayments are remitted within 180 days from the date of withholding or receipt, i.e., the date an amount would have been paid to the participant in cash if withheld from wages or the date the employer receives a participant’s contribution or loan payment. Any late fees, penalties, or other charges must be paid by the employer or other plan official and may not come from contributions or loan repayments.
• Lost earnings are paid. Lost earnings are calculated using EBSA’s online calculator from the date of withholding or receipt, which is earlier than the date used for full VFC Program application corrections, where lost earnings are based on the earliest date the amounts “could reasonably have been segregated from the employer’s general assets.”
• SCC notice is filed with EBSA. In lieu of submitting a full VFC Program paper application, self-correctors must file a SCC notice electronically with EBSA through its online VFC Program web tool. The notice must include basic plan sponsor and plan information, the amount of delinquent participant contributions or loan repayments, the lost earnings and date paid to the plan, the date(s) of withholding or receipt, and the number of affected participants. Filers will receive an email acknowledgment of the SCC notice submission but will not receive a “no action” letter, which is only available in the case of a full VFC Program application.
• SCC Retention Record Checklist. Self-correctors must provide a completed SCC Retention Record Checklist and associated listed documentation to the plan administrator. Plan fiduciaries and each plan official³ involved must sign and date a penalty of perjury statement certifying they are not under investigation and that all the submitted information is accurate. The plan administrator must retain these items for the duration of the record retention period required by section 107 of ERISA (generally not less than six years after the filing date of the information to which the documentation pertains).

There is no limit to how often the SCC may be used. However, repeated use of the SCC could lead to an EBSA inquiry or investigation to identify why these timely remittance failures continue to happen. Also, plans using the VFC Program—whether the SCC or full VFC Program application component—must still report delinquent participant contributions on Form 5500 or Form 5500-SF.

New self-correction for eligible inadvertent participant loan failures

The 2025 VFC Program provides a SCC for eligible inadvertent participant loan failures. Specifically, it is for participant loan errors that occur despite having appropriate practices and procedures in place and qualify for self-correction under the IRS’s EPCRS, excluding egregious failures, misuse of plan assets, or the intention to avoid taxes. These loans include those that do not comply with a plan's provisions regarding loan amount, duration, or level repayment schedule, that default because repayments were not withheld from participants' wages, that fail to obtain a spouse’s consent for the plan loan, or if the number of loans exceeds the limit permitted by the plan. If self-correcting these loan failures through the SCC component of the DOL’s VFC Program, they must be self-corrected under the IRS’s EPCRS (i.e., the IRS’s Self-Correction Program [SCP]) beforehand.

Self-correctors must submit a SCC notice electronically to EBSA using its web tool, and complete and retain required documentation substantiating self-correction of the failure, including a penalty of perjury statement. The SCC notice should include basic plan sponsor and plan information, a description of the participant loan failure, loan amount(s), date when the failure was identified, correction date(s), the correction method, and the number of affected participants. The documentation and penalty of perjury statement should be provided to the plan administrator, but the SCC Record Retention Checklist is not required for this type of transaction. The plan administrator must retain the required documentation and penalty of perjury statement, for the period required by section 107 of ERISA (as explained above). The penalty of perjury statement must be signed and dated by a plan fiduciary with knowledge of the transaction, the authorized representative of the plan sponsor, if any, and each plan official who is seeking relief under the program.

Increased de minimis threshold for corrective distributions

The VFC Program was updated to raise the de minimis exception that applies to corrective distributions from $20 to $35. Distributions below $35 do not need to be made to former employees, beneficiaries, or alternate payees who no longer have any benefits due from the plan, provided the applicant can show that the cost of distributing these small amounts exceeds the corrective payment amount. However, the de minimis amounts must be contributed to the plan.

Changes to payment and correction costs

The VFC Program has been revised to permit service providers and other plan officials, in addition to employers, to pay lost earnings and other correction costs for delinquent participant contributions and loan repayments. These corrections may not be paid from plan assets (e.g., using forfeitures).

In addition, the VFC Program was clarified to allow plan administrators of multiemployer or multiple employer plans to make corrections on behalf of the entire plan. Contributing employers in these plans can use the VFC Program or SCC to make corrections on their own behalf, with the VFC Program application or SCC penalty of perjury statement signed by the correcting employer without needing the signature from a plan fiduciary.

Delinquent employer matching contributions are not covered by the VFC Program

The VFC Program does not offer a correction mechanism for delinquent employer matching contributions. VFC Program applications that include the same correction formula for employer matching contributions that will be applied to delinquent participant contributions will not be rejected. However, this does not mean that employer contributions are officially corrected through the VFC Program, and any “no action” letter will not provide the same legal and regulatory relief as corrections for delinquent participant contributions.

Excise tax relief

EBSA also amended the PTE 2002-51 to provide excise tax relief for the new self-correction components under the 2025 VFC Program. Such relief depends on plan sponsors following all the VFC Program requirements for the correction, receiving a “no action” letter or SCC email acknowledgment from EBSA, and complying with any additional conditions under the PTE.

Please contact your Milliman consultant for advice on how these provisions may impact your plan(s).

¹ The VFC Program uses the term “pension plans,” citing ERISA sections 3(34) and 3(35), under which the term includes both defined contribution plans and defined benefit plans.

² Being under investigation generally means that the plan, any plan official, or authorized plan representative is aware they are being investigated, reviewed, or examined by the DOL, IRS, Pension Benefit Guaranty Corporation (PBGC), or another government agency for potential violations (criminal or otherwise) related to the management and operation of the plan.

³ A plan official as defined in the VFC Program is a plan fiduciary, plan sponsor, party in interest with respect to the plan, or other person who can correct a breach via the VFC Program.