DOL's fiduciary update: New proposal to self-correct delinquent 401(k) contributions
Currently, plan sponsors must provide documentation and sign a penalty of perjury statement with EBSA, and as a result, many do not utilize the program. The new procedure would streamline the process.
The DOL’s Employee Benefits Security Administration (EBSA) recently announced its intent to update its Voluntary Fiduciary Correction Program (VFCP) to create a new self-correction process for correcting late remittances of participant deferrals and loan repayments to defined contribution plans.
Currently, participation in the VFCP involves a formal filing with EBSA that requires plan sponsors to provide documentation and sign a penalty of perjury statement. As a result, many plan sponsors do not utilize the program. The new rules are designed to encourage greater participation in the VFCP. Instead of waiting for EBSA to approve a formal VFCP application, the new process would simply require plan sponsors to notify EBSA after the correction has been made.
EBSA’s proposed changes will do the following, according to the DOL:
- Clarify some existing transactions that are eligible for correction under the program.
- Expand the scope of other transactions currently eligible for correction and simplify administrative or procedural requirements under the program.
- Amend the associated prohibited transaction class exemption, known as PTE 2002-51.
In order to qualify for self-correction, the lost earnings on the late remittance or delinquent loan payment cannot be more than $1,000 and must be calculated from the original payroll date. The correction must be made no later than 180 calendar days from the date the employer withheld or received such amounts. The plan sponsor must use the VFCP’s Online Calculator to calculate lost earnings. A plan is not eligible for self-correction if it is already “under investigation” by EBSA. Although plan sponsors will not receive any formal approval from EBSA of the correction, EBSA will not impose penalties or take civil enforcement action if the self-correction process is followed.
Related: DOL’s final ESG rule rolls back restrictions in retirement plans (some early reactions)
“The Employee Benefits Security Administration is seeking public comments on planned changes to the Voluntary Fiduciary Correction Program that will make it easier and more cost effective for plan officials to correct violations, and for the department to improve compliance,” explained Assistant Secretary for Employee Benefits Security Lisa M. Gomez.
Public comments must be submitted to EBSA by January 20, 2023, so stay tuned for final rules in 2023.
Julia M. Vander Weele is the Office Managing Partner for Spencer Fane LLP in Kansas City, Missouri.