Among the most frequent errors made by company-sponsored retirement plans is failing to deposit participant contributions on time. The best approach is to address such oversights proactively, and the recently updated Voluntary Fiduciary Correction Program at the Employee Benefits Security Administration (EBSA) facilitates this.
Voluntary Fiduciary Correction Program?
The 2025 update to EBSA’s Voluntary Fiduciary Correction Program (VFCP) gives employers (and their plan administrators) a streamlined way to self-correct ERISA compliance issues related to employee payroll deductions, participant loan repayments to retirement plans, and more. The updated approach to voluntary corrections becomes effective in March 2025, and, Remy Samuels of Plan Sponsor offers this overview:
The VFCP is designed to encourage the correction of fiduciary breaches and compliance with the law by allowing plan sponsors to avoid potential DOL civil enforcement actions and civil penalties by voluntarily correcting eligible transactions in a manner that meets the requirements of the program. Employers and plan officials can use the self-correction component to voluntarily self-correct delinquent participant contributions and loan repayments to pension plans of any size if lost earnings total $1,000 or less. Employers can also fix mistakes related to participant loans from retirement plans, as provided by the SECURE 2.0 Act of 2022.In addition, EBSA’s 2025 update to the VFCP:
- Expands the scope of transactions eligible for correction;
- Clarifies transactions already eligible for correction;
- Simplifies administrative and procedural requirements and
- Amends the Voluntary Fiduciary Correction Program class exemption so plan officials can avoid the imposition of excise taxes.
Importantly, the VFCP enables retirement plan sponsors to seek relief from enforcement actions associated with common ERISA fiduciary violations. However, once a plan is under investigation by the Department of Labor, applying to the VFCP to fix errors is no longer an option. This DOL Fact Sheet lists the types of transactions eligible for voluntary correction, and the 2025 VFCP package details the steps to follow to address eligible errors.
Good To Know: Timely Deposts?
According to EBSA’s “Getting It Right” education campaign, failure to deposit participant contributions to the plan “as soon as they reasonably can be segregated from the company’s general assets” is among the most common errors made by employer-sponsored retirement plans. Though most plan sponsors rely on third-party administrators, it’s key to understand the specifics of how and when the company payroll system and retirement plan service providers ensure “participant contributions are forwarded to the plan on the earliest possible date in compliance with the law.” EBSA’s resource booklet, Meeting Your Fiduciary Responsibilities, provides specific pointers related to the timely submission of participant contributions.
Keep in mind that under the high standards of ERISA, even when plan services are outsourced, sponsors retain fiduciary liability and can be held personally accountable for paying the plan for losses. Additionally, both the Department of Labor and the Internal Revenue Service can impose civil penalties and excise taxes, which cannot be paid by the plan. Bottom line: an inherent risk of plan sponsorship is exposure of personal assets, which makes obtaining fiduciary liability insurance essential. Colonial Surety Company has an efficient and affordable solution for sponsors from plans of all sizes. For a few dollars a day, our Fiduciary+Cyber Liability Insurance Combo:
- Reduces the personal risks of plan sponsors by providing defense costs and penalty limits up to $1,000,000 in the event of alleged or actual breaches of duty in connection with the employee retirement plan
- Addresses Department of Labor cybersecurity recommendations;
- Explicitly covers the business and the plan in the event of a cyber breach; and,
- Provides expert response and notification services following a cyber breach.
Fiduciary Liability Insurance is the only form of protection that shields business owners against the inherent personal risks of sponsoring an employee retirement plan. Get covered in minutes right here:
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