2025 Revisions to the VFCP: Key Changes to Correction and Compliance Options

Historically, the IRS' Employee Plans Compliance Resolution System (EPCRS) has provided employers structured options for correcting retirement plan failures. Under this framework, certain operational errors qualified for self-correction, while more significant issues required formal submission.

Similar to EPCRS, the U.S. Department of Labor (DOL) maintains the Voluntary Fiduciary Correction Program (VFCP). On March 17, 2025, the DOL amended the VFCP to allow employers and other fiduciaries to now self-correct certain prohibited transactions without the need for a formal VFCP application (intended to result in a no-action letter).

Self-Correction Under the VFCP

The VFCP was originally designed to encourage employers and plan fiduciaries to voluntarily comply with the Employee Retirement Income Security Act of 1974 (ERISA) by self-correcting certain violations of the law. The 2025 revision represents the third update to the VFCP and the first since 2006.

Notably, the revised VFCP introduces a self-correction component (SCC) that allows eligible transactions to be corrected without a formal submission to the DOL. The transactions eligible for self-correction under the SCC include the delinquent transmittal of participant contributions and loan repayments to qualified retirement plans, as well as certain participant loan failures that may also be self-corrected under the EPCRS.

The DOL's intent behind this new guidance is to better protect plan participants and reduce the compliance burden on employers to allow the agency to focus its enforcement efforts on more serious violations.

Requirements for SCC Eligibility

The SCC provides a more streamlined correction process for failures to timely transmit participant contributions and participant loan repayments to ERISA-covered pension plans. To qualify for self-correction, the following requirements must be met:

1. Lost Earnings Limit. The amount of lost earnings on the late contributions or loan repayments must not exceed $1,000 (determined on a per-payroll period basis).
2. Timeliness. The late contributions or loan repayments must be transmitted to the plan within 180 calendar days from the date they were withheld from participants' paychecks or received by the employee.
3. Lost Earnings Calculation. The lost earnings must be calculated using the DOL's online calculator from the date of withholding or receipt by the employer, and the calculated amount must be paid to the plan (not from forfeitures).
4. Electronic Notice to the DOL. The self-correction requires submitting an electronic notice to the DOL using the new online VFCP tool on the Employee Benefits Security Administration (EBSA) website and must include specified information.
5. Penalty of Perjury and Record Retention. A certification under penalty of perjury is required by each official seeking relief under the program. Self-correctors must prepare documents listed in the Retention Record Checklist and ensure they are provided to the plan administrator for retention.

Under the revised VFCP, the correction of certain eligible participant loan failures consistent with the EPCRS requirements – including violations where loans are noncompliant with a plan's loan policy, default due to missed payroll deductions or exceed the plan's loan limits – are eligible for relief from the DOL's enforcement and civil penalties when reported in the manner required under the SCC.

Conclusion

The 2025 updates expand the availability of relief for plan fiduciaries by introducing the SCC so that sponsors can correct certain plan failures without filing a formal application. The updated VFCP also removes prior restrictions on the frequency of self-correction, making the program more flexible and accessible for plan fiduciaries. Unlike the formal VFCP process, self-correction under the SCC does not result in a no-action letter from the DOL but otherwise provides similar protection from enforcement action and penalties.

Although the creation of the SCC is among the most notable of changes to the VFCP, other updates to the program were made, including:

• raising the de minimis threshold for corrective contributions
• permitting service providers to submit "bulk" applications for multiple plans
• reaffirming that plan assets cannot be used to pay for the cost of corrections
• clarifying the meaning of when a plan is considered "under investigation"

Though the new self-correction rules offer welcome relief from procedural barriers – particularly for smaller errors identified quickly – some failures will still require a formal VFCP application. Plan sponsors should continue to monitor for additional DOL guidance, review and strengthen their internal compliance procedures and act promptly to correct discovered errors under the new framework.

If you have questions on how this might impact your plan, contact the authors or another member of Holland & Knight's Executive Compensation and Benefits Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.