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In November, the DOL released proposed updates to its Voluntary Fiduciary Correction Program (“VFCP”) and related guidance. While plan sponsors may not yet rely on the proposal, it may provide a window into current DOL thinking regarding the program and what is soon to come in 2023. Perhaps most significantly: if approved, the change would permit plan sponsors to self-correct late deferrals and loan repayments. Under the current VFCP, plan sponsors are only able to obtain certainty the DOL will not require a different rate of earnings or require other corrections if the plan sponsor completes a formal VFCP filing.
The proposed change would provide plan sponsors will reliance on self- corrections, but the proposal comes with a number of caveats:
• Self-correction would be permitted only for deferrals and loan repayments that were remitted within 180 calendar days from the date of withholding or receipt.
• Self-correction would be permitted only in situations where lost earnings did not exceed $1,000. Further, lost earnings would be calculated from the date of withholding—not from the date of the amounts should have been remitted, as is commonly used in current self-corrections.
• Plan sponsors would be required to submit a self-correction notice to the DOL and complete and retain a self-correction record retention checklist.
• Plan sponsors under investigation would be ineligible for the new self-correction program.
In addition, if the proposal were adopted, self-corrections would be eligible for excise tax relief without the participant notices that are currently required for excise tax relief.
Of course, plan sponsors are likely to encounter errors that don’t fit within the new self-correction program. In the past, it was common practice to self-correct many of those errors. It is of some concern that this proposal would, by negative implication, suggest that the DOL believes that only the described situations may be self-corrected. Of course, plan sponsors may still elect to self-correct without formal reliance under the new VFCP, but they might want to evaluate methodology and DOL enforcement trends after the VFCP changes are finalized.
When deciding how to correct errors that don’t fall within the official self-correction program. While the proposal cannot be used by plan sponsors just yet, this has significant promise for permitting faster and more efficient corrections in the future. In addition, plan sponsors may consider whether any changes to self-correction practices in the meantime is advisable.