New DOL Self-Correction Component for Retirement Plan Fiduciary Breaches Under the VFC Program

Description

On Jan. 15, 2025, DOL published an updated VFCP along with amendments to the prohibited transaction exemption. These changes will allow employers to self-correct certain errors without submitting an application to the Employee Benefits Security Administration. Counsel, plan sponsors, and administrators must understand the requirements under the updated VFCP and correction methods in light of the updates.

The IRS and DOL continue their heightened scrutiny of retirement plans. Plan audits typically reveal noncompliance issues that can result in substantial penalties for employers. Such compliance risks stem from the failure to recognize plan document defects, a specific area of focus during an IRS audit of a retirement plan. The recent updates to the VFCP will permit employers additional self-correcting avenues for operational failures.

Under the new VFCP, administrative and procedural requirements are simplified. The new VFCP provides clarity on transactions eligible for correction, expands coverage of transactions eligible to be corrected under the program, and implements self-correction components for certain types of transactions. Those who elect to use these self-correction components will not receive a no-action letter and will trigger a civil investigation under Title I of ERISA or the assessment civil penalties under Section 502(l) or 502(i) of ERISA. Therefore, counsel must have a complete understanding of the requirements under the new VFCP.

Listen as our panel of experts discusses the new self-correction rules and procedures under the updated VFCP, fiduciary liability and risks, and other challenges in light of the updated VFCP.