The Voluntary Fiduciary Correction Program (VFCP) is the Department of Labor’s formal path for a plan fiduciary who finds that plan money was handled the wrong way and wants to put it right before an investigator does. For a 401(k) plan sponsor, it answers a practical question: once you discover a plan-asset error, do you fix it quietly, or fix it and tell the DOL so the matter is closed?
This guide explains what VFCP covers, how a correction works, when filing is worth it, and where sponsors get hurt using it.
What VFCP Is, and Why It Is a Fiduciary Decision
VFCP is run by the DOL’s Employee Benefits Security Administration (EBSA). A fiduciary who fully corrects an eligible transaction and files a complete application receives a no-action letter: the DOL agrees not to pursue civil enforcement or assess the related civil penalty for that transaction. For certain transactions, a companion class exemption also provides relief from the IRS excise tax on prohibited transactions.
The decision to use VFCP is not a clerical one. Restoring plan assets is a fiduciary duty under ERISA, and the person who caused or allowed the loss is generally the one who must make the plan whole. That is why it belongs with the plan’s named fiduciary and committee, not buried in payroll. If you have not mapped who holds which role, start with 3(16) vs. 3(21) vs. 3(38) vs. 402(a).
VFCP vs. the IRS Correction Programs
Sponsors often confuse VFCP with the IRS’s EPCRS programs. They solve different problems:
- EPCRS (IRS) protects the plan’s tax qualification — for example, a missed deferral election or excess deferrals.
- VFCP (DOL) addresses fiduciary breaches involving plan assets — money that left the plan, arrived late, or was used for the wrong purpose.
- DFVC (DOL) is a separate program for late Form 5500 filings.
One error can touch more than one program. Late deposits, for instance, are a fiduciary issue under VFCP and also show up on the Form 5500.
Which Errors VFCP Covers
VFCP applies only to a specific list of eligible transactions published by the DOL. If a transaction is not on that list, the program cannot be used for it. The categories sponsors most often meet include:
1. Late or unremitted participant contributions
Deferrals and loan repayments withheld from pay but not deposited as soon as they could reasonably be segregated. This is by far the most common VFCP filing. See late deferral deposits for the underlying rule.
2. Participant loan failures
Loans made or administered outside the plan’s terms or the applicable rules, including certain loan repayments that were withheld but never applied. Our guide to plan loan defaults covers the tracking side.
3. Transactions with parties in interest
Purchases, sales, exchanges or leases between the plan and the employer or other related parties. These are classic prohibited transactions, where intent does not matter.
4. Plan assets paying the wrong expenses
Settlor expenses paid from the plan, duplicate or excessive fees, or service-provider compensation above what is reasonable. This often surfaces when sponsors review ERISA budget accounts and revenue sharing.
5. Improper payments and asset valuation problems
Payments to people not entitled to them, and purchases or sales of assets at other than fair market value.
Confirm the current list and requirements on the DOL’s VFCP page before relying on any category; the program has been updated over time, including a recent expansion of self-correction options for some late-deposit situations.
How a VFCP Correction Works
- Confirm eligibility. The plan and applicant must not already be under EBSA investigation. Once the DOL has opened an investigation, the door generally closes.
- Identify the full population and period. Every affected participant and every pay date or transaction, not just the one someone noticed.
- Calculate principal and lost earnings. The DOL provides an online calculator for lost earnings; use the method the program prescribes, and keep the inputs.
- Restore the plan. Deposit principal plus lost earnings and allocate them to the right participants and money sources. Correction costs are paid by the fiduciary, not by the plan.
- Fix the cause. Change the payroll process, signing authority or vendor arrangement that allowed the error, and document it.
- File the application. Submit the required forms, calculations, proof of payment and supporting documents. Incomplete applications are the most common reason relief is delayed.
- Handle excise tax. Determine whether the class exemption applies and whether any notice to interested parties is required; if relief is unavailable, the excise tax is reported separately.
- Keep the proof file. The no-action letter, calculations, deposit confirmations and the process fix belong with your permanent plan records.
When to File vs. Fix Quietly
Many sponsors correct small errors without filing, and that can be reasonable. Filing tends to make more sense when:
- The error is large, recurring, or spans several plan years.
- An auditor has flagged it, or it will appear on the Form 5500 and invite questions.
- Excise tax relief matters and the class exemption is only available through VFCP.
- A sale, merger or provider change is coming and buyers will ask whether the issue is closed.
- The fiduciaries involved want documented finality rather than a correction no one has reviewed.
Correcting without filing still requires the same full restoration. “We fixed it going forward” is not a correction.
Where Sponsors Get Hurt
- Waiting until the DOL calls. An open investigation generally ends VFCP eligibility.
- Using plan forfeitures to fund the correction. Restoration must come from the responsible party, not from other plan money. See forfeiture vs. suspense accounts.
- Correcting only the sample the auditor found. VFCP expects the whole affected period.
- Skipping the root cause. A repeat of the same late-deposit pattern undercuts the claim that it was corrected.
- No minutes. The committee’s decision to correct and file should appear in your plan committee meeting minutes.
What You Can Delegate, and What You Can’t
A 3(16) administrator or TPA can run the calculations, assemble the application, reconcile deposits against payroll and track the deadline-driven pieces. What only the employer can supply: payroll dates and withholding records, the facts of any related-party transaction, the decision of who pays the correction, and the commitment to change the underlying process. The 3(16) plan administration role is built for exactly that division of labor.
A Fiduciary Who Stands Behind the Correction
Most providers will help you calculate a correction and then step back from the decision. Admin316 goes further: we accept the ERISA 402(a) named-fiduciary appointment, which most providers decline. That means a fiduciary on your side is accountable for deciding whether to self-correct or file under the Voluntary Fiduciary Correction Program, overseeing the restoration, and keeping the evidence your plan will need later. Learn more about our 402(a) fiduciary services.
Found an error you aren’t sure how to close? Book a confidential review with Admin316 and we’ll walk through what to correct, who pays, and whether VFCP is the right path.
