Voluntary Correction Programs for Late Plan Remittances
Late remittances create one of the most common compliance issues in retirement plans. The DOL treats these delays as fiduciary breaches under ERISA law, and plan sponsors must correct the missed deposits and document the steps taken. Recent updates to the Voluntary Fiduciary Correction Program (VFCP) give sponsors two ways to resolve late remittances and return the plan to compliance. To help clients, prospects, and others, JLK Rosenberger has summarized the key details below.
Understanding Late Remittances
A late remittance occurs when employee contributions or loan repayments are withheld from payroll but are not deposited into the retirement plan account on time. Once these amounts are withheld, they belong to the participant, and the sponsor must transfer them to the plan. The rules state that employers must deposit contributions as soon as the amounts can be separated from company funds. The law allows deposits up to the 15th business day of the following month, but that date is the maximum deadline, not standard practice. In most cases, deposits must occur much sooner to be considered timely. For plans with fewer than 100 participants, deposits made within seven business days qualify for a safe harbor. When deposits fall outside these expectations, they are considered late.
Late remittances are fiduciary issues because plan assets remained under employer control longer than allowed. When delays occur, the sponsor must deposit the missed amounts, add lost earnings, and document the correction. Delays may result from payroll issues, staffing changes, among other challenges; however, the cause does not change the requirement to correct the error.
How to Correct Late Remittances
Late remittances must follow an approved correction process. The sponsor must first deposit the delayed amount, calculate and add lost earnings, and document the dates, amounts, cause of delay, and timing of the correction. Once these steps are complete, the sponsor finishes the process under the DOL’s correction framework. VFCP now provides two routes: a full VFCP application or the newer Self-Correction Component.
VFCP Application — The VFCP application remains the primary method for resolving late remittances. The sponsor submits documentation to the DOL that explains the delay, shows how the lost earnings were calculated, and confirms when both the contributions and lost earnings were deposited.
The DOL reviews the submission and may request additional information. If the agency approves the correction, it issues a No Action letter indicating that it does not intend to pursue enforcement related to the delay. Many sponsors use this route because the No Action letter provides a record of resolution and can be important in future reviews.
A full application generally includes a written narrative explaining the delay, payroll and deposit records, lost earnings calculations, fiduciary certifications, and a description of the internal controls in place to prevent similar issues. A full VFCP application is required for delays that are recurring, significant, or fall outside the limits of the Self-Correction Component.
Self-Correction Component (SCC) — The Self-Correction Component is a newer feature within VFCP that allows sponsors to correct certain late deposits without filing a full application. SCC is available only when the delay meets specific criteria; the DOL does not review or approve SCC corrections. Because of that, the plan sponsor must keep documentation on file.
To use SCC, the correction must be completed within 180 days from the date the contribution or loan repayment was withheld or received. Lost earnings must total $1,000 or less (using the DOL’s online calculator). Neither the plan nor the sponsor can be under DOL or IRS investigation at the time of correction. Both the delayed amount and the lost earnings must be deposited before the sponsor submits the SCC notice.
After filing the notice through the DOL portal, the sponsor receives an acknowledgment email. This email, along with payroll records, deposit confirmations, lost earnings calculation, and other documentation, should be kept as part of the plan sponsor’s records. Because SCC does not produce a No Action letter, the sponsor’s records are the only evidence of correction. SCC is meant for isolated, short-term delays. Larger or repeated issues require a full VFCP application.
Avoiding Future Mistakes
An important part of the corrections process is planning for the future. What steps can the organization take to prevent late deposits from happening again? The DOL suggests working with payroll providers to determine the earlier date that employee contributions can be separated from company funds. Once that date is identified, the plan sponsor can implement internal controls that result in regular timely deposits.
We’re Here to Help
Late remittances can generally be corrected through the VFCP by either submitting the full application or the self-correction component. It’s important to make corrections as soon as possible and follow up by implementing safeguards that prevent the mistakes from happening again. If you have questions about the information outlined above or need assistance with your next plan audit, JLK Rosenberger can help. For additional information call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.
