To err is human; to forgive is only a correction program away

Occasional mistakes are inevitable—the good news is they can be fixed.

As grizzled employee benefit plan veterans, you know better than anyone that retirement plans are complex and difficult to administer perfectly. No matter how diligent you are around plan administration, occasional mistakes are nonetheless inevitable. The good news is they can be fixed. Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) have established programs to help plan sponsors correct defects, allowing you to maintain the tax-qualified status of your plans or get back on the fiduciary straight and narrow. In order to provide you with a working knowledge of those programs, we've highlighted a few things about them below. We have also included some links to additional resources should you want to go a little deeper.

IRS Correction Program

If a retirement plan is not operated in accordance with the Internal Revenue Code provisions that govern it, it is subject to disqualification. If a plan becomes disqualified, tax benefits of the plan are lost, resulting in extreme adverse tax consequences for both the employer and the employees. The Employee Plans Compliance Resolution System (EPCRS) allows sponsors to fix qualification errors without losing the plan's tax benefits. If errors are caught quickly or are insignificant, you may be able to self-correct the errors without involving the IRS. For longstanding or significant errors, you may need to submit an application to the IRS explaining the failures and the correction methods you propose. While you're free to come up with your own, EPCRS outlines model correction methods for certain common failures such as:

  • Failure to allow eligible employees to contribute
  • Miscalculation of contributions
  • Participant loan errors
  • Nondiscrimination testing errors
  • Vesting errors

DOL Correction Programs

Some mistakes you make may not affect the qualified status of your plan but may instead be considered a potential breach of your fiduciary duty. The DOL sponsors two correction programs - one for delinquent filing of annual reports and another for correction of fiduciary breaches.

Delinquent Filer Voluntary Correction Program (DFVCP) - Retirement plans must file an annual reporting Form 5500. What happens if you fail to file or file late? You could be subject to substantial penalties under ERISA. To encourage plan sponsors to come forward when that happens, the DFVCP greatly reduces otherwise applicable penalties related to delinquent filings.

Voluntary Fiduciary Correction Program (VFCP) - Plan fiduciaries may find themselves in the position of having breached their fiduciary duty. That breach could be as simple as failing to timely deposit plan contributions or loan repayments. The VFCP provides descriptions of 19 categories of fiduciary violations, along with approved methods of correcting those violations. Correction generally requires you to restore any losses, with interest, to the plan or to participant accounts.

Additional resources

Fidelity Investments Institutional Operations Company, Inc

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