Where We’ve Been

Mistakes happen. In the administration of employer-sponsored plans, it seems that mistakes happen with increasing frequency. However, over the past few years, several changes have been made both by Congress and regulatory agencies to expand and simplify the process for correcting and otherwise dealing with these plan errors. We are not merely talking about a specific expansion of the available correction vehicles. Rather, we are talking about a number of changes that, cumulatively, change the landscape for correcting errors

Once upon a time, there was no formally authorized mechanism for correcting plan errors. Employers could seek private letter rulings or negotiate with the IRS upon audit, and the IRS had the “nuclear option” of plan disqualification—which was rarely used and simply not applicable to run-of-the-mill errors. Then, starting in the 1990’s the Department of Labor (DOL) and IRS launched separate programs to allow correction of errors: the DOL’s Voluntary Fiduciary Compliance Program (“VFCP”) and the IRS’ Employee Plans Compliance Resolution System (“EPCRS”). EPCRS included several correction programs, including voluntary filings under a Voluntary Correction Program (“VCP) and self-corrections under a Self-Correction Program (“SCP”). Over the years, both agencies have expanded the errors eligible for self-correction and the methods available to correct errors. In time, Congress liked what it saw and further liberalized rules for self-correction under the SECURE 2.0 Act.

The expansion of self-correction pathways under the IRS’s SCP, the DOL’s VFCP, and most recently the provisions in the SECURE Act 2.0, represents a major shift in how plan sponsors and fiduciaries can identify and correct errors without incurring penalties or triggering plan disqualification.

Where We Are

This post explores the increased flexibility now available under these programs and what it means for employers administering tax-qualified retirement plans. The changes encourage more robust internal compliance processes, reduce the need for costly filings or excise taxes, and reflect a common theme across agencies: encouraging correction over punishment.

IRS Expansion Self-Correction Under EPCRS

EPCRS, currently set out in Revenue Procedure 2021-30 and enhanced by SECURE 2.0, has long provided three avenues for correcting plan errors: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and Audit CAP.

Historically, SCP allowed employers to correct operational failures without IRS involvement, as long as certain eligibility criteria were met. However, many significant errors—especially those involving plan document failures or loan violations—were previously ineligible for SCP, forcing employers to submit under VCP with associated fees and time delays.

Key IRS Expansions

SECURE 2.0 and recent IRS guidance have dramatically expanded the scope of SCP:

• Increased Use of Retroactive Amendments: SCP now permits broader use of retroactive plan amendments to conform the terms of the plan with operational practice, provided the amendment results in increased benefits and meets other specified requirements.
• Plan Loan Errors: Plan loan failures, including exceeding loan limits or missed repayments, may now be corrected under SCP without a VCP submission, provided certain conditions are met.
• Extended Correction Periods: The correction window for significant operational failures has been lengthened from two to three years, giving sponsors more time to identify and correct errors internally.

These updates represent a substantial win for employers, reducing compliance costs and increasing flexibility for timely remediation.

DOL’s Enhanced Voluntary Fiduciary Correction Program (VFCP)

In January 2025, DOL finalized an updated version of the VFCP, which allows plan fiduciaries to correct certain ERISA violations without civil penalties or enforcement actions.

Previously criticized as cumbersome and narrow in scope, the revised VFCP makes several noteworthy improvements, particularly through the introduction of self-correction components and expanded transaction types.

Major VFCP Enhancements

• Self-Correction for Late Contributions: Perhaps the most significant development is the new Self-Correction Component for Delinquent Participant Contributions. Under this pathway, employers who make timely corrections and meet specific criteria can now avoid submitting a full VFCP application, as long as they notify the DOL through a simplified online tool.
• Online Filing Portal: VFCP applications are now submitted entirely through an online portal, significantly streamlining the process and improving transparency.
• Expanded Transaction Types: Corrections are now permitted for a broader range of transactions, including certain plan loan violations and improper plan expense allocations.
• Model Forms and Guidance: The DOL has made available standardized forms and examples to help fiduciaries apply the correction principles accurately.

The DOL’s embrace of self-correction represents a recognition that many errors result from administrative oversight, not bad faith—and that both the DOL and employers benefit if the burden of correcting errors is reduced. By formalizing a no-penalty path for timely corrections, the VFCP encourages fiduciaries to act promptly when errors are discovered.

SECURE 2.0: Legislative Codification of Self-Correction Principles

SECURE 2.0 represents significant retirement plan changes on a number of fronts—including efforts to simplify plan administration—and corrections. More specifically, Sections 301, 305, and 350 explicitly codify and expand self-correction principles, signaling a strong Congressional support for easing the burden of correction and compliance.

Highlights of SECURE 2.0’s Self-Correction Provisions

• Inadvertent Overpayments. Section 301 of SECURE 2.0 provides simplified rules for addressing inadvertent overpayments—payments made that were not consistent with the terms of the plan. This change (as explained in IRS Notice 2024-77) makes it far easier for plan sponsors to acquiesce in the inadvertent overpayment without the need to request return of the overpayment and without adversely affecting the rollover status of an inadvertent distribution.
• Codification and Expansion of EPCRS: In Section 305 of SECURE 2.0, Congress has given statutory weight to EPCRS, providing legislative backing for the IRS’s self-correction framework and ensuring its continuity across administrations. Section 305 also dramatically expands the availability of self-correction—allowing self-correction of any “eligible inadvertent failure” – with no set time limit on correction as long as it is corrected within a “reasonable period” after discovery and the plan is not under examination.
• Relief for Failure to Implement Automatic Enrollment and Deferral Elections. Section 350 of SECURE 2.0 introduces a permanent safe harbor correction method for certain automatic enrollment and employee deferral election errors in retirement plans. Under the safe harbor, no employer contributions are required if the error is corrected by the earlier of (i) the first payroll date after the 9½-month period following the end of the plan year in which the error occurred, or (ii) the first payroll date after the last day of the month following the month in which the employer was notified of the error by the employee.

These provisions reflect a clear legislative intent: plan errors should be corrected—not punished—when discovered early and corrected in good faith.

Conclusion: A More Forgiving Regulatory Climate

While the expansion of self-correction options under the IRS, DOL, and SECURE 2.0 reflects a more forgiving regulatory stance, it is not a free pass. Plan sponsors remain responsible for maintaining plan compliance under appropriate administrative procedures. The good news is that proactive, well-documented self-correction efforts are now more likely than ever to be accepted by regulators.