New VFCP "Self Correction"

https://www.sidley.com/en/insights/newsupdates/2022/11/us-dol-proposes-self-correction-of-delinquent-contributions-and-loan-payments

Can someone pleas call the DOL and explain to them what "self-correction" means?

1. The sponsor would submit an electronic notice form on the EBSA website, after which the self-corrector would automatically receive an emailed acknowledgment. The sponsor must complete a retention record checklist, including signing a penalty of perjury statement, preparing or collecting certain documents, and providing the checklist and required documentation to the plan administrator.

Oh and the 180 day turn around time is worthless because these are identified by the auditors in almost all cases well after the close of that date.  There is just not any volume on these corrections outside of the audit.  If there is a a 5 person payroll that is a week late, no one is sending their client to the DOL website to do a filing, it's just insanity.

This is really ridiculous.

The comment period is open until January 20, 2023, and this is the kind of feedback that makes for a relevant comment. You can submit a comment letter at http://www.regulations.gov/ referencing RIN 1210-AB64.

I threw a comment out on the regulations site pointing that out - A missed deferral from March won't get caught until year-end work starts 10 months later, especially if it's a 5 salaried person company where the 401(k) total every week is the exact same $1,200 so that you can't easily match up your bank records, either, if one week is missing.

I'd have to put my name on it and I don't if I can bury the contempt 🤣🤣🤣

Actually you can submit comments anonymously.

I read the 180 day requirement to apply only to the principle correction, not lost earnings. I.e., you can't have been more than 180 days delinquent, otherwise you need to do a regular VFCP submission. But if withholdings were only 10 days delinquent, you can self-correct the lost earnings piece two years later. 

If you are filing a comment letter, can you ask them to clarify over what time period the $1,000 limit is measured? I think they intended it to apply annually, or perhaps on a per-submission basis (which would be ripe for abuse but for the fact that you have to file a notice with the DOL every time you correct, so they would presumably pick up on abuse quickly), but it isn't clearly stated anywhere in the proposed text. 

2 hours ago, AKowalski said:

If you are filing a comment letter, can you ask them to clarify over what time period the $1,000 limit is measured? I think they intended it to apply annually, or perhaps on a per-submission basis (which would be ripe for abuse but for the fact that you have to file a notice with the DOL every time you correct, so they would presumably pick up on abuse quickly), but it isn't clearly stated anywhere in the proposed text. 

While I have only done a cursory review, I think its pretty clear that it is per submission

2 hours ago, AKowalski said:

I read the 180 day requirement to apply only to the principle correction, not lost earnings. I.e., you can't have been more than 180 days delinquent, otherwise you need to do a regular VFCP submission.

I agree, thats how I read it as well.

1 hour ago, AKowalski said:

I read the 180 day requirement to apply only to the principle correction, not lost earnings. I.e., you can't have been more than 180 days delinquent, otherwise you need to do a regular VFCP submission. But if withholdings were only 10 days delinquent, you can self-correct the lost earnings piece two years later. 

Oh well that's something!  Good thing I haven't sent in any comments yet!

I'm sure the industry advocates will push to extend the 180 day limit.  Something like 180 days after the end of the plan year would make more sense to me.  We still get a plenty of people catching a payroll mistake like a late deferral within 180 days, but the majority of them are discovered after the end of the PY, either by the auditor or the TPA reviewing census and trust data.

With the $1,000 limit in place, it would still exclude serious failures while giving the DOL better oversight of the more common corrections where the amount involved is less than $100 (or even $20).

Not sure how the DOL would respond to that suggestion though...

If all deposits that are funded within 180 days of being due are covered, regardless of when we do the lost interest calc/funding it certainly goes a long way to alleviating my concerns.  This whole notion of reporting it to the DOL is still a deal-breaker because I just don;t trust them not to use it for additional communications, etc.  What's the point of requiring the reporting if they are not going to use it somehow?

25 minutes ago, austin3515 said:

his whole notion of reporting it to the DOL is still a deal-breaker because I just don;t trust them not to use it for additional communications

Well they are up front with the fact that they may follow up with users who use the SCC frequently.  To me, that is simply the price of not having a hard limit set on how often you may use self correction, and if you use it over and over you clearly have a problem with policies and procedures. 

What is the alternative? Advising clients to not correct?

Correct but not use the VFCP.  99% of these are deposits that are 3 days late with $30 of interest.

A voluntary correction program suggests a could-be user faces a choice about whether to use the program.

For delayed-contribution situations, I imagine many plan fiduciaries treat the choice as a cost-benefit decision, estimating the expenses and other costs of using VFCP against the estimated benefits of ending some probabilities-discounted risks of detection, investigation, and enforcement.

But I do not know this from any experience on this particular decision-making.

Do clients ask a TPA or recordkeeper for guidance or information about whether using VFCP for a delayed contribution makes sense on a cost-benefit analysis?

If so, how do you explain such a choice?