Current Thinking

A Better Path to Plan Compliance

The management of retirement plans has become increasingly complex, demanding that plan sponsors navigate evolving regulatory requirements, administrative responsibilities, and fiduciary obligations. As key stakeholders in retirement plan oversight, financial advisors often serve as the first line of defense, guiding clients through administrative challenges, mitigating compliance risks, and ensuring adherence to fiduciary best practices.

Plans inevitably experience missteps along the way. In fact, so much so that both the Department of Labor (DOL) and the Internal Revenue Service (IRS) have their own plan corrections programs to help get plans back on track. This month, we thought it was timely to briefly examine a recent change to the DOL’s voluntary self-correction program, and more importantly, discuss how to avoid needing it in the first place.

The DOL Adds “Self-Correction” to Its Compliance Program

The DOL recently published an update to its Voluntary Fiduciary Correction Program (VFCP) on January 15, 2025. Because it was published just a few days before the new White House Administration took office, this update is not subject to the regulatory “pause” that may apply to other regulations in the rulemaking queue. Perhaps the most significant change to the VFCP is that plan sponsors may now be able to “self-correct” two of the most common plan compliance errors: late deposits of participant contributions and eligible inadvertent participant loan failures. The new rules went into effect on March 17, 2025, and provide welcome relief for plans that have run afoul of ERISA’s requirements.

DOL and IRS Correction Programs Are Different

Although both the DOL and the IRS have plan correction programs, the DOL enforces ERISA provisions, and the IRS enforces the Internal Revenue Code. And while the two corrections programs have similar objectives—to restore plans and participants to the position they would have been in had the failure not occurred in the first place—they are not identical. For example, the DOL’s new Self-Correction Component (SCC) still requires that the plan sponsor file an electronic notice giving the DOL basic information about the correction. This is different from the IRS self-correction program, which does not require the plan sponsor to send the IRS a notice of the correction. The DOL notice, on the other hand, triggers an acknowledgement from the DOL, and possible follow-up. But the DOL does not send a “no-action letter,” which it typically would do when approving corrections under its other programs. So, while we view the DOL’s new SCC as generally good news, the fact that the DOL must be notified about the correction—and that it can further review this action—may lessen enthusiasm about the new program.

Consider A Better Path to Compliance

Despite the chances that future wait times may increase with both the DOL’s and IRS’s corrections programs, having these programs is ultimately beneficial. Both programs allow plan sponsors to fix compliance problems before a government entity identifies an issue and gets involved. And well-established correction methods give employers the peace of mind that they are following a course of action that will lessen their expenses while avoiding penalties or further scrutiny. But perhaps a better path to plan compliance starts by having the right plan partners, along with a trusted advisor, including an ERISA 3(16) administrative fiduciary, who can not only help advisors and plan sponsors avoid issues before they become compliance problems, but also work with the IRS and DOL on a plan sponsor’s behalf to correct plan problems.

How a 3(16) Fiduciary Can Help

A 3(16) fiduciary helps plan sponsors stay compliant and avoid costly mistakes by proactively managing plan administration and handling key plan administrative responsibilities. By outsourcing key administrative functions to a 3(16) fiduciary, employers not only minimize risk and reduce workloads but also reduce the risk of errors that could trigger compliance issues.

Advisors are Partners in Plan Success

For financial advisors, integrating a 3(16) fiduciary solution into their service offering strengthens their role as a strategic partner in retirement plan management. By proactively addressing fiduciary oversight and administrative complexities, advisors can differentiate themselves in a competitive landscape. Offering 3(16) fiduciary services not only enhances their value proposition but also aligns their interests with optimal client outcomes—demonstrating a commitment to fiduciary excellence, regulatory best practices, and placing client interests first.

Pentegra Can Help You Avoid Problems Altogether

While we feel that the DOL’s new Self-Correction Component is a step in the right direction, we are still a long way off from plan sponsors being able to navigate plan corrections on their own. Outsourcing 3(16) Plan Administrator fiduciary duties to a professional is not just a compliance solution, but a strategic move that benefits both clients and advisors. By transferring these responsibilities to experts, businesses can reduce risk, streamline operations, and enhance the overall effectiveness of their retirement plans. For plan sponsors and advisors, partnering with a trusted 3(16) fiduciary provider can be a valuable investment in long-term retirement plan success.