Compliance Problems, Plan Corrections & Preventive Strategies: What Financial Advisors Should Know
For financial advisors supporting retirement plan clients, it’s no secret that navigating the regulatory complexities of qualified plans can be challenging. The volume and nuance of rules issued by the Department of Labor (DOL) and IRS can overwhelm even the most well-intentioned plan sponsors. At Pentegra, we frequently identify compliance issues early in our client onboarding process—and what we see tends to mirror broader industry trends.
For retirement plan advisors, understanding these recurring pain points and the various correction programs used to resolve them is an essential value-add for your clients.
Frequent Compliance Pitfalls: What to Watch For
Errors in plan administration are surprisingly common—and somewhat predictable. Familiarity with the most frequent issues gives advisors an opportunity to be proactive. Here’s a sample of errors we regularly uncover:
- Late deposit of employee deferrals and loan repayments
- Misapplication of plan eligibility rules (including automatic enrollment provisions)
- Incorrect use of plan compensation definitions
- Errors in calculating or distributing required minimum distributions (RMDs)
- Missed or late plan amendments
- Mismanagement of participant loan policies
- Improper handling of plan forfeitures
It’s worth noting that even seemingly compliant practices can be challenged. For instance, recent litigation questions the way forfeitures are applied—even when plans follow IRS-approved methods. Compliance, in many ways, remains a moving target.
Correction Programs: How Plan Sponsors Can Get Back on Track
Fortunately, both the DOL and IRS offer structured, voluntary correction programs to address and resolve common compliance failures—without necessarily triggering plan disqualification or penalties. Advisors who understand these options can help clients navigate challenges more effectively. Here is a high-level description of the various programs available:
Department of Labor (DOL) Correction Programs
- Voluntary Fiduciary Correction Program (VFCP)
The VFCP encourages sponsors to voluntarily address violations of ERISA. Sponsors that follow the formal VFCP process may receive relief from potential DOL enforcement actions. It’s important to note that plans “under investigation” (according to the DOL) are not eligible. - Delinquent Filer Voluntary Compliance Program (DFVCP)
This program focuses on missed Form 5500 filings, capping penalties to encourage timely resolution without overly punitive outcomes.
IRS Employee Plans Compliance Resolution System (EPCRS)
The IRS’s correction framework—EPCRS—provides plan sponsors with three tiers of options:
- Self-Correction Program (SCP): Allows plan sponsors to correct certain failures without notifying the IRS or paying a user fee. This is often the fastest and least costly route.
- Voluntary Correction Program (VCP): For more significant issues not eligible for SCP, the VCP allows correction through a formal submission and IRS approval, with an associated user fee.
- Audit Closing Agreement Program (Audit CAP): Used when a failure is discovered during an IRS audit that can’t be corrected using SCP, an Audit CAP allows correction in exchange for a negotiated sanction.
The current IRS rules are outlined in EPCRS Revenue Procedure 2021-30, which includes extensive examples and guidance.
The Advisor’s Role: Prevention and Partnership
While knowing how to resolve plan errors is essential, preventing them in the first place is even more valuable. This is where advisors can differentiate themselves by connecting clients with experienced partners who offer robust administrative fiduciary services.
Pentegra’s ERISA 3(16) fiduciary services are designed to reduce the administrative burden for plan sponsors and help ensure ongoing compliance. By outsourcing daily plan management responsibilities, plan sponsors can mitigate many of the common errors before they occur.
Pentegra has guided hundreds of clients through correction programs—often identifying and resolving issues during the onboarding process. But our broader goal is to help clients avoid these errors altogether.
Partner with Pentegra for Proactive Compliance Support
Whether you’re helping a client recover from a compliance misstep or building a stronger administrative framework from the ground up, Pentegra can help. We offer:
- Deep experience with both DOL and IRS correction programs
- Proactive compliance oversight through ERISA 3(16) fiduciary services
- Expert support during plan transitions and audits
Let’s work together to keep your clients’ plans on track. Connect with our retirement plan experts to learn how Pentegra can support your practice and your clients.