Even well-managed retirement plans make mistakes. Eligibility may be misapplied. Contributions may be deposited late. Amendments may be adopted after deadlines. Payroll systems may be configured incorrectly.
What determines regulatory exposure is not whether an error occurred, but how quickly and properly it is corrected.
Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) provide formal correction programs that allow plan sponsors to address operational failures, restore participant accounts, and preserve plan qualifications.
This guide explains how those programs work, when they apply, and how plan sponsors should respond when a compliance issue is identified.
If you are evaluating audit thresholds or filing classifications, see our overview of when an employee benefit plan audit is required.
Why Correction Programs Exist
Retirement plan rules are complex. Regulators understand that operational errors happen.
Rather than immediately disqualifying a plan or imposing maximum penalties, the IRS and DOL provide structured correction programs.
These programs let sponsors:
- Fix operational failures
- Restore participant accounts
- Keep you eligible for tax benefits
- Lower possible penalties
- Demonstrate good-faith compliance
Ignoring a problem rarely makes it disappear. When mistakes are fixed quickly, they often limit financial and legal risk.
The IRS primarily oversees tax qualification rules under the Internal Revenue Code. The DOL’s main job is to make sure that fiduciaries act properly and provide participant protection under ERISA. Some compliance failures may implicate both agencies, while others fall squarely under one regulator’s jurisdiction.
Understanding which agency governs the issue is the first step in determining the appropriate correction pathway.
IRS Correction Programs: EPCRS
The IRS administers the Employee Plans Compliance Resolution System (EPCRS).
EPCRS includes several components designed to address different types of errors.
1. Self-Correction Program (SCP)
Plan sponsors can fix some operational problems without having to call the IRS or pay a fee, thanks to the Self-Correction Program.
Usually, SCP applies when:
- The plan has a favorable determination letter (if applicable)
- The error is operational, not structural
- The correction is completed within a specified time frame
Here are some examples of problems that can be fixed:
- Missed employee deferral opportunities
- Incorrect employer match calculations
- Failure to follow eligibility rules
Under SCP, fixing things on time might stop them from becoming bigger regulatory problems.
2. Voluntary Correction Program (VCP)
If an error does not qualify for self-correction, sponsors may submit a formal application under the Voluntary Correction Program.
Under VCP, the sponsor:
- Discloses the issue to the IRS
- Proposes a correction method
- Pays a compliance fee
- Receives written IRS approval
VCP provides certainty. Once approved, the IRS generally agrees not to disqualify the plan for the disclosed issue.
3. Audit Closing Agreement Program (Audit CAP)
If the IRS discovers an issue during an examination, the correction falls under Audit CAP.
This process:
- Occurs during an IRS audit
- Typically involves negotiated sanctions
- Is generally more expensive than voluntary correction
Correcting issues before an IRS examination is almost always more favorable.
DOL Correction Programs
The Department of Labor focuses primarily on fiduciary breaches and participant protection.
Two correction pathways are especially relevant to plan sponsors.
Delinquent Filer Voluntary Compliance Program (DFVCP)
The DFVCP allows sponsors to correct late or missed Form 5500 filings before receiving a DOL penalty notice.
Under DFVCP:
- Sponsors submit required filings electronically
- Reduced penalties apply
- Penalty amounts are capped
Waiting until after a DOL enforcement notice usually makes things worse.
For a full explanation of filing deadlines and Form 5500 mechanics, see our Form 5500 Filing & Audit Requirements Guide.
Voluntary Fiduciary Correction Program (VFCP)
The VFCP addresses fiduciary violations, including:
- Late participant contribution deposits
- Improper loans
- Prohibited transactions
- Certain plan expense issues
Sponsors must:
- Correct the violation
- Restore participant losses (including lost earnings)
- Submit documentation to the DOL
Approval under VFCP provides assurance that the DOL will not pursue civil penalties for the disclosed issue.
Common Errors That Require Correction
Certain compliance failures appear frequently:
- Late remittance of employee deferrals
- Failure to enroll eligible employees
- Incorrect employer matching contributions
- Improper hardship distributions
- Missed required minimum distributions
- Failure to adopt required amendments
- Late Form 5500 filings
These errors can often be corrected if addressed promptly.
Left unresolved, they may compound over time.
Late Deposits: A Frequent Enforcement Focus
The DOL considers employee deferrals to become plan assets as soon as they can reasonably be segregated from employer assets.
Delays in depositing employee contributions may result in:
- Required lost earnings calculations
- Prohibited transaction concerns
- Excise taxes
- Additional reporting obligations
Even short delays can create correction requirements.
Sponsors should maintain documented payroll-to-plan remittance procedures and regularly reconcile deposit timing to minimize exposure.
Correction During an Audit
Errors sometimes surface during an independent audit.
In these situations:
- The auditor identifies the issue
- Management evaluates correction options
- Legal or compliance advisors may become involved
- The issue may require disclosure in the audit report
Addressing issues proactively before an audit reduces reporting complications.
If findings arise during an audit, early coordination helps determine the most efficient correction path.
Operational vs. Document Failures
Correction programs distinguish between two primary categories of errors:
Operational failures occur when the plan is not administered according to its written terms. Examples include:
- Failing to enroll eligible employees
- Incorrect employer matching calculations
- Improper hardship distributions
- Late participant contributions
Document failures occur when the written plan document does not reflect required legislative updates or is not amended on time.
Both types of failures may be correctable. However, the available correction pathway and required documentation may differ depending on the nature and timing of the issue.
Sponsors should identify whether the issue is operational, documentary, or both before selecting a correction method.
How to Respond If You Discover an Error
If you suspect a compliance issue:
- Do not ignore it.
- Gather documentation.
- Confirm the scope and time frame.
- Calculate potential financial impact.
- Evaluate eligibility for SCP or other programs.
- Consult experienced advisors if necessary.
Early action often reduces cost and complexity.
Preventing Future Errors
Correction programs are helpful, but prevention is better.
Sponsors should:
- Conduct periodic compliance reviews
- Reconcile payroll and plan records regularly
- Monitor participant eligibility carefully
- Maintain amendment calendars
- Document internal controls
As plans grow in size and complexity, independent audits provide an additional safeguard.
If your plan requires an audit — or if recurring errors suggest deeper operational gaps — our Employee Benefit Plan Audit Services team can help evaluate processes and strengthen controls.
Final Thoughts
Mistakes do not automatically mean disaster.
What matters is response.
Regulators recognize that retirement plans are complex. They provide structured programs to fix errors and protect participants.
The earlier an issue is identified and corrected, the more options remain available.
Errors are sometimes identified during an independent audit or internal compliance review. Addressing issues proactively before a regulator identifies them generally provides more flexibility and lower financial exposure.
Early coordination with advisors can help determine whether self-correction is available or whether formal submission under a voluntary program is appropriate.
Frequently Asked Questions About Retirement Plan Correction Programs
What is EPCRS?
EPCRS is the IRS Employee Plans Compliance Resolution System. It allows plan sponsors to correct certain retirement plan failures and preserve tax-qualified status.
Can errors be corrected without notifying the IRS?
In some cases, yes. The Self-Correction Program (SCP) allows sponsors to correct certain operational failures without submitting a formal application, provided eligibility requirements are met.
What happens if the IRS discovers an error during an examination?
If an issue is identified during an IRS audit, correction typically falls under the Audit Closing Agreement Program (Audit CAP), which often involves negotiated sanctions.
How are late Form 5500 filings corrected?
Sponsors may use the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP) to correct late filings before enforcement action.
Are correction program submissions public?
Voluntary correction submissions are generally handled directly with regulators and are not typically public unless enforcement action occurs.
