What Are Lost Earnings?
When a plan fiduciary fails to timely deposit participant contributions to a retirement plan
(such as a 401(k) or 403(b) plan), the participants lose the investment earnings they
would have received had the money been deposited on time. Under the
Voluntary Fiduciary Correction Program (VFCP), the fiduciary must make
participants whole by paying lost earnings — essentially the interest the
contributions would have earned.
The DOL specifies exactly how to calculate these lost earnings using published interest
rates, so there is no guesswork involved.
The VFCP Correction Process
The Voluntary Fiduciary Correction Program (VFCP) is a DOL program
under ERISA Section 403(c)(1) that allows plan fiduciaries to voluntarily correct
certain fiduciary violations — including late deposits of participant contributions —
without being assessed civil penalties. It is not a mandatory program;
fiduciaries participate voluntarily to avoid potentially much higher penalties through
DOL enforcement or litigation.
Who Qualifies?
The VFCP covers violations related to the following transaction categories:
- Delinquent participant contributions — Late deposits of employee
deferrals, loan repayments, or employer matching/non-elective contributions.
- Prohibited transactions — Certain impermissible transactions
between the plan and a party in interest.
- Facilitated improper payments — Payment of plan benefits that should
not have been made.
- Buyback of employee stock — Situations involving ESOP stock buybacks
at improper prices.
- Failure to timely pay benefits — Late distribution of plan benefits
to participants or beneficiaries.
- Breach of fiduciary duty — Other fiduciary breaches resulting in
a loss to the plan (e.g., imprudent investments).
To be eligible, the violation must be identified by the fiduciary (not
discovered through a DOL investigation), and the fiduciary must not be under investigation
for the same violation. The fiduciary must also agree to correct the violation and
implement measures to prevent it from recurring.
Step-by-Step Correction Process
Correcting a late contribution deposit under VFCP typically involves these steps:
Step 1 — Identify the Violation.
Review plan deposits and determine which contributions were deposited late.
For employee deferrals, the DOL's safe-harbor is generally 7 business days
after the payroll date (per DOL Field Assistance Bulletin 2004-02, not the statutory
15th-of-the-month rule). For employer contributions, use the plan document's deposit deadline.
Step 2 — Calculate Lost Earnings.
Using the DOL's VFCP interest rate table, calculate the lost earnings on each late
deposit. This is exactly what this calculator does — determine the loss date (due date),
the recovery date (deposit date), and optionally the final payment date, then compute
simple interest month-by-month using the applicable quarterly rate.
Step 3 — Make Participants Whole.
Deposit the lost earnings (plus the original contributions, if not already deposited)
into the plan trust. The lost earnings must be allocated to the affected participants'
accounts. If the plan permits, the lost earnings may be invested in the same fund
each participant selected, or allocated to a default fund.
Step 4 — Notify Affected Participants.
Provide written notice to each affected participant (and beneficiary, if applicable)
describing the violation, the amount involved, the lost earnings calculated, and the
corrective action taken. The notice must include the DOL's VFCP form language or a
substantially equivalent statement.
Step 5 — File with the DOL.
Submit the VFCP filing online through the DOL's
VFCP Online System
at
https://vfcp.dol.gov. The filing includes:
- A description of the violation(s)
- Information about each affected participant
- The amounts involved and the lost earnings calculations
- Proof of correction (account statements showing the deposits)
- Proof of participant notice (copies of the notification letters)
Step 6 — Implement Preventive Measures.
Adopt procedures to prevent similar violations in the future. This may include
improving payroll-to-plan deposit timelines, adding internal compliance checkpoints,
or designating a responsible party to monitor deposit deadlines.
Two Correction Pathways (2025 Final Rule)
The DOL's January 2025 final rule created a new self-correction feature
alongside the traditional formal filing process. Plan sponsors now have two options
for correcting late deposits of participant contributions and loan repayments:
Option A — Formal VFCP Filing
The traditional process described above. File a full application through VFCP Online,
and if approved, receive a No-Action Letter from EBSA. This is required when
self-correction criteria are not met (e.g., lost earnings exceed $1,000, or the correction
period exceeds 180 days), or for violation types not covered by self-correction.
Option B — Self-Correction (New in 2025)
Available for late deposits of
participant contributions and
loan repayments
when all of the following criteria are met:
- Lost earnings on the principal portion are less than $1,000
- Delinquent amounts are remitted within 180 calendar days of withholding
or receipt by the employer
- The plan and plan sponsor are not under investigation by EBSA
(except for EPCRS-eligible plan loan failures, which may still qualify)
- The correction includes both the principal and lost earnings
Under self-correction, the sponsor receives an
acknowledgment email from EBSA
(not a No-Action Letter). There is
no limit on frequency of use. However,
delinquent contributions must still be reported on the plan's annual
Form 5500.
Self-correction also applies to certain plan loan failures that are eligible
for correction under the IRS's Employee Plans Compliance Resolution System (EPCRS),
including failures involving the loan amount, duration, level amortization, or loans that
defaulted due to a failure to withhold repayments from wages.
Filing Requirements & Deadlines
- Filing method: All VFCP applications must be submitted electronically
through the VFCP Online filing system.
Paper filings are no longer accepted.
- Deadline: There is no strict statutory deadline, but the DOL strongly
encourages filing as soon as possible after discovering the violation.
Delays may affect the agency's willingness to accept the filing, especially if the
DOL has already initiated an investigation.
- Self-correction notice: Under the 2025 final rule, eligible late deposits
(lost earnings < $1,000 and corrected within 180 days) may be self-corrected by
submitting a Self-Correction Notice to EBSA, which requires the plan name,
employer EIN, plan number, correction amounts, dates, and number of participants affected.
The sponsor must also complete a Record Retention Checklist with a penalty of perjury statement.
Participants must still be notified and made whole.
- Correction completion: All corrective actions — including deposit of
contributions, lost earnings, and participant notification — must be completed
before filing the VFCP application.
Key Terms
- Fiduciary
- Anyone who exercises discretionary control over plan administration or assets, or who
provides investment advice for compensation. This includes plan trustees, administrators,
and sometimes employers or payroll providers.
- SCF — Summary of Corrections Filed
- A DOL form summarizing the details of each correction submitted under VFCP.
It is filed as part of the online application.
- PRPC — Participant Restoration, Plan, and Compensation
- The spreadsheet or data file submitted with the SCF that details each affected
participant, the amounts involved, and the corrective actions taken.
- Party in Interest
- Under ERISA, a party in interest includes the plan sponsor, plan fiduciaries,
employees of the plan sponsor, and certain family members. Transactions with
these parties are generally prohibited unless an exemption applies.
What Happens After Filing?
Once the VFCP application is submitted:
- The DOL's Employee Benefits Security Administration (EBSA) reviews the
filing, typically within 60 to 90 days, though complex cases may take
longer.
- If the correction is deemed satisfactory, the DOL issues a No-Action Letter
(or compliance letter) confirming that no civil penalties will be assessed for the
reported violations.
- If the correction is incomplete or insufficient, the DOL will request additional
information or additional corrective action before issuing the letter.
- The No-Action Letter provides a degree of legal protection — while it does not
eliminate all potential liability, it signals the DOL's acceptance of the correction
and its decision not to pursue civil monetary penalties.
Important: VFCP provides relief from civil penalties only. It does
not provide relief from any taxes that may apply (such as excise taxes under IRC §4975
for prohibited transactions). Consult a qualified ERISA attorney or tax advisor for
guidance on tax implications.
Two Different Rates for Two Types of Contributions
The DOL publishes two interest rates each quarter. Which rate you use
depends on whose money was deposited late:
■ Mid-term Rate (5-Year CMT)
Applies to: Late employee deferrals — salary deferrals,
after-tax contributions, and other participant contributions.
This is the 5-year Constant Maturity Treasury (CMT) rate, published by the
Federal Reserve. It reflects the yield on intermediate-term U.S. Treasury bonds.
■ High Rate (Mid-term + 2%)
Applies to: Late employer contributions — matching
contributions, non-elective contributions (NECs), and qualified
nonelective contributions (QNECs).
This equals the mid-term rate plus 2 percentage points. The DOL adds
a premium because employer contributions are discretionary and represent a
higher level of fiduciary responsibility.
Why Two Rates?
Employee deferrals are the participant's own money taken from their paycheck —
fiduciaries have a strict duty to deposit these promptly (generally within 7 business
days of withholding per DOL guidance). Employer matching contributions, while still
subject to the plan's deposit deadline, involve discretionary employer decisions.
The higher rate reflects this distinction.
Where Do the Rates Come From?
The DOL publishes an official Interest Rate Table for VFCP that lists
both the mid-term and high rates for each calendar quarter, going back to Q1 1990.
These rates are derived from:
- Mid-term rate — The 5-Year CMT rate published by the Federal Reserve Board
in its H.15 Selected Interest Rates statistical release.
- High rate — The mid-term rate plus 2.00 percentage points (200 basis points).
The rate that applies to any given day is the rate published for the quarter
containing that day. For example, any date in April, May, or June uses the Q2 rate.
| Period | Mid-term | High (+2%) |
|---|
| Jan – Mar 2026 | 7.00% | 9.00% |
| Apr – Jun 2026 | 6.00% | 8.00% |
| Jul – Sep 2026 | 7.00% | 9.00% |
The Calculation Method
The DOL uses simple (non-compounding) interest applied to the
original principal amount. Interest is calculated separately for each
month (using that month's quarterly rate) and then summed.
Lost Earnings = Amount × (Days in Month / 365) × (Quarterly Rate / 100)
Key details:
- Simple interest, not compound — Each month's interest is based on the original
amount, never on accumulated interest.
- 365-day year — Not 360-day (banker's), not 366-day. Always 365.
- Monthly segmentation — If the loss period spans multiple months (or quarters),
each month is calculated separately using its applicable quarterly rate, then all months
are summed.
- Inclusive dates — The period includes both the loss date and the recovery date.
If a contribution was due April 2 and deposited July 13, that's 102 days of interest.
- Final Payment Date — If the fiduciary pays the participant on a date
after the recovery date, interest continues accruing through the final payment date.
Worked Example
Scenario: A $1,034 employee deferral was due on April 2, 2026, but not
deposited until July 13, 2026. No final payment date — we use July 13.
Applicable rates (mid-term for employee deferrals):
| Month | Rate | Days | Calculation | Earnings |
|---|
| Apr 2–30 | 6.00% | 29 | $1,034 × (29/365) × 0.06 | $4.93 |
| May 1–31 | 6.00% | 31 | $1,034 × (31/365) × 0.06 | $5.27 |
| Jun 1–30 | 6.00% | 30 | $1,034 × (30/365) × 0.06 | $5.10 |
| Jul 1–13 | 7.00% | 13 | $1,034 × (13/365) × 0.07 | $2.58 |
| Total | $17.88 |
Note: This calculator uses the DOL's published quarterly rates.
The DOL's own online calculator may produce slightly different results depending
on rounding conventions or rate updates. Always verify with the
official DOL VFCP resources before filing.
Employer Match Example
Scenario: A $500 employer match contribution was due on April 2, 2026,
deposited July 13, 2026. Since this is an employer contribution, we use the
high rate (8.00%) instead.
Q2 (Apr–Jun): $500 × (90/365) × 0.08 = $9.86
Q3 (Jul 1–13): $500 × (13/365) × 0.09 = $1.60
Total: $11.47
The same dates, same period — but the 2 percentage-point premium on the rate means
significantly higher lost earnings. This is why it's important to correctly identify
which contributions were late.