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Want to Make Sure Your Retirement Contributions Are Actually Going Into Your 401(k)? This New Rule Could Help


Money deducted from your paycheck for contributions to a 401(k) retirement savings plan, or to repay a loan from your plan, is supposed to go directly to the investments you’ve selected. If it doesn’t, the U.S. Dept. of Labor and the IRS can slap your employer with penalties ranging from hefty civil fines to jail time.

Take the case of Adam Belardino, CEO of New York-based financial advisory firm The Maddox Group, who pleaded guilty in November to failing to pass about $8,000 of withheld employee contributions to their 401(k) trust account. Because of that and other financial frauds, Belardino faces up to 45 years in prison.

In other cases, however, a delay in passing along retirement savings is simply an innocent mistake or temporary oversight. Fixing that mistake, however, can be complicated, time-consuming and expensive for employers, even when the amount of money involved is small. It involves filing an application to the department’s Voluntary Fiduciary Correction Program, which is then subjected to a review to determine whether the mistake has been corrected, including paying interest.

Now the department is proposing changes to the voluntary correction program that would make it easier for employers to fix those mistakes if it involves less than $1,000, the money is properly handled and the correction happens with 180 days of when the money was withheld.

For help managing your 401(k) contributions, consider matching with a financial advisor for free.

Inside Changes to the Voluntary Fiduciary Correction Program

According to Assistant Secretary for Employee Benefits Security Lisa M. Gomez, “Planned changes to the Voluntary Fiduciary Correction Program will make it easier and more cost-effective for plan officials to correct violations, and for the department to improve compliance.”

The changes would allow employers to self-correct and report and notify the department electronically that the fixes have been made. Specifically:

  • Participant contributions or loan repayments to the plan must be remitted no more than 180 calendar days from the date of withholding or receipt.
  • Lost earnings must not exceed $1,000 calculated from date of withholding or receipt.
  • The plan or self-corrector must not be under investigation as defined in the program.
  • Self-correctors must use the program’s online calculator to calculate lost earnings and an online web tool to complete and file the self-correction component notice. Self-correctors must also complete and retain the self-correction retention record checklist.

The proposed updates are available at the Federal Register and includes a 60-day period for public comments and instructions on how to submit comments.

Enforcement of the rules around retirement plans falls to the Department of Labor’s Employee Benefits Security Administration. During 2021, the administration reported the recovery of $2.4 billion for workers and dependents, including $34 million under the current Voluntary Fiduciary Correction Program. The administration conducted 1,072 investigations that resulted in 741 actions, including 70 referrals for civil litigation. The investigations also resulted in 72 criminal indictments related to employee benefit plans.

Bottom Line

Proposed  changes to the Voluntary Fiduciary Correction Program will help plan officials to make corrections to errors and violations concerning retirement contributions.

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