Late 401(k) Deposits: How to Self‑Correct Under the 2025 VFCP Updates

Key Takeaways

• Late = not remitted as soon as reasonably possible (small plan safe harbor: 7 business days; large plans often 1–3 days).
• 2025 update (Mar 17, 2025): adds Self‑Correction Component (SCC) for certain late deposits/loan repayments.
• SCC qualifies if: lost earnings ≤ $1,000 (per payroll period) and fixed within 180 days, plan not under investigation.
• What you do: calculate lost earnings with DOL calculator, deposit deferrals + lost earnings, file SCC Notice online, keep documentation.
• Use full VFCP if: >$1,000, >180 days, systemic/recurring, investigation, or certain loan issues.

Late 401(k) deposits happen more often than most plan sponsors expect. A payroll delay, a vacation, a system issue, or a miscommunication can all cause employee deferrals to reach the plan later than they should. Even if the delay is accidental, the Department of Labor (DOL) treats these situations seriously because employee contributions are considered plan assets as soon as they can be separated from the employer’s general funds.

For many years, correcting a late deposit required working through the DOL’s Voluntary Fiduciary Correction Program (VFCP). That process involved lengthy paperwork, excise taxes, and a waiting period for approval. In 2025, the DOL made meaningful changes that now allow plan sponsors to correct certain late deposits through a much simpler process called the Self‑Correction Component (SCC).

Below is a clear explanation of what counts as a late deposit, what the 2025 rules changed, and how you can use the SCC to correct eligible mistakes.

What Counts as a Late 401(k) Deposit?

The DOL expects employee deferrals and loan repayments to be deposited into the plan as soon as the employer can reasonably separate them from its own assets. This timing depends on your organization’s normal payroll practices.

Here are the general expectations:

• Small plans with fewer than 100 participants can rely on a seven‑business‑day safe harbor.
• Larger plans are expected to remit contributions within one to three days based on how quickly deposits are normally made.
• Loan repayments follow the same rules as employee deferrals.

Any remittance that takes longer than your typical deposit schedule is considered late. When that happens, the DOL views the delay as a prohibited transaction because it temporarily shifts participant money into employer control.

What Changed in the 2025 VFCP Update?

On March 17, 2025, the DOL expanded the VFCP to include an easier way for plan sponsors to correct certain late deposits. This new option, called the Self‑Correction Component (SCC), eliminates the need to file a full VFCP application for qualifying errors.

Here are the key features of the 2025 changes:

• You can now self‑correct certain late deposits and loan repayments.
• Lost earnings must be one thousand dollars or less for the affected payroll period.
• The correction must be completed within one hundred eighty days from the pay date.
• Excise taxes do not apply if you use the SCC.
• No full VFCP application is required.
• You submit a simple SCC Notice online.
• All supporting documentation must still be retained but not submitted unless requested.

This update gives employers a practical way to resolve minor delays without added cost or administrative burden.

When You Can Use the SCC

• You are allowed to use the SCC when all of the following are true:
• Lost earnings for the late deposit total one thousand dollars or less for that payroll period.
• You correct the deposit within one hundred eighty days of the pay date.
• Your plan is not currently under investigation.
• You calculate lost earnings using the DOL’s online calculator.
• You file the required SCC Notice electronically.

If any of these conditions are not met, you must use the full VFCP process instead.

How to Fix Late Deposits Using the SCC

Here is the step‑by‑step process for correcting a late deposit under the 2025 rules:

1. Determine the earliest reasonable deposit date by reviewing your past payroll practices. Use your fastest historical deposit timing as the starting point for lost earnings.
2. Calculate lost earnings using the DOL’s online calculator.
3. Contribute both the delayed deferrals and the lost earnings to the plan.
4. Submit the SCC Notice electronically through the VFCP portal. You will receive a confirmation email instead of a formal No‑Action Letter.
5. Document what caused the delay and what controls you have added or updated to prevent similar issues in the future.
6. Retain all supporting records. You do not need to send them to the DOL unless requested later.

When You Still Need the Full VFCP

• The SCC is designed for smaller, isolated issues. You must still use the full VFCP when:
• Lost earnings exceed one thousand dollars.
• The correction is outside the one hundred eighty‑day window.
• The issue is recurring or systemic.
• Your plan is under investigation.
• Loan issues require coordination with IRS correction programs.

In these cases, the VFCP still provides important protections, including excise tax relief and a DOL No‑Action Letter.

Why These Changes Matter for Plan Sponsors

The 2025 SCC update helps employers resolve late deposits more efficiently. It reduces paperwork, eliminates excise taxes for eligible corrections, shortens correction timelines, and lowers compliance risk. For many plan sponsors, these updates provide long‑awaited flexibility and practical solutions for handling minor administrative errors.

How Boyum Barenscheer Can Support You

Our Employee Benefit Plan team works closely with plan sponsors to navigate DOL rules and avoid compliance pitfalls. If you are unsure whether a deposit is considered late or whether your situation qualifies for the SCC, we can help you evaluate the issue, complete the correction steps, and strengthen your internal processes.

If you would like assistance reviewing a late deposit or determining your next steps, our team is ready to help. Contact us at info@myboyum.com.