ERISA Enforcement: Penalties, Liability, and Correction Programs

Violations of the Employee Retirement Income Security Act can trigger daily civil fines, IRS excise taxes, a mandatory 20% settlement surcharge, criminal prosecution, and personal liability for fiduciaries, but sponsors who catch problems early can resolve most of them through voluntary correction programs at a small fraction of the standard cost. The Department of Labor’s Employee Benefits Security Administration runs the civil enforcement side for more than 155 million covered workers and their dependents, and the IRS enforces a parallel set of tax consequences.¹ What follows is the range of ERISA penalties and enforcement outcomes a plan sponsor, fiduciary, or service provider can face, and the correction paths that can defuse them.

Late or Missing Form 5500 Filings

The single most common ERISA enforcement problem is a late annual report. Two agencies penalize it independently and both penalties can hit the same plan for the same filing. Under ERISA Section 502(c)(2), the DOL can assess up to $2,739 per day against the plan administrator personally, with no statutory cap on the total.² The IRS then adds its own penalty under Internal Revenue Code Section 6058 at $250 per day, capped at $150,000 per return.³ A plan that goes unfiled for a full year could owe over $1 million on the DOL side alone before the IRS bill lands. Because the DOL penalty runs against the administrator, not the plan, participant savings are not depleted to pay it.

Prohibited Transaction Penalties

When a fiduciary or party in interest engages in a transaction the statute forbids, two separate financial consequences follow. The DOL, under ERISA Section 502(i), can assess a civil penalty equal to 5% of the amount involved, rising to 100% if the transaction is not corrected within the correction period.⁴ The IRS separately imposes a 15% excise tax under IRC Section 4975 for each year the transaction remains uncorrected, and a second-tier tax of 100% applies if the transaction still is not undone by the time the IRS mails a notice of deficiency or assesses the tax. The disqualified person pays the excise tax on Form 5330.⁵ A single transaction can generate exposure under both regimes at the same time.

The Mandatory 20% Settlement Penalty

Even after a fiduciary breach is fully resolved, the DOL is required to add a civil penalty equal to 20% of the recovery whenever it obtains money from a fiduciary through a settlement agreement or a court order in an enforcement action. ERISA Section 502(l) says the Secretary “shall assess” it, so the penalty is not discretionary.⁶ The Secretary can waive or reduce it only in two narrow situations: when the fiduciary acted reasonably and in good faith, or when paying the full 20% would prevent the fiduciary from restoring all plan losses. In practical terms this penalty adds a 20% surcharge on top of any DOL enforcement outcome, which is a large part of why voluntary correction is so much cheaper than waiting.

Criminal Penalties for Willful Violations

Willful violations of ERISA’s reporting and disclosure rules are prosecuted under ERISA Section 501. An individual faces up to 10 years in federal prison and fines of up to $100,000, and an organization faces fines of up to $500,000.⁷ “Willful” means the person knew what the law required and chose not to comply.

Two other federal statutes cover specific fraud on plans. Under 18 U.S.C. § 664, stealing or converting plan assets carries up to five years in prison.⁸ Under 18 U.S.C. § 1027, making false statements or concealing required facts in an ERISA document also carries up to five years.⁹ The Department of Justice prosecutes these cases. Criminal cases under § 664 and § 1027 must be brought within the general five-year federal limitations period from the date of the offense.

Personal Liability of Fiduciaries

Under 29 U.S.C. § 1109, a fiduciary who breaches any obligation imposed by ERISA must personally make the plan whole for any resulting losses and disgorge any profits earned by misusing plan assets. A court can also remove the fiduciary and order other equitable relief.¹⁰ Personal assets are on the line, not just plan assets.

Participants and beneficiaries do not have to wait for the DOL. ERISA Section 502(a) lets them sue directly in federal court to:

recover benefits owed under the plan, enforce their rights, or clarify future benefit entitlements;
bring an action on behalf of the plan to recover losses caused by a fiduciary breach, with the recovery going back into the plan; and
obtain equitable relief against any practice that violates ERISA or the plan’s terms.

A separate penalty applies when a plan administrator ignores a written participant request for plan documents. Under ERISA Section 502(c)(1), a court can hold the administrator personally liable for up to $100 per day past the 30-day response deadline.⁶ It is a court-assessed sanction, so the participant has to sue to collect. Genuinely uncontrollable circumstances are a defense; forgetfulness and short staffing are not.

How Long Claims Can Be Brought

ERISA fiduciary breach claims run on two clocks, and the earlier one governs. The outer limit is six years from the date of the last act (or omission) constituting the breach. The shorter limit is three years from the date the plaintiff first had actual knowledge of the breach.¹¹ In cases of fraud or concealment, the plaintiff gets six years from the date the breach was actually discovered.

DOL Voluntary Correction Programs

The DOL offers two programs that let sponsors fix problems before enforcement, at a small fraction of the standard penalties. Neither is available once the plan or its officials have received notice that EBSA, the IRS, or another agency is investigating.¹² The window closes the moment that notice arrives.

Delinquent Filer Voluntary Compliance Program

The DFVCP handles one problem: late or missing Form 5500 filings. It replaces the $2,739-per-day DOL penalty with a flat $10 per day and hard caps:¹³

Small plans: $750 per filing, $1,500 per plan overall ($750 per plan if sponsored by a 501(c)(3) organization).
Large plans: $2,000 per filing, $4,000 per plan overall.
Top hat and apprenticeship plans: flat $750 per filing.

The process is electronic. File the late Form 5500 through EFAST2, check the DFVCP box in Part I, Line D, calculate the payment using the DFVC Penalty Calculator, and pay through pay.gov.¹⁴ The confirmation email is your proof. A large plan facing years of uncapped daily penalties can often resolve everything for $4,000.

Voluntary Fiduciary Correction Program

The VFCP covers a broader set of breaches, including delinquent participant contributions, improper loans to parties in interest, and certain prohibited transactions. A sponsor that self-reports and corrects can receive a no-action letter from EBSA confirming the DOL will not pursue enforcement for the described breach.¹⁵

Correction requires paying the plan the full restoration amount: the principal plus lost earnings that would have accrued had the money been handled properly. The DOL provides an online calculator; manual calculations using IRC underpayment rates and IRS factors are also allowed.¹⁶ A full VFCP application goes to the regional EBSA office and includes a narrative explaining how the breach happened, what was done to fix it, and what procedures now prevent recurrence, together with payroll records, bank statements, and the restoration calculation. The DOL publishes a recommended application form, but its use is not required as long as all information is provided.¹⁷

Self-Correction Component

For two specific violation types, the DOL now allows a streamlined path that skips the regional office application: delinquent participant contributions and loan repayments, and eligible inadvertent participant loan failures.¹⁸ Self-correctors relying on excise tax relief under Prohibited Transaction Exemption 2002-51 must pay the amount of excise tax that would otherwise be owed directly to the plan, allocate it to participant accounts, and keep a completed Form 5330 or equivalent documentation.¹⁹

Handling the IRS Excise Tax

Fixing a prohibited transaction through the VFCP does not by itself erase the IRC Section 4975 excise tax. PTE 2002-51 provides the exemption, but only if the sponsor completes the VFCP process, receives a no-action letter, and meets the exemption’s own conditions. For delinquent participant contributions, the money must reach the plan within 180 calendar days of receipt by the employer or the date it would have been paid to the participant in cash. For other eligible transactions, plan assets involved cannot exceed 10% of the fair market value of all plan assets at the time of the transaction.¹⁹ Miss the exemption’s conditions and the excise tax survives the DOL correction.

IRS Correction Programs for Plan Qualification Failures

The DOL programs address fiduciary and reporting problems. Retirement plan qualification failures, meaning failures to follow the plan’s own terms, contribution limits, or operational rules, go through the IRS Employee Plans Compliance Resolution System. Left uncorrected, they can strip the plan of its tax-favored status.²⁰

EPCRS has three tiers. The Self-Correction Program lets sponsors fix operational errors without contacting the IRS or paying a fee; insignificant errors can be corrected anytime, and significant errors in 401(k), profit-sharing, and 403(b) plans must be corrected by the end of the third plan year after the failure. SIMPLE IRA and SEP plans cannot use SCP.²¹ The Voluntary Correction Program is available anytime before an audit begins, covers both operational and plan document failures, and requires Form 8950 and a user fee scaled to plan assets ($2,000 up to $500,000 in net assets, $3,500 from $500,001 to $10 million, $4,000 above $10 million). If accepted, the sponsor gets a compliance statement and 150 days to complete the correction.²² Once the IRS finds the error on audit, only the Audit Closing Agreement Program remains, and the negotiated sanction will be at least as large as the VCP fee would have been, and usually much larger.

Fidelity Bonding

One compliance item is easy to overlook and is itself a violation if missed. Every person who handles funds or property of an ERISA plan must be covered by a fidelity bond equal to at least 10% of plan assets handled during the preceding year, with a minimum of $1,000 and a maximum of $500,000.²³ Review bonding levels against current asset values every year.

The pattern across every category above is the same. Waiting for enforcement stacks penalties: uncapped daily fines, doubled excise taxes, the mandatory 20% settlement surcharge, and personal liability that can survive bankruptcy. Correcting on your own initiative, before EBSA or the IRS sends notice, usually converts that exposure into a modest fee and a no-action letter. The correction programs exist because Congress and the agencies want the money back in the plan more than they want the punishment; sponsors who move first get to use that.

1
U.S. Department of Labor. About the Employee Benefits Security Administration
2
U.S. Department of Labor. 2025 Instructions for Form 5500 Annual Return/Report of Employee Benefit Plan
3
Internal Revenue Service. Form 5500 Corner
4
eCFR. 29 CFR 2560.502i-1 – Civil Penalties Under Section 502(i)
5
Internal Revenue Service. Retirement Topics – Tax on Prohibited Transactions
6
Office of the Law Revision Counsel. 29 USC 1132 – Civil Enforcement
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Office of the Law Revision Counsel. 29 USC 1131 – Criminal Penalties
8
Office of the Law Revision Counsel. 18 USC 664 – Theft or Embezzlement From Employee Benefit Plan
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Office of the Law Revision Counsel. 18 USC 1027 – False Statements and Concealment of Facts in Relation to Documents Required by ERISA
10
Office of the Law Revision Counsel. 29 USC 1109 – Liability for Breach of Fiduciary Duty
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Office of the Law Revision Counsel. 29 USC 1113 – Limitation of Actions
12
Federal Register. Voluntary Fiduciary Correction Program
13
U.S. Department of Labor. Delinquent Filer Voluntary Compliance Program (DFVCP)
14
Employee Benefits Security Administration. DFVC Penalty Calculator
15
U.S. Department of Labor. Voluntary Fiduciary Correction Program
16
U.S. Department of Labor. Voluntary Fiduciary Correction Program (VFCP) Online Calculator
17
U.S. Department of Labor. Voluntary Fiduciary Correction Program Application Form
18
Employee Benefits Security Administration. Voluntary Fiduciary Correction Program Self-Correction Component
19
Federal Register. Prohibited Transaction Exemption (PTE) 2002-51
20
Internal Revenue Service. EPCRS Overview
21
Internal Revenue Service. Correcting Plan Errors – Self-Correction Program (SCP) General Description
22
Internal Revenue Service. Voluntary Correction Program (VCP) Fees
23
Office of the Law Revision Counsel. 29 USC 1112 – Bonding