If contributions to your 401(k) plan were miscalculated, missed, deposited late, or exceeded a legal limit, the IRS lets you correct 401(k) contribution errors through the Employee Plans Compliance Resolution System (EPCRS) instead of losing the plan’s tax-qualified status. EPCRS offers three paths: the Self-Correction Program (SCP), which is free; the Voluntary Correction Program (VCP), which costs $2,000 to $4,000 in user fees; and the Audit Closing Agreement Program (Audit CAP), which involves a negotiated sanction after the IRS finds the problem. The path you use, and what you’ll owe, depends on the type of error and how quickly you catch it.1Internal Revenue Service. EPCRS Overview2Internal Revenue Service. Voluntary Correction Program (VCP) Fees
Self-Correction: Free If You Qualify
Self-correction is the cheapest route because you fix the error on your own, without filing anything with the IRS or paying a fee. Insignificant operational failures can be self-corrected at any time. Whether a failure counts as insignificant depends on factors like how many participants were affected, whether the error was systematic or isolated, and how quickly you caught it.
Significant operational failures traditionally had to be corrected by the end of the second plan year after the year the failure occurred. If you started prompt corrective action inside that window but couldn’t finish, you got an extra 120 days.3Internal Revenue Service. Timing of Retirement Plan Self-Correction
Section 305 of the SECURE 2.0 Act widened this door considerably. Any “eligible inadvertent failure” can now be self-corrected with no time limit, as long as the IRS has not already identified the failure and you complete the correction within a reasonable period. An eligible inadvertent failure is one that occurs despite the sponsor having established practices and procedures designed to keep the plan compliant. Egregious failures, diversion or misuse of plan assets, and abusive tax avoidance transactions are excluded.4Internal Revenue Service. Notice 2023-43, Guidance on Section 305 of the SECURE 2.0 Act
In practical terms, a sponsor with reasonable compliance procedures who discovers a contribution error years later can often still self-correct at no cost, where the pre-2023 rules would have forced a paid VCP submission.
Fixing a Missed Employee Deferral Opportunity
One of the most common contribution errors is failing to let an eligible employee defer, whether the person was overlooked at enrollment, a payroll election didn’t process, or an auto-enrollment was skipped. The IRS calls this a missed deferral opportunity, and the default correction is a qualified nonelective contribution (QNEC) equal to 50% of the missed deferral. The missed deferral itself is calculated by multiplying the actual deferral percentage for the employee’s group (highly compensated or non-highly compensated) by that employee’s compensation for the year of the error.5Internal Revenue Service. 401(k) Plan Fix-It Guide – Eligible Employees Excluded from Elective Deferrals
Three safe harbors can cut that 50% figure sharply, and they all reward speed:
- If the failure lasted less than three months, no corrective QNEC is required for the missed deferral.
- If you correct within three plan years, the QNEC drops to 25% of the missed deferral, provided the employee is still working for you, correct deferrals begin on time, and the employee receives a special notice within 45 days of the correction.
- For auto-enrollment plans, the QNEC drops to zero if correct deferrals begin within 9½ months after the end of the plan year of the failure, or by the end of the month after the employee notifies you, whichever is earlier.
Every corrective contribution must be 100% vested immediately and subject to the same withdrawal restrictions that apply to elective deferrals. It must also be adjusted for lost earnings from the date it should have been deposited through the date it actually is.
Missed Employer Match
If a missed deferral also cost the employee a matching contribution, you owe a separate makeup for the full missed match. The match is calculated on the entire missed deferral, not on the reduced QNEC. If the employee would have deferred $5,000 and the plan matches 50%, the match makeup is $2,500 even if the QNEC itself is only $1,250 under the 25% safe harbor. Lost earnings apply here too.5Internal Revenue Service. 401(k) Plan Fix-It Guide – Eligible Employees Excluded from Elective Deferrals
Fixing a Missed Employer Contribution
When you fail to make a required employer contribution, such as a safe harbor nonelective, a discretionary match, or a profit-sharing allocation, the correction is simpler: pay the full amount that should have gone in. There is no 25% or 50% discount. You also owe lost earnings from the date the money should have been deposited through the actual correction date. If the affected employee had directed existing balances into specific funds, the lost-earnings calculation uses the actual returns of those funds during the gap; if the employee had no elections on file, the plan’s default investment fund return applies. Payment is in cash.
Fixing Late Deposits of Employee Deferrals
Late deposits of amounts withheld from paychecks are treated as two problems, and you generally need to work through both agencies.
On the IRS side, this is an operational failure correctable through EPCRS: deposit the missed amounts and add lost earnings.6Internal Revenue Service. 401(k) Plan Fix-It Guide – You Haven’t Timely Deposited Employee Elective Deferrals
On the DOL side, holding employee contributions past the earliest date they could reasonably be segregated from general assets is a prohibited transaction under ERISA. The Voluntary Fiduciary Correction Program (VFCP) lets fiduciaries fix this and receive a no-action letter. You deposit the late contributions, calculate lost earnings (the DOL’s online calculator applies IRC underpayment interest rates with daily compounding), and file an application with the appropriate EBSA regional office.7U.S. Department of Labor. Fact Sheet: Voluntary Fiduciary Correction Program8U.S. Department of Labor. VFCP Online Calculator
The IRS correction restores the plan’s tax-qualified status. The DOL correction resolves the fiduciary breach.
Fixing Excess Contributions
Sometimes too much goes in. The correction depends on which limit was blown.
Excess Elective Deferrals
For 2026, the employee deferral limit is $24,500, with an $8,000 catch-up for those age 50 and over and an enhanced $11,250 catch-up for ages 60 through 63.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
When deferrals exceed the applicable limit, the excess plus allocable earnings must be distributed to the participant by April 15 of the year after the deferral year. If you meet that deadline, the excess is taxed in the year contributed, the earnings are taxed in the year distributed, and no 10% early-distribution penalty applies.10Internal Revenue Service. 401(k) Plan Fix-It Guide – Elective Deferrals Weren’t Limited to the Amounts Under IRC Section 402(g)
Miss April 15 and the excess is taxed twice: once in the year contributed and again when eventually distributed. That double taxation is the built-in penalty for a late correction.11Internal Revenue Service. Consequences to a Participant Who Makes Excess Annual Salary Deferrals
Exceeding the Section 415 Annual Addition Limit
Section 415(c) caps total annual additions to a participant’s account (employee deferrals, employer match, employer nonelective, and forfeitures). For 2026, the cap is the lesser of 100% of compensation or $72,000.12Internal Revenue Service. Notice 2025-67, 2026 Amounts Relating to Retirement Plans and IRAs
The IRS prescribes a specific correction order. First, distribute any unmatched elective deferrals adjusted for earnings. If excess remains, distribute matched elective deferrals and forfeit the related employer match. If excess still remains, forfeit employer profit-sharing contributions. Forfeited employer amounts go into an unallocated account and must reduce the employer’s contributions in future years. Corrective distributions of Section 415 excesses are taxable to the participant but not subject to the 10% early-distribution penalty, and they cannot be rolled over.13Internal Revenue Service. Fixing Common Plan Mistakes – Failure to Limit Contributions for a Participant
Using the Voluntary Correction Program
If self-correction isn’t available, or if you want the certainty of a written IRS compliance statement, the Voluntary Correction Program is the next step. VCP is only open before the plan comes under IRS audit.
Submissions go through Pay.gov. You file Form 8950 and pay the user fee at filing.14Internal Revenue Service. About Form 8950, Application for Voluntary Correction Program (VCP) For 2026, the fees are based on total net plan assets:2Internal Revenue Service. Voluntary Correction Program (VCP) Fees
- $0 to $500,000: $2,000li>
- Over $500,000 to $10,000,000: $3,500
- Over $10,000,000: $4,000
Along with Form 8950, you upload a single PDF with a description of the failure, the proposed correction method, sample calculations, and relevant plan documents. If the IRS approves the approach, it issues a compliance statement spelling out the required corrective actions, and you have 150 days to complete them. That statement is binding on the IRS, which is the whole point: written assurance that the plan will not be disqualified for the disclosed failures.15Internal Revenue Service. Voluntary Correction Program (VCP) – General Description
If the IRS Finds the Error First
Once your plan is under examination, SCP and VCP are off the table for the failures the IRS identifies. You move to the Audit Closing Agreement Program, where you negotiate a monetary sanction and receive a closing agreement confirming the plan remains qualified.16Internal Revenue Service. EPCRS Chapter 14 – SCP and Audit CAP Procedures
The sanction is a negotiated percentage of the Maximum Payment Amount, which is roughly what the IRS could collect if it disqualified the plan outright. Severity, number of affected employees, the length of the failure, and any correction work you had already started all factor in. Sponsors who can show established compliance procedures and prior corrective steps generally negotiate lower sanctions.
The cost gap between fixing a problem yourself and letting the IRS find it is the reason to check your plan’s operations regularly. A missed-deferral error that costs nothing under SCP’s three-month safe harbor can turn into a five- or six-figure Audit CAP sanction if it went on for years and affected many participants.