Timely Contributions to Your Plan

Timely Transmission of Contributions to Your Plan

Government regulations require that a plan sponsor timely remit contributions, particularly employee contributions and participant loan repayments to the Plan’s trust.  
Department of Labor rules require that employers sponsoring a company retirement plan transmit elective deferrals (a.k.a. employee contributions) to the plan on the earliest date that the employer can reasonably segregate the amount from the employer’s general assets. When determining if contributions and loan payments are timely made to the plan, the DOL will generally consider an employer’s payroll frequency and the amount of time it takes to remit FICA withholding. Once employee contributions and loan payments are withheld from an employee’s pay, failure to segregate employee contributions from company assets, timely, is considered a prohibited transaction. 

Effective January 14, 2010, the DOL issued final regulations to include a safe harbor for small plans with fewer than 100 participants.   The final rule provides that participant contributions in small plans are deemed timely, if the contributions are deposited to the plan’s trust no later than 7 (seven) business days after the contributions are received. If the employer does not make the deposits timely, the failure may constitute both an operational mistake, giving rise to plan disqualification (if the plan specifies a date by which the employer must deposit elective deferrals) and a prohibited transaction. 
We may notify you (or you may notify us) that your plan had late contribution deposits. LRS can assist you with the necessary and regulatory mandated corrections. Correction of late deposits may require you to: 
  • Determine which deposits were late and calculate the lost earnings necessary to correct. 
  • Deposit any missed elective deferrals into the trust, along with lost earnings. 
  • Review procedures and correct deficiencies that led to the late deposits. 
  • Correction through EPCRS (Employee Plans Compliance Resolution System)
Additional Information about Late Contribution Deposits
Rules governing the timing of matching contributions or other employer contributions are different from those for elective deferrals. The employer must meet the following rules in order to obtain a current tax deduction. Contributions made by the employer to match part or all of the participant’s elective deferral may be made at the time of the elective deferral contribution or later, but in no event later than the due date of the employer’s income tax return, including extensions. A 401(k), 403(b) or other type of company sponsored retirement plan may have other employer contributions. Employer contributions that are not tied to elective deferrals must be made no later than the due date of the employer’s tax return, including extensions. Review your plan document for the timing and amount of your matching contributions and other employer contributions.

How to Avoid the Mistake:   Establish a procedure whereby you deposit elective deferrals coincident with or after each payroll in accordance with the plan document. If you have instances where your deferral deposits are a week or two later than the normal timely deposit (due to vacations or other disruptions, for example), keep a record of why those deposits were late. Coordinate with your payroll provider and others who provide service to your plan (if any) to determine the earliest date you can reasonably make deferral deposits. The date and related deposit procedures should match your plan document provisions, if any, dealing with this issue. If you have a change in the person in charge of making these deposits, make certain the new person has a full understanding of when he or she must make these deposits.

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