DOL Announces 401(k)
Deposit
Timing
Safe
Harbor
The DOL recently issued guidance regarding the timing for depositing employee deferrals and loan repayments to 401(k) plans. The deposit to the plan must clear your company’s bank account within 7 business days of the applicable pay date.
Until recently, the DOL’s guidance had indicated that employee deferrals and loan repayments must be segregated from corporate assets as soon as administratively feasible but in no event later than the 15th business day of the month following the month in which the money was withheld from an employer’s check. DOL auditors were interpreting the “as soon as administratively feasible” portion of the guidance in varying and diverse ways that left no bright line to ensure compliance. The new guidance provides a 7 business day bright line test. Anything more than 7 business days from pay date to deposit date is late.
Since we now have a clear standard to measure compliance by, we will change our year end data request to allow you to either:
1) certify that you deposited all of the employee deferrals and loan repayments within 7 business days of the applicable payroll date; or
2) provide us with a list of the payroll dates and deposit dates so that we can determine compliance.
If it is determined that any contributions are late under this new 7 business day standard, the company must make up all lost earnings on the deferrals and loan repayments and pay an excise tax. Forrestall, Galeano and Li will calculate lost earnings for any late deposits work with you to get the money deposited to employee accounts timely and prepare the Form 5330 to report the excise taxes. There are additional fees for this services as well as the cost to prepare the Form 5330 and payment of the excise taxes.
We strongly encourage you to utilize a method of transferring your 401(k) funds electronically, wither by wire transfer or ACH Debit. If you send the money by mail and the mail is delayed more than 7 business days getting to the investment company and then clearing your bank account, your deposit will be considered late by the DOL. The DOL is providing no leeway for mail time,
If you have any questions on this process, please feel free to contact us.
