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By Rachel Gonner, Business Assurance and Advisory Services Supervisor | Employee Benefit Plan Audit (ERISA) Team

What employers needs to know about timely remittance of contributions for 401(k), 403(b), and profit-sharing plans

Employers with a defined contribution plan, whether a 401(k), 403(b), profit-sharing or other plan, must ensure that deferral contributions withheld from employee paychecks are deposited into the plan’s trust in a timely manner. While this may seem like a relatively simple task, it can be confusing to determine how quickly employers are required to make these deposits and mistakes can be costly.

Late deposits require that any resulting lost earnings and interest be restored to employees’ accounts from employer funds. Additionally, failing to timely deposit employee deferral contributions is a fiduciary violation which could result in civil penalties, excise taxes, or plan disqualification.

What is the deadline for remitting Employee deferrals?

The deadline for remitting employee deferrals continues to be an area of concern for the Department of Labor (“DOL”), and a gray area due to perceived interpretation. The DOL requires employers to deposit contributions withheld “as of the earliest date on which such contributions … can reasonably be segregated from the employer’s general assets”, but “in no event later than the 15th business day” of the following month (29 CFR 2510.3-102).

While many employers have been using the maximum deadline of the 15th day of the following month as a safe harbor, this is not the intent of the DOL. Likewise, the Internal Revenue Service states the following: “remember that the rules about the 15th business day isn’t a safe harbor for depositing deferrals; rather, that these rules set the maximum deadline”. The intended interpretation is that the DOL requires employers to remit employee contributions to the plan as soon as possible.

Employee Benefit PLan Remittance Considerations: What is “Reasonable”?

The timing of when contributions can reasonably be segregated from general assets may vary from one employer to another. When determining the remittance schedule, employers should consider:

Avoid Late Remittances on Employee Benefit Plans

It’s not uncommon to discover late deposits during the regularly scheduled audit that is required for larger plans, and employers can avoid this mistake by:

Conclusion

As timeliness of employee deferrals continues to be a top concern for the DOL, familiarity with DOL regulations, establishing appropriate procedures, and monitoring the plan surrounding remittances will help employers meet the deadline for depositing employee contributions and ensure their plan remains in good standing.

For more information regarding employee benefit plan audits including information on timely remittances of employee contributions, please contact Rachel Gonner, Supervisor Business Assurance and Advisory Services or another member of Keiter’s Employee Benefit Plan Niche team.

ADDITIONAL RESOURCES

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This content was originally published here.

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