SIMPLE IRA Contributions

[Guest RPSS]

An employer maintains a SIMPLE-IRA. For the last year, the employer has withheld SIMPLE-IRA salary deferrals from the employees' paychecks, however, the employer did not forward these contributions to the SIMPLE-IRA. Rather, the employer erroneously maintained these assets in a "holding account." Upon discovery of their error, the employer would like to take the necessary steps to remedy their error. What should be done to rectify this situation?

[Guest AFRICA6796]

According to ERISA laws, assets relating to employee deferral contributions must be segregated from the employers' asset no later than 30-dasy after the end of the month for which the deferral contribution was made. ( The DOL has made it clear that while IRA plans are not subjected to ERISA- in general- it applies to the some aspect- including the deposit of contributions that the employee would otherwise receive in cash.

Not deposing these funds within the prescribed timeframe could possibly result in disqualification of the plan or a fine to the employer. Generally, the employer may deposit the assets as soon as possible and will be required to recompense the employee for any earnings that could have accrued, had the deposit been timely made.

Be careful, employees who are aware of their rights may contact the DOL- this could spell trouble. The employer should be the first one to contact the DOL and obtain guidance. They may be lenient- depending on the circumstances

[Steve72]

Agressive argument:

Who owns the "holding account"? If it could be said that it belongs to the Plan, then the employer could argue that they complied with the regulation.

This, I think, would be a tough argument, given that the Plan here is a collection of IRAs, but it's worth some thought.

[Guest AFRICA6796]

Could be True Steve72,

However, while this may be true for a qualified plan, it would not be for an IRA. IRA assets are immediately 100-percent vested and should be subject to sole the prudence of the participant. The fact that the employer did not give the employee full jurisdiction over the assets, could be construed as the employer being in full control - not the participant. Even if the assets were in fact qualified plan assets, issue of self direction - under ERISA 404 ( c) would need to be considered- your thoughts…

[Gary Lesser]

The failure to remit timely may result in a prohibited transaction, but would not necessarily disqualify the plan. Special rules regarding the forwarding of elective contributions by Partners whose EI is frequently determined after the end of the year may also apply (it is unclear whether a sole-proprietor would fiti nto this situation). See Preamble to the 401(k) regulations regarding comments received about Partnerships where the earned income of a partner can not be determined until several months aftr the end of the year. The election to defer, however, must be in place by the end of the year.

There is no 30-day safe-harbor rule. The deferrals must be deposited as soon as they can reasonably be segregated from the employer's general assets. but not later than 30 days.....