Jump to content

the dreaded tiny one-day delinquent contribution


TPApril
 Share

Recommended Posts

Due to set of unusual circumstances, small plan Plan Sponsor that always deposits 401(k) contributions on time, deposited the sum total of $150 for 3 participants one day late (ie 8 business days after withheld).

Report on 5500?

Link to comment
Share on other sites

While the DOL may not agree - the way I'd look at this is that the 7 day rule is a "safe harbor."  The requirement is "as soon as practicable."  If for reasons beyond the control of the employer it went that extra day, then it may be "as soon as practicable" even though it didn't meet the safe harbor.  The DOL would look at the regularity of prior contributions - and in my experience would say if you can do it in x days, you should be able to do it in x days - so "as soon as practicable" to them is the pattern of behavior established.  Conversely, if you do it consistently in x days, and ONCE do it in x-1 days, they have been know to hold you to the x-1 standard, and deem all other contributions as late.

  • Like 3
Link to comment
Share on other sites

I agree with MoJo--depending on the plan's history, this seems pretty de minimis and we would normally treat it as such.  Amount is very small (depending on plan's size, regular contributions, participant account balances, other history etc.) and delay is very short.

  • Like 1
Link to comment
Share on other sites

The amount shouldn't matter to this discussion.  The client normally relies on the 7 bday safe harbor (deemed to be segregated at the earliest date), the transaction in question took 8 bdays due to unusual circumstances.  The question is, did the unusual circumstances cause a small delay during the 7 bday window to make it 8 bdays, or was the 8th bday the earliest time it could be deposited due to the unusual circumstances?  If its the former, it should technically be reported on the 5500.  If it is the latter, I think you have a reasonable argument for calling the deposit timely and leaving it off the 5500.  

 

  • Like 2
Link to comment
Share on other sites

Whatever you decide be sure to document why or why not you thought 8 business days was the earliest time it could be deposited.  I would not recommend anything to the client, I would give them the information about deposit timing from the DOL and let them decide whether to correct/report it.  This is the Plan Administrator's (usually the client unless you are the 3(16) fiduciary) so it is their decision to make.

 

Link to comment
Share on other sites

My question is, why are you looking at the timing that closely anyway?  IF we reviewed every deposit for every client for timeliness we would need a dedicated team just for that!  We ask our clients to tell us if there were any late deposits in our annual request for information (after explaining the rules).  Sure if a client forgot to send in an entire payroll, we're calling it late, etc.  But we're definitely not reviewing every deposit for timelines...

And I have a feeling clients would go a little bonkers if we were "micro managing" in this way.  But hey that's just me.

It's one of the reasons I have avoided 3(16).  Can't take that postion if you're a 3(16).  Late is late and YOUR the Administrator now so its your responsiblity.

Link to comment
Share on other sites

Austin - I don't think it's micromanaging, I think it's part of being a full service consultant.  It's generally pretty easy to download deposit dates, most clients have 24 or 26 payrolls, some 52.  If you're filling out the 5500 correctly that's what we do.  Sort of old school in that we don't make the client do everything for us that we do for them?

Link to comment
Share on other sites

Oh I agree whole heartedly.  Finding the late deposits is a snap!

But now you found this late deposit.  Are you not now "obligated" to do the correction?  And isn't your fee to correct something like this $150 or something like that, assuming you don't go through VFCP?  You have to calculate the interest, allocate the interest to the deposit, figure out if they all still have an account before depositing 6 cents.  In our office if person A does something, person B (a more seasoned consultant/manager type) has to review it.   I assume you have to charge for all of that work.  That's what I mean where clients might get a little bent out of shape.

  • Like 1
Link to comment
Share on other sites

34 minutes ago, austin3515 said:

That's what I mean where clients might get a little bent out of shape.

I agree, but I also think that some clients want more handholding and are willing to pay for it.  If this is a client that is a client that is mainly concerned with cost, I dont think they will stay a client for too long.  

 

Link to comment
Share on other sites

12 minutes ago, RatherBeGolfing said:

I agree, but I also think that some clients want more handholding and are willing to pay for it.  If this is a client that is a client that is mainly concerned with cost, I dont think they will stay a client for too long.  

 

Oh we are not the cheapest service provider out there.  Cost is not the primary consideration for any of our clients because as we know they can all just go bundled.  This to me seems a bit too far, even for a firm like ours that agrees wholeheartedly our clients pay us to do stuff for them. We send all forms (not just 5500's!) signature ready for example.

I don't know to me this just seems like its over the line into policing versus consulting.  I suppose if you're willing to do all of the remedial work I just described as part of your normal fees then I guess the clients wouldn't care too much since the corrections probably don't exceed $15.  But thats just my point exactly, charging $150 (bare minimum0 to correct a $15 problem seems way out of whack.

Link to comment
Share on other sites

Yea I don't disagree with you. It isn't something I would normally do, but I do have a few clients who want us to double and triple check everything plan related, and are fine with the associated cost. 

Ideally, you have lower cost staff for remedial work, but I don't think that is the case for most TPAs

Link to comment
Share on other sites

Austin - two comments:

  1. Interestingly enough, this particular late deposit of one day was reported to me by the client (ie I've trained them well to take their deposit timing seriously)
  2. The question at hand, and all of your comments point more directly to the elephant in the room - ie the current regulations are too impractical, arduous and costly and need beyond belief to be revamped.  Which leads me to another question - I haven't reviewed the new epcrs guidelines but saw something about de minimis errors being increased from $100 to $200 or something like that.  What with greater acceptance of the reality of de minimis errors, can this example be treated as de minimis and ignored?

 

Link to comment
Share on other sites

On 7/21/2021 at 7:27 AM, austin3515 said:

Oh I agree whole heartedly.  Finding the late deposits is a snap!

But now you found this late deposit.  Are you not now "obligated" to do the correction?  And isn't your fee to correct something like this $150 or something like that, assuming you don't go through VFCP?  You have to calculate the interest, allocate the interest to the deposit, figure out if they all still have an account before depositing 6 cents.  In our office if person A does something, person B (a more seasoned consultant/manager type) has to review it.   I assume you have to charge for all of that work.  That's what I mean where clients might get a little bent out of shape.

This is a very valid point.   The last time I worked on 4k plans I had a partner at a CPA firm that had a benefits department get on my for billing one of his client $200 for an $8 earnings correction.   That $8 went most to the dr as he had the largest late deposit.   The partner's point was it would have been cheaper and easier to just assume each nurse should get $10 of lost earnings and give the dr nothing and not do the work.   The dr only had 3 nurses.   No one really like that idea but until we get some kind of de minimis rules for these fact patterns you keep running into times the cost of computing the fix vastly exceeds the fix.   I agree I would not go looking for reason to irritate a client. 

  • Like 2
Link to comment
Share on other sites

19 hours ago, TPApril said:

What with greater acceptance of the reality of de minimis errors, can this example be treated as de minimis and ignored?

 

Lets be very careful here, there is no such thing as a de minimis amount for late deferrals.  The increase in the de minimis amount in Rev Proc 2021-30 are related to excess contributions and overpayments to a participant.  The participant benefitted more than he/she should have, which is the opposite of a late contribution.  

 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...