401(k) payroll deductions - deadline to submit to plan

[Guest BPC]

Hi, the last post I could find on this subject was from a few years ago. What is the deadline a plan sponsor has to get the employee payroll deferrals invested into the plan? According to my memory, it is either 15 business days after they are deducted from the paycheck, or 15 business days after the month-end in which the deferral was taken. Which one (if either) is it? Thanks very much.

[Guest qualified plan]

The deadline is neither. It is on the earliest date that the contributions can be reasonably segregated from the employer's general assets, but in no event later than the 15th business day of the month following the month in which the participant contributions would otherwise have been payable.

[Earl]

although "invested into the plan" is a different question

[Archimage]

I saw an article on 401khelpcenter.com the other day that said the DOL is using a standard of seven days under their plan investigation procedures. It was very interesting.

[GBurns]

Think about it if the payroll is large enough for any payroll to exceed $100,000 in taxes (taking into account employer matching FICA) that employer becomes a next day depositor or a semiweekly depositor. Either way tax deposits are dues within 7 days of many payrolls.

On a payroll system 401(k) deductions like FWT and FICA is deducted/reduced from Wages/Salary and held in temporary accounts with names such as FWT Payable, FICA Payable, Health Insurance Payable and 401(k) Payable. Their accuracy is confirmed when the Payroll is balanced before payment of the payroll.

These "Payable" accounts are not part of the regular Accounts Payable Ledger although called "Payable" but only temporary and are not subject to the credit and payment terms of the regular Accounts Payable. They instead are subject to the terms of either a policy or salary reduction agreement. For example the insurance premiums have a due date and the FWT and FICA have a "deposit by" deadline. These temporary "Payables" are cleared accordingly.

If you can pay some by a deadline (whether next day deposit or otherwise), it means that the amounts are already segregated. If you want to know the amount just look at the bottom of any Payroll. If you can pay any 1 you can all the others too.

I suspect that this is the basis behind the new DoL approach since next day deposit etc is now well understood.

[stevena]

We have had 4 DOL audits in our office in a few months time (all late depositors). There have been two different auditors. The timeline they have used depended on the client. They looked at the absolute earliest the client ever deposited (looking back a few years!) and used that time frame. SO for example, if two years ago the client deposited their deferrals 2 days after payroll, they used 2 days.

[Guest rmeigs]

DOL Audits of 401k Deposits

http://www.401khelpcenter.com/401k/perdue_401k_deposits.html

By Pamela D. Perdue. Ms. Perdue is of counsel to Summers, Compton, Wells & Hamburg in St. Louis, Missouri. She is the author of Qualified Pension and Profit Sharing Plans, published by Warren, Gorham & Lamont, a division of RIA, and also serves as a member of the Editorial Advisory board to the Journal of Taxation of Employee Benefits as well as the Journal of Compensation and Benefits.