401(k) Deposits

[Guest SCUDDESLER]

One of the lawyers in our office claims that irrespective of whether 401(k) deposits can be deposited 2 or 3 days following the end of a pay period, so long as the plan sponsor has never deposited the 401(k) contributions sooner than 15 days after the end of a pay period, the plan sponsor may deposit the 401(k) contributions 15 days after the end of a pay period and not run afoul of the plan deposit rules. What do others think of this claim?

It seems to me that if what the plan sponsor actually does is the determinative factor (as opposed to what it could do), then the intention of the plan deposit rules (at least as I understand them) is thwarted--the intention being, as I understand it, to insure that plan sponsors not use the 401(k) contributions as a type of interest free loan or prohibited transaction.

Thank you for your responses.

[jpod]

I think the lawyer's interpretation of the applicable requlation is incorrect.

Admittedly, it is a "tails I lose/heads you win" situation. If the employer had ever been able to deposit within 2 or 3 days, then the DOL will assume, absent evidence to the contrary, that it is always possible to segregate the money within 2 or 3 days. And, quite frankly, I think that's fair.

To the contrary, if you've always waited until close to the 15th day following the end of the month, the DOL will want to know why you couldn't do it alot faster, perhaps at the times you deposit taxes. I think that's a fair question too.

As an aside, I have a sense that a number of people, even those in the benefits profession, have the mistaken view that the time frame for depositing employee contributions must be based on the time involved in transmitting participant-by-participant data to the trustee, TPA, etc. Clearly that is not correct. The question under the regulation is how soon can the money be reasonably segregated; not how soon can the money be broken down so that it can be posted to individual participant accounts.

Trustees and TPAs who refuse to accept money without the participant-by-participant breakdown are not properly servicing their clients. There needs to be a vehicle for depositing the money with the Plan's trustee fast; posting to individual participant accounts can come later.

[Guest Tbrown]

I don't think that the intention of the law. If this is a single employer with a single payroll site, then I think they would be in violation if they didn't get them in for 15 days. Most of the interpretations I have read has been that if there are no extenuating circumstances (such as multiple payroll sites, mutltiple payroll periods, things like that), then the money should be deposited as quickly as possible. I don't believe that it has anything to do with how your client has done it in the past. I certainly wouldn't want to argue for that position against the DOL.

[jaemmons]

I agree with jpod. A recent court ruling (Golden v WWWRRR,Inc. - D Minn 2002) has somewhat laid the groundwork for employer application of the DOL's "15th day funding rule". You can view the court case on EBIA's website or you can search for it on BenefitsLink.

[R. Butler]

The DOL takes the position that deposits of employee deferrals must generally be made within a few days of the payroll ending date. We inform our clients of the DOL's position and strongly encourage that they try and conform to that standard. Having said that, ultimately whether the employer contributes monthly or every payroll period is not my decision. As long as they meet the 15 business day rule I do not have a problem answering no to question 4a on the Sch. H or I.

Interestingly enough a district court in Minnesota recently held that a particular employer that was having financial difficulties, did not violate 2510.3-102 even though deposits were only being made monthly.

http://www.nysd.uscourts.gov/courtweb/Pdf/...2-01788.PDF#xml

[jpod]

Anyone who is advised to rely on that opinion is getting very bad advice.

[R. Butler]

I agree, but it is out there.

The thing I thought was odd is that the court reasoned that the employer didn't have sufficient assets to segregate contributions immediately. Maybe I'm reading too much into this, but it seems to me that the employer was essentially stealing and the court said it was alright as long as they put the money back.

[jpod]

I agree that it is "out there;" but so is Osama.