Contributions -- how long before must be invested?

[Guest pentex]

My prior employer withheld my 401k contribution from my 2/14/03 paycheck and has not invested it yet. Before, we have always invested funds on the exact date of payroll, i.e. 2/14's would have been invested on 2/14.

I've contacted the HR Manager but she keeps saying it will be any day. Other employees are getting concerned too.

My question is: how long is it before they legally must invest that $? (I had thought it was to done as soon as administratively possible but no later than the 15th business day in the month following the month of deduction from payroll?)

What ramifications could they face if they do not invest by required dates?

Since I no longer work there, I'd like to move my $, but I can't do so until final $ is in there, so any input is appreciated very much.

[MWeddell]

You are correct about the deadline. It is "the earliest date on which such contributions can reasonably be segregated from the employer's general assets" but no later than the 15th business day of the month following the month in which you would have received the money in cash had you not elected to defer it to the plan. Labor Reg. 2510.3-102(a) and (B)(1).

Violations generally lead to (i) crediting the participants with lost investment earnings at the greater of whatever they would have earned in the plan or an interest rate determined by law, and (ii) if the employer doesn't voluntarily disclose the problem to the DOL, an excise tax because the employer's use of the money after it became a plan asset is a prohibited transaction.

[Tom Poje]

MWeddell is correct in what he says, but I think you also have to be careful about what terms you are using.

There is a big difference between 'invested' and 'segregated'.

For example, the company withholds the deferrals and deposits them in a non-interest bearing account in the plan's name. Therefore, the money has been segregated. At that point the money is out of the employer's hands, so the DOL would look at that differently than if the money was sitting elsewhere. Depending on who is determining the investment split, if someone else is calculating a match associated with it, etc., it may take a while [do not read that as a long period of time] to actually 'invest' the funds.

In your particular case, you indicated the funds were always deposited the same day, so it sounds as if there is a legitimate reason to be concerned.

[KJohnson]

I agree with Tom. The soon as administratively possible standard is the deadline for getting them to the Plan. If they are not segregated and remitted to the plan in that time period you have a prohibited transaction and fiduciary breach by the corporation and/or its officers.

However, once the money gets to the plan a different analysis applies. Failing to apply the money in accordance with participant investment instructions in a timely fashion may well be a fiduciary breach. However, there may be a number of facts and circumstances that would come in to play in this analysis. Unfortunately for you, once the money "hits" the plan, you don't have the "bright line" guidance (although some would say that 'as soon as administratively possible is not all that 'bright') that is provided by DOL's plan asset regulations.

[Guest pentex]

I have found out that the funds were sent to the administrator a few weeks ago but are sitting in a general account. The problem is that they need the per participant $ breakdown from my prior employer. They say they have requested it numerous times but have not received such. I called my previous employer again and was told they have been "very busy" and haven't the report for 2/14's payroll done. Is this a breach?

Since I was in HR there, I know there are only 70 participants and this certainly couldn't take long...it's a matter of picking the $ off the payroll report and putting it in a report with participant name. It used to take 1/2 hour.

Now I've been waiting one month to move my assets to a new plan because of this.

Do you think this could still be a breach? I want to tell HR that it is a possible breach (to get them moving) but don't want to make a mis-statement.

Please help if you can...

[MWeddell]

I agree with the previous posts. The deadline I referred to governs when the money is deposited in the trust, not when the trust invests the money in the various funds in accordance with participant's investment directions.

There's no specific DOL regulation governing when the money must be invested. It's such a gray area that none of us can clearly say whether a breach has occurred. Unfortunately, the market has gone up sharply enough that you might have some damages now compared to holding the contributions in a no-interest account.

You may want to contact the DOL in addition to making noise yourself.