When does employer have to contribute deferrals into plan's trust fund? When does trust fund have to invest them?

[Guest Carl C]

I work for a company that uses an employee leasing arrangement, so technically I'm employed by the leasing firm. We are paid weekly, and I participate in the 401K plan. The 401K plan administrator is an independant company, serving other clients nationwide.

The problem I'm having is the timeliness of investing the funds deducted from my paycheck. My employer says that 401K deductions are sent to the plan administrator "twice a month". I thought it was every two weeks, but they corrected me on that. As I write this (9/20/03), my deduction from my 8/22/03 paycheck still has not made it to the 401K firm. Or maybe it has, but the 401K administrator hasn't posted it to my account (purchased the mutual funds I've selected) as of tonight.

So, the first question, is there any regulation as to the time an employer has to forward 401K deductions to the plan administrator?

Which brings me to the second part of the problem. Since I can review my 401K account online, I have noticed (and have actual proof) that they have received the funds from the employer, but take as many as 3 weeks to "settle" the funds to the proper mutual fund selected. In other words, it takes them as many as 3 weeks to buy the shares in the funds. In reality, it appears that they are playing with my money. I've noticed a number of times that they would get a check from my employer, allocate the funds to the 2 mutual funds I've selected, and mark that as "pending settlement". 2-3 weeks then pass by, and the account is then marked "settled". If the price of the shares went up during that time, they "settled" the purchase at the higher price at the later date. If, during the 2-3 weeks the shares went down, they settled the purchase at the price prior to the shares going down, but at the later date. I am convinced they are pocketing the difference each time.

The second question, is there a regulation as to the time the 401K administrator has to invest those funds per the instructions of the contributor?

And the last question, when I buy shares in a mutual fund through a plan administrator, do I actually buy those shares directly from the mutual fund, or does the administrator buy those shares (along with other contributors wishing to own the same mutual fund) and allocate my ownership through in-house bookkeeping?

Carl C

[Guest jusducki]

I can't answer your questions on the administrator's responsibility in purchasing the shares or on the settlement price they pay, but can answer the one concerning the timeline required by the leasing agent (your employer) in getting your deferral to the administrator. The rule states that deferrals are to be sumbitted no later than the 15th of the month following deduction, meaning monies deferred say on the 1st and 15th (or 15th and 30th) of each month are due on the 15th of the following month. Ideally, they are submitted immediately after deduction but the timeline above is mandatory. I would pose your questions on the administrator forwarding the monies to the fund company to your employer. If the answer received is not satisfactory, call the Department of Labor. Contacting them always seems to 'magically' cure problems such as this. Good luck.

[Guest DMK]

To clarify the above response, the deadline is the 15th business day of the month following the month the deferrals were withheld from pay, although the DOL has stated over and over that this is not a safe harbor.

[Harwood]

Please forget the 15th of the following month.

Deferrals and after-tax contributions must be sent to the Trust as soon as possible.

[The DOL also thinks loan payments should be subject to the same strict deadline]

http://www.dol.gov/ebsa/faqs/faq_VFCP.html

[mbozek]

I thought that rule only applies to the timeliness of the remittance of employee salary reductions to the plan. The employer satisfies the the reg by remitting the contributions to the funding entity/ trustee. There may be a issue under the Investment Company act of 1940 as to how long the fund agent has to post the accounts or make contributions but that should be disclosed in the prospectus for the fund.