Contributions, splits and buys

[Guest Kriso]

I have an employer that has two locations (separate payrolls). They pay employees weekly, biweekly, bimonthly, monthly, and have special pays (bonuses, etc). All in all, each place runs payroll about 10 times per month.

They were depositing salary deferrals and match once per month. CPA auditor advised them they have to deposit just as they do withholding - within 3 days of each payroll. Now I am getting checks with a listing of a few names every few days for the employee deferral AND match. This is a pooled plan. One check I received was for $6.00. The monthly total is less than $10,000.

Question: Even though deposits are made throughout the month, can the splits and buys be done monthly as before?

It is my understanding that the DOL simply wants the employees funds segragated from the employer's general fund. I can not find any information regarding when buys must be done.

Kris

[ljr]

What do you mean by a "pooled Plan?"

What are you proposing to do with the money you receive pending its being split and invested?

Uninvested funds aren't a good way to go. But, if you temporarily invest money while you wait to split/invest it, you'll end up with money market earnings to allocate.

Unfortunately, I cannot answer your question about the DOL's opinion as they only address getting the money into the plan, not when it must be invested.

[Appleby]

You are right about the segregation requirement. Once the assets have been deposited in the ‘pooled’ account, then it is considered deposited to the plan.

The splits (by this I assume you mean allocating to individual accounts) and buys can continue to occur on a monthly basis.

Regarding the investment of the funds- it depends. The requirement is that investment opportunities be made available on a nondiscriminatory basis (will look for the cite). If holding the assets in the ‘pooled’ account favors HCEs and not NHCEs, then it is not allowed… Most plans consult investments at a frequency that is cost-effective. For instance, it would may not be practical to invest the $6 you mentioned…

[Harwood]

ERISA Q&A 107 [June 7, 2000] back when Nick Ferrigno and Frank Bitzer had the column:

Said to follow the terms of the plan document regarding the actual allocation of the deferrals to participant's accounts.

[pmacduff]

Kriso - I think that you mean that you do the splits by individual and then advise the investment house on how much TOTAL $ to each fund based on the split you did, correct? If so, the money would go into a money market within the plan investments and then you would be splitting it once a month into the different funds...am I right so far? I agree with Appleby since you are not allocating to individual accounts but rather total dollars to the funds you should be ok doing it on a monthly basis. But - the money market or holding account must be a plan account. I also agree that the earnings for the time the 401(k) $ sits in the "holding" account would need to be allocated in some consistant/undiscriminatory manner.

[Guest Kriso]

pmacduff is correct in what I am doing. The administration would be a nightmare and cost prohibitive to do each check for a few employees. Additionally, how would I value each separate account as the share prices would be different for each buy. I use balance forward method now. There would be more difference between HCE's and NHCE's as the HCE's are the ones paid monthly. This obviously could benefit either group - i.e. the market could be either up or down on any given day. with monthly buys all employees would get the same share price.

I don't know how the earnings in the money market could be split without hours of calculations. I would have to know the earnings for each check (since deposits are made on different days) and allocate those earnings to each participant that that check represents. Cost would be a tremendous factor to allocate the $1.50 total those dollars might earn per month.

What about using a separate checking account for the trust to separate the deferrals from the employers general fund and then sending in a check once per month to the brokerage house?