Late Deposit and Prohibited Transaction

[Guest Max Power]

July 2003, an ER cut a manual check for a participant's commission and the ER held $270.02 for his 401K... but somehow it did not get transmitted and sent in to the plan's trust.

The participant's 401k earnings on his W-2 includes this amount, but it is not included in plan's trust statements as an amount contributed because it was not.

Late deposit of a 401k deferral is a fiduciary breach that may be corrected under the VFCP by having the ER contribute the amount delinquent plus earnings (greater of plan's actual earnings or the interest rate under Code 6621(a)(2) [currently 6%]).

Late deposits are also prohibited transactions which, to correct, require a filing of Form 5330 and payment of a 15% excise tax.

My question is that since the late amount was segregated from the ER's assets, is this still a prohibited transaction requiring the above corrective measures? Is the PT itself the late deposit or the failure to segregate the deferral/assets or both?

[Archimage]

If the employer never cut a check/wired to send to the custodian, how is it segregated from their general assets?

[Guest Max Power]

I guess you're right, archemage, just accounting for the money by check and failing to deposit it is not segregating it from the ER's account. Thank you for noting that.