Investment timeing

[Guest dokc]

I am aware of the requirement that employee 401(k) contributions be segregated from the employer's assets ASAP. Has anyone heard of a timeing requirement for the deposit by the trust into the participants' investment elections?

We typically have an employer that has weekly payrolls, deposit the contributions into a trust-owned account weekly. The employer provides us with a cumulative contribution report once or twice a month which we use to determine investment splits. Actual investment buys are made only once or twice a month.

[mschwechter]

There really is no set time requirement for alocating to the participants, as long as the employer does not have use of the funds.

Many smaller employers use this method as being the most cost effective for the employer. The only risk you run is if the money does not get allocated in some reasonable time, the participant can claim loss of earnings in an up market.

Personally, don't see a problem with a monthly allocation from a trust owned account.

[alanm]

The issue for the DOL will be: why isn't some interest due the participants for the time it sits uninvested. Who keeps the interest on the bank float? Is there some self-dealing going on? Is the float disclosed to participants? I would make sure you have an answers, if participants complain to the DOL and they inquire.

[Guest TrustMe401k]

We have a client with weekly payrolls who would not remit contributions on a payroll basis. After many attempts to get them to understand the consequences, they were actually hit with a random DOL audit (random according to the auditor)

To get to the point, the DOL auditor told them to deposit the contributions to a NON interest bearing account and then remit the contributiosn to the investment account on the same monthly basis they had previously used.

Have you heard that the DOL wants it in an interest bearing account? The non-interest bearing account would eliminate the float problem but I agree it could cause some probems if the market moves while the contribution is in cash.

[alanm]

DOL field assistance bulletin 2002-3 deals with the float issue. However, it depends on what auditor you have. Some will say you should pay the participants some interests although they can't point to a regulation other than the fiduciary standard of trading. Your auditor just wanted to avoid the co-mingling issue by having a separate bank account. The account, by the way, should be in the name of the plan. As a sponsor, you could negotiate an interest bearing account if the amounts are large, and that is the DOL's point. In practice, the cost of allocating the interest often exceeds the interest.