Is it okay to delay the deposit of elective deferrals if TPA says that their fees will increase if deposits are made more frequently?

[katieinny]

Our client thinks that he read somewhere that the frequency of elective deferral deposits can be limited (made less often) if the TPA costs increase as the number of deposits increase. He could realistically deposit deferrals every pay period, but doesn't want to because his TPA fees will go up.

I can't imagine that the IRS gives a hoot about what his TPA fees are. Any thoughts?

[WDIK]

Any thoughts?

My thoughts are rarely original, but consider the following quote from the DOL Website:

"...if your plan provides for salary reductions from employees’ paychecks for contribution to the plan, then these contributions must be timely deposited. The law states that this must be accomplished as soon as it is reasonably possible to do so, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you need to make the deposits at that time."

[austin3515]

I can't tell you who where or when it was said, but someone at the DOL at some time said "if you're service provider charges you more to comply with the law (or in any way inhibits your ability to comply with the law), it's time to find a new service provider."

So no, any additional fees will not come into play.

[katieinny]

I can appreciate that the TPA will have more work to do, so I'm not totally unsympathetic to a fee increase for more frequent deposits. However, I can't believe that such an argument will get the employer off the hook during a DOL audit.

[WDIK]

A little known fact regarding austin3515's DOL quote is that the circumstances surrounding it were the inspiriation for the likes of Barbra Streisand, La Luna and others.

[Guest FormsRmylife]

Some TPAs will create a suspense account in the recordkeeping to receive the deferral on a paryroll by payroll basis and then allocate with any interest credited to the individual participant accounts on a monthly basis. The DOL requires the money to get into the trust quickly. Some administrative delay in allocating to particular participant accounts is permissible since the employer derives no benefit from use of the money.

[Harwood]

"Despite widespread publicity in the HR, tax, and benefits field, some employers still transfer employee contributions into their retirement plan once a month. That deposit schedule becomes an ERISA violation unless the employer’s payroll occurs only once a month. In most cases, employers are required to transfer assets as soon as is practicable to the plan’s trust, and the DOL will generally assume that to be within 7 days."

http://www.aspenpublishers.com/PDF/SS10802142.pdf

[BeckyMiller]

Re: Austin3515 quote, it was Ian Dingwall, Chief Accountant at EBSA at the May 2004 AICPA Employee Benefit Plans Annual Conference.

[E as in ERISA]

New guidance expected soon?

http://www.benefitnews.com/retire/detail.cfm?id=7304

[david rigby]

I can appreciate that the TPA will have more work to do, so I'm not totally unsympathetic to a fee increase for more frequent deposits.

Hold on here. What has frequency of deposits got to do with "more work"? The point of the quote posted above by austin is the money, not how often the recordkeeper has to post the deferrals.

[mbozek]

Can some one quantify the difference in fees if the TPA processes contributions 2x a month instead of once a month?

[Guest jefe96]

In having a few personal dealings with a DOL Investigator regarding an investigation into a plan that had delinquent deferral problems, it is my opinion that the DOL is willing to work with the plan sponsor and TPA to sort of come to an agreement as to a reasonable amount of time. We, being the TPA, were questioned up and down about if we would levy any additional fees regarding more frequent depositing of deferrals. There would be no additional charge but it seemed to me that the DOL was not going to go to that plan sponsor and tell them to terminate a business relationship if they couldn't make deposits every 5 days because it would result in higher costs to the plan sponsor and instead would only be able to make them every 7 days. I don't think it is in there best interest to have in hand in how private enterprise works since they are a government agency. Obviously if a TPA was purposely levying fees that were preventing a plan from following regulations then that might be a different story. So, I think Ian Dingwall was just a little full of himself when he made the comment to 'find another provider'. Because in all likelihood the DOL will compromise as long as the resulting agreement benefits the participant greater than the current situation was.

[austin3515]

I couldn't disagree more. The law is the law, and if you can segregate it once a week, you better deposit once a week. The point is that if your TPA's fees do NOT impact when YOU can segregate.

It's worth noting that I have heard Dingwall himself say that depositing to a checking out each week, w/monthly allocations is fine. He doesn't even care if it's interest bearing. He just wants the money out of the grubby, untrustworthy paws of the plan sponsor.

[Guest jefe96]

I was only speaking from personal experience that the investigator I was working with, along with her supervisor, was willing to compromise with the plan sponsor as long as they were deposited sooner than the monthly timeframe that they had been following. I wasn't privy to the entire compromise that was made so maybe it was something along the lines of what you are talking about, checking account with monthly allocations.

Of course that doesn't make sense though because if it is a checking account, who is in control of that account? Normally the plan sponsor or trustee, who in the case of a small employer is normally also the business owner. So, it seems like in that case they still have control over the money so what does that solve? Ideally a new reg shouldn't be written with a definite timeframe, not just 'administratively feasible', and it should address the fact that the deferral deposit should be made to the trust, not just another account.

[david rigby]

...if it is a checking account, who is in control of that account?

Well, it better be the Trustee, even if the Trustee is also the business owner. That person must always remember just what hat he/she is wearing.

[E as in ERISA]

Look at Q. 29

http://www.asppa.org/archive/gac/2000/dol_q&a.htm#5

[austin3515]

The point is to get in trust because the money is then more secure, i.e, because once the money is in trust to take it out for the employer's own use is ver very bad. That's like embezzlement! At least a PT... Much different than delaying the deposit of the deferrals to play the float...

Also, the protection of the fdielit bond is availalbe if the trustee does steal it.

[RCK]

I thought that one of the factors that the DOL/EBSA would take into consideration in determining whether deferrals were segregated out of corporate assets on a timely basis was the frequency with which you are required to submit your FIT withholding payments.

According to my payroll contact, FIT withholding submissions are based on the size of those payments. For large employers, they must be made weekly; for slightly smaller employers, every other week; and for the smallest, quarterly. So you always have to meet the 15th of the month following the month of contirbution, but you also have to meet the FIT deposit rules.

And that is regardless of what your procedures are, what your payroll provider wants to do, what the recordkeeper/trustee want to do, when you can round up the cash, . . . . .

RCK