Late Deposits as a Result of Investment Firm Error?

[Leopurrd]

Quick Question:

Has anyone ever ran into the situation where deferral checks were timely submitted to the investment company, and for some reason they sat on the checks for a while and did not post the dollars to the account until the checks were "found"? (about a 3 to 4 month lag - small plan, only about 4 ee's deferring)

I'm specifically wondering the client liability for 5330 excise taxes and late interest due to the participants for the error.

Thank you!

[mbozek]

I dont understand the question. Was the investment fund the custodian or the agent designated to receive plan assets?

[Leopurrd]

yes. Basically, the employer sends a check to "x" every month, who then invests the $ by person into their selected funds. "x" received the check timely but the deposits were made very late. the employer did not realize this until their accountant was performing their bank reconcilation and noticed the outstanding checks.

I'm worried that as TPA we know the $ were not deposited timely, but the employer thought it was. I am trying to determine if they will be required to file a Form 5330 and pay late interest to the affected participants even though it was the investment company's fault?

[mbozek]

If the contributions are timely remitted to the agent for the plan there is no employer penalty for the failure of the agent to deposit the checks.

[Leopurrd]

mbozek,

Thanks for your help!

[Guest Pensions in Paradise]

mbozek - since the contributions were not timely deposited by the plan's agent, wouldn't the plan's fiduciary be required to pursue the agent for lost earnings? Or find a new agent?

[mbozek]

The agent would have liability for lost earnings which should be pursued by the plan fiduciary.

[LANDO]

Whatever the case, lost earning would need to be calculated. The fiduciary still has ultimate responsibilty for the late deposit of employee deferrals and who they hire to process them.

[BG5150]

Doesn't the mailbox rule apply here?

If the assets were segregated from the ER's assets timely, ie check or wire sent, there is no late transaction.

Nothing says it has to be in people's accounts.

[BG5150]

Crap. Just realized I replied to a thread OVER 7 YEARS OLD!!

[LANDO]

No the mailbox rule doesn't apply. The regs say deposited to the plan...which would mean to the trust. Although they don't have to be "allocated" to participant's accounts.