401k deposit timeliness

[Santo Gold]

A small manufacturing company has 1 location, but runs b-weekly payroll for its hourly employees, and bi-monthly payroll for its salaried employees. The salaried group contains the owners plus a few others. No HCEs are in the hourly group.

Other than remitting 401k contributions separely for each payroll, is there an acceptable way to streamline the process, so that either 401k contributions are deposited on a bi-weekly basis, or a bi-monthly basis? Here's a worst case scenario: Bi-weekly pay ends on Friday the 12th and the bi-weekly 401k monies are deposited that day. Bi-monthly people get paid on Monday the 15th, but they have to wait until Friday the 26th to have their monies deposited. Is there a way around this?

[WDIK]

Is there a way around this?

Synchronize the paydays for all employees.

(Out of curiosity, what was the basis for the difference to begin with?)

[Blinky the 3-eyed Fish]

All I know is I would be angry if I got paid every two months and not more frequently.

[Lori Friedman]

I wonder if the every-two-months payroll is even legal. Many (most?) states have labor regulations that address paydate frequency. For example, state law might require an employer to issue paychecks no less often than bi-weekly or semi-monthly, or perhaps monthly. If you think about it, these laws exist for a good reason -- an employer shouldn't be allowed to "sit on" earned compensation for an unduly long period

[Jim Chad]

Where you say bi-monthly: did you mean semimonthly?

Here are a couple of ideas.

1. Do each payday. I have some employers who pay weekly so they go onto the website and input the data 4 or 5 times per month. 3 times per month isn't too bad.

2. On each payday, transfer the dererral amount to a 401K checking account. Then you can once a month move all of the money and all of the data to the investment company. Note: this checking account needs to be in the name and tax number (EIN) of the 401(k) Plan.

[Santo Gold]

Sorry for the confusion everyone. The payrolls are bi-weekly (every other week) and "semi-monthly" (twice a month). I honestly thought that bi-monthly was one of the oddball words that could mean either twice a month or every other month (kind of like how flammable and inflammable mean the same thing).

Jim Chad: Regarding your option #2 - While that would satisfy the ASAP deposit requirement, having money sitting in a checking account for (in some cases) up to 3 weeks while not invested according to the participant's investment instructions would probably run afoul of the other DOL requirement to have self-directed monies invested "within a reasonable time period".

What we'd like to avoid is either extreme, one of which was the example of having the bi-weekly payroll 401k monies deposited on Friday the 12th, and the semi-monthly payroll 401k deposits from the 15th, having to wait until the 26th to get those invested. The other extreme would be where the semi-monthlyl people have their payroll end on a Thursday the 15th, and then having to do another deposit for the bi-weekly people the next day, on Friday the 16th. Sure, they could perhaps hold off and do both on the 16th, but as we try to make this as automatic as possible, I think making frequent exceptions would be confusing.

What I was really driving at was my understanding that there is an exception to the "as soon as possible after money is withheld" requirement. That being, if a company has varying payroll frequency, the company could hold off on the deposits until after the all payrolls are completed (assuming those specific payrolls are going to the same plan). For instance, if one unit of a company has weekly payroll, but other units are monthly, then all units can remit their 401(k) contributions as soon as possible after the monthly payroll is processed. Or in this case I mentioned, 401k contributions for both the bi-weekly and semi-monthly payrolls can be made ASAP after each semi-monthly payroll.

Anyone think this arrangment would be acceptable? Thanks for all of the input already.

[Jim Chad]

From what I have read and heard on audits, the DOL is mostly concerned that the employee money gets seperated from the employer's assets ASAP in case the employer goes broke. Your idea of sending the money twice a month seems reasonable to me. But I do believe the DOL would be happier on an audit if they saw the money moved to a seperate checking acoount on payday. At least this as been the priority of the auditors I have dealt with.

[Jim Chad]

One more thought, are all of the HCE's in the semimonthly group? Personally, I wouldn't care about waiting 2 weeks for my money to get invested in the funds I have chosen. But I wonder if an auditor had a real attitude problem, would this be consedered a benefit, right or feature. If my guess is right about all of the HCE's being in the semimonthly group, I can think of an easy solution. Make the deposit on th pay day of the biweekly group and include any undeposited money from the semimonthly group at that time.

With auditors, IRS or DOL, you can seldom go wrong giving the NHCE's a better deal than the HCE's.

[austin3515]

There are no exceptions to the rule - just because you have a monthly payroll run does not mean you can stall on the deposits for you weekly payroll runs. As has been mentioned, the DOL likes to see a deposit after each payroll. I'd change your semi-montly payroll to a bi-weekly payroll. I doubt employees would mind being paid a little more often...