Penalties for Failure to Deposit 401(k) Contributions in a Timely Mann

[LCARUSI]

In a situation where a Plan Sponsor fails to make timely deposits (and fails to correct):

1) What are the penalties/sanctions that might be levied against the Sponsor?

2) If individual employees and officers of the Company are trustees, do these individuals have any personal liability?

[QDROphile]

The situation may well be limited to analysis as a prohibited transaction. The employer is using plan funds because the money becomes plan funds at the end of the reasonable period for deposit. At some point after egregious delay, you might have a violation of the exclusive benefit rule because of the employer's use of the funds. The rule does not have any penalty provisions or other reference to penalty provisions, so look to prohibited transactions for guidance. One requirement under prohibited transactions is that the plan be restored to the position it would have if no prohibited transaction. This ought to come from the employer (for example, lost earnings on uninvested funds), but others may be responsible for the transaction, including fiduciaries.