401(k) Prohibited Transaction

[Guest Paul Hinderegger]

If a plan sponsor fails to remit 401(k) contributions to the trust within the limits imposed by the DOL Regulations (the earlier of the date they can be reasonably segregated or 15 days after the end of the month in which they were withheld), has the plan sponsor incurred a prohibited transaction?

Assuming that the 401(k) contributions were later deposited to the trust, how is the 15% prohibited transaction tax calculated?

[Guest JPCMPLS]

The DOL took this position in Class Exemption 96-63, which expired 9/7/96.

I believe their view is that this is an unlawful use of plan assets (in essence, a loan to the employer which continues to use these funds for operations in lieu of depositing to trust). We have advised clients to compute the "amount involved" under Code Section 4975 using the excise tax regulations under 4941(e), which normally are not to punitive if the error is caught early after the deposit deadline.