Investing 401(k) contributions

[Guest nday]

Does anyone know of a survey or have general knowledge about the typical length of time from when an employee gets paid to when the 401(k) deferral is actually invested. We administer our own plan of approximately 3200 deferring employees with 11 different pay cycles per month. Have only missed investing on actual pay day 4 times this year and upper management is upset. Would like some ammunition.

[Guest TrustMe401k]

IRS says contributions must be "invested" no more than 15 business days after the end of the month in which they are withheld. Obviously you are doing it weel within that time limit.

As for upper mgt being upset, many TPA's (including ours) generally invest deferrals only once a month. The actual deferrals may have been deposited into a checking or money market account under the plan, but the actual equities are purchased monthly.

Many others may do it weekly or semi-monthly, but you seem to be doing it weel within the time any reasonable person should be expected to.

[Guest Connie]

The September 1998 issue of IOMA'S REPORT ON MANAGING 401(k) PLANS contained a good article on this issue. The DOL rule includes in plan assets amounts a participant has withheld from wages for contribution to the plan "…as of the earliest date on which such contributions can be reasonable segregated from the employer's general assets." The absolute maximum deposit is 15 business days following the calendar month end.

Late deposit of contributions, because they are considered plan assets, can create a prohibited transaction because the employer is considered to "owe" the amount to the plan creating an unsecured loan from the plan to the employer.

Despite that, and given recent market conditions, most people watch to make sure their money is invested right away. If your plan is valued daily and has telephone access, this is easy to do.

It sounds like your doing a good job. Under the "reasonable segregation" provisions, we tell our participants their contributions should be in their accounts a week after they get their pay checks. (which gives us a few days if problems develop) If a real delay seems imminent for some reason, I've notified management and HR right away, so they will know what's going on, and for management, why.

[Guest Phil L]

Jehmig needs to be careful. The Dept of Labor has indicated earlier this year that the vast majority of employers are NOT entitled to the "15 business days" part of the rule. As Connie notes, the first part of the rule is that employers must remit the deferrals as soon as they can reasonably be segregated from the general assets of the employer. The DOL is taking the position that in nearly all cases that this would be about the same time it takes to identify and submit federal taxes (three days).

To make matters worse, the DOL is planning (in their words) a stepped up examination program to verify compliance with this rule.

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