Is a deferral late if payroll was never made?

[TPApril]

Plan sponsor was not able to make payroll for May, but was concerned about 401(k), so she made the 401(k) deposits but they were paid in July, and actual payroll has not yet been paid. So is the 401(k) late and needing lost earnings?

[ETA Consulting LLC]

No, it's a CODA; Cash or Deferred Arrangement. If there was never any cash to be received if the deferral was not made, then a more appropriate question might be on what authority was the deferral actually made. For instance, if I elected to defer 10% of my salary and was due a $100 payroll. If I received no payroll, but the employer deposted $10 into my 401(k), then you've effectively made a 100% deferral (which arguably is not a deferral since I was never given the option to receive it in cash).

I am merely making this point to say the lateness of the deposit is the least of the issues. You cannot defer until the actual payroll is made; so don't turn a payroll issue into a qualified plan issue.

Good Luck!

[Peter Gulia]

If the employer is insolvent, it might be reluctant to pay a lawyer, actuary, accountant, or other employee-benefits practitioner for advice about corrections or alternatives. Moreover, even if the employer pays a professional's fee, a practititoner might be concerned about the possibility that a bankruptcy or insolvency estate might seek some kind of claw-back.