transmitting deferrals late

[Scuba 401]

recently one of our clients was audited by the DOL and accused of getting its deferrals in to the plan in 12 calendar days. the labor department deemed 7 business days as reasonable. the client is a small employer. i am aware of the recent DOL safe harbor of 7 business days but this was released in 2010. as anyone been successful arguing for a few extra days for periods prior to the safe harbor being released?

[K2retire]

They proposed that rule in 2008 and could be relied upon from that point forward.

[GMK]

If memory serves, before the 7 day safe harbor, deposits had to be made as soon as practicable and within 15 days max. For example, if you usually made deposits in 2 days, then 3 days was late.

I think you're still supposed to make deposits as soon as practicable and within 15 days. They just don't fuss at you if you're within 7 days.

[Kevin C]

I had some success prior to the safe harbor being issued. If you want to argue with them about what the standard was at that time, you will find some useful information in the preamble to the final regs. I gave the investigator selected pages with the passages that supported our position highlighted.

http://www.dol.gov/ebsa/regs/fedreg/final/96_19791.pdf

Search for the word "monthly". You will find some interesting sections referring to monthly deposits.

If the deposits were mailed in, you will also want to look at footnote 6. The investigators we've dealt with wanted to count the date the deposit shows up on the statement as the deposit date even though the check was mailed. Footnote 6 says the DOL uses a mailbox rule if the check clears. You may get some pushback over proof of when the deposits were mailed. We've been recommending our clients keep documentation of when each deposit was mailed. That doesn't help you here, but it's something to consider going forward.

[Scuba 401]

I had some success prior to the safe harbor being issued. If you want to argue with them about what the standard was at that time, you will find some useful information in the preamble to the final regs. I gave the investigator selected pages with the passages that supported our position highlighted.

http://www.dol.gov/ebsa/regs/fedreg/final/96_19791.pdf

Search for the word "monthly". You will find some interesting sections referring to monthly deposits.

If the deposits were mailed in, you will also want to look at footnote 6. The investigators we've dealt with wanted to count the date the deposit shows up on the statement as the deposit date even though the check was mailed. Footnote 6 says the DOL uses a mailbox rule if the check clears. You may get some pushback over proof of when the deposits were mailed. We've been recommending our clients keep documentation of when each deposit was mailed. That doesn't help you here, but it's something to consider going forward.

thank you. great post. the mailbox rule is interesting in light of all the talk about deposits considered being made when they actually are in the trust. this is somewhat contradictory i think.

[Kevin C]

There isn't much consistency in what we are seeing from the DOL on the timing issue. It is up to the individual investigator to set the standard used to judge the plan. Some are reasonable, but I had one tell me that if it wasn't mailed on the pay date, she considered it late. I think some of the more aggressive ones look at it as the penalties are small, so most people will just pay it rather than fighting it.

[austin3515]

My experience is that sound logic does not impress the DOL. Good luck gettign them to change their minds on anything but blatant factual errors. They are "Investigators" after all, and at least in my neck of the woods, they treat you like a criminal for the most minor of transgressions.

[Guest Sieve]

They do come up with some weird approaches. One DOL auditor suggested that since the client's critical care clinic was open 24 hours a day, and since the payroll person processed payroll & actually cut checks on the Sunday before the every-other-Wed. paydate, that the deferrals actually should have been transmitted BEFORE each paydate. I told him he was crazy (in slighty more diplomatic terms).

[austin3515]

EVery time I deal with the DOL, I always say "I've gotta send this stuff to my Senator." There is something way off the mark with how they approach this.

1) They really should only be looking at a sample of deposits - not every single deposit over a 3 year period, which is a collassal waste of taxpayer dollars.

2) If after reviewing 2 years of deposits one or two deposits are a few days late, the sponsor should get a hand shake, and be told what a great employer they are. Instead, they get a 7 page letter telling them they are the biggest crook on the planet, and threatening litigation.

It's totally bizaar.

[Kevin C]

2) If after reviewing 2 years of deposits one or two deposits are a few days late, the sponsor should get a hand shake, and be told what a great employer they are.

In all fairness, there are some DOL investigators that would do it this way.

For the aggressive investigators, I agree that reason usually doesn't work. Using their own guidance against them doesn't always work, either.

We have one client that finally told the investigator their deposits were not late and they were not going to agree that they were late. They also told him they would be glad to see him in court if he wanted to pursue it that far. He backed down, then audited their ESOP, looking for more "late" deposits. The ESOP had no employee contributions or loans and the 5500 filing clearly reflected that. But, he still asked for information about the timing of deposits of deferrals and loan payments in the ESOP.

[12AX7]

Scuba, there is still the General Rule that applies to timely plan deposits. The 7 business days is a safe harbor only.

I've had several recent DOL investigations regarding the timeliness of deposits and have successfully argued that contributions were made as soon as assets of the plan could be segratated from company funds, even though it was more than 7 business days from the payroll date. It's a matter of facts and circumstances and must be proven. 12 calendar days is not unreasonable provided that contributions were not consistantly "late".

[austin3515]

12 calendar days is not unreasonable provided that contributions were not consistantly "late".

I think different offices have different approaches. The people I've dealt with in New England would NEVER accept this. You should hear the conversations we've had. It's really hard to believe. They threaten litigation at the mere mention of disagreement. Whether they would actually follow through with that threat, I don't know. But it bothers that they even bring it up over $150 of lost interest - and they do.