De Minimis Corrections for Late Deferral/Loan Repayments

[LANDO]

As we get better and better at tracking late deferrals and loan repayments, and better at notifiying plan sponsors about those late deposits, the corrections (interest on late deposits) get smaller and smaller. For instance, deposits that we determine to be one day late can result in interest adjustments of less than one dollar. Anyone have thoughts on setting de minimis amounts for corrections?

On a separate note, we have already determined that we will not recommend filing a 5330 if the penalty is less than $1.

[austin3515]

Are you tracking every deposit your clients are making and claculating lost interest if even a day late? And then calculating interest and having them allocate out pennies? That seems to be excessive in my opinion. I'm not saying it's not the right thing to do if a deposit is a day late - it just seems like you would be spending an awful lot of time review deposits, and is that really necessary for a client that consistently sends them in shortly after each pay-period? The scope of what you're referrring to just seems to be beyond what a TPA's responsiblity (or even a recordkeeper) should be in my opinion.

[LANDO]

Our sensitivity to the issue stems partially from the fact that we also act as discretionary trustee to the plans we administer.

[austin3515]

Even still, I've never heard of discretionary trustees doing that level of review. We have a lot of plans that use discretionary trustees and not one has ever mentioned late deposits. Not sure what other people's experience has been.

[Kevin C]

I'm curious, what are you using as the deposit date?

[LANDO]

The safe harbor for small plans. If the Plan Sponsor represents that the deposit was made "as soon as administratively feasible" we would take that into consideration.

[LANDO]

Not sure that answered your question. We are using the date the deposit is made into the Trust as the Deposit Date.

[masteff]

Not sure that answered your question. We are using the date the deposit is made into the Trust as the Deposit Date.

The question on the 5500 is about whether deposits were transmitted timely, not posted to the trust. You need to review how and when the employer sent the deposit. If it's being sent by mail, that accounts for 2-5 days and if it's ACH, that can account for 1-3 days.

[LANDO]

^{Masteff, thank you for your comment, and I will review the instructions to the 5500 again and that may certainly impact what we report on the 5500, but I don't think whether a deposit is timely "transmitted" is determinative as to whether a correction is required. If a deposit is made "late", interest on those late deposits it owed to the participants. The DoL regs are pretty clear that the clock only stops ticking when the deposits make it into the trust. They don't have to be "allocated" to participant's accounts, but they do have to be deposited to the trust.}

[401king]

FWIW, we do about the same thing you do, dlando1. After the end of each year, part of our review process is to check all employee contributions to see if they were deposited into the trust (not necessarily allocated to individuals) within 7 business days of the paycheck. If there is only one or two payrolls deposited one or two days late, we usually forget about it. If there are many, we will calculate the lost earnings for each payroll and each participant. Better safe than sorry.

[Kevin C]

You might want to re-read the regulations. The clock stops when the contribution is deposited, not when it is credited to the account. In particular, if they are mailing checks, there is a footnote to the final deposit regs describing a mailbox rule.

[LANDO]

Kevin, I agree with your comment that the clock stops when the contribution is deposited, but I do not understand you distinction regarding "credited to the account", unless you mean "allocated to to specific participants".

The preamble to the regs say "[deposits]...will be treated as having been made to the plan in accordance with the general rule...when contributions are deposited with the plan...without regard to whether the contributed amounts have been allocated to specific participants or investments of such participants."

Reg 2510.3-102(a)(2)(i) also says: "...any amount deposited with such plan not later than the 7th business day..."

I would struggle with interpreting those underlined sections to mean anything but deposited to the trust, and not to be arguementative, but I certainly don't think they meant when the check is in the mail. I also am not aware of a footnote to the regulation above regarding a mailbox rule.

[Kevin C]

Sorry, I was referring to footnote 6 of the preamble to the 1996 final regulations.

6 Where, for example, an employer mails a check

to the plan, the Department is of the view that the

employer has segregated participant contributions

from plan assets on the day the check is mailed to

the plan, provided that the check clears the bank.

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

It's on the 7th page of the pdf file.

[LANDO]

_{No problem, and thank you for the citation. As I'm sure you surmised, I was referring to the 2010 final regs.}