Deferral deposit during black out period

[Guest jc1457]

We have a client who changed their trustee and TPA in 2013. During a 5 week period while the conversion took place, the employer issued a blackout notice. During this period, no employee deferrals where deposited. The deferrals were April 2013 deferrals and were deposited by May 15, 2013. On average, April deferrals where deposited within 21 days. For all other payrolls, the client deposited deferrals within 1 to 2 business days.

Do we have a problem here? I haven't started my research and am not sure if a blackout notice covers deferral deposits. The employer was told to not make any deposits until the new TPA & Trustee had the client's records in order. Looking back, the client regrets not opening a temporary account in the name of the Plan.

Thank you for your help.

[Guest LLHarlow]

They have a problem. I'm currently engaged to file 5330s as the result of a DOL exam in which late contributions included those during a black out period. If they are not willing to play audit roulette, I suggest they file a 5330. The excise tax, if the return is timely filed, is only 15%. if not timely filed, the excise tax is 115% per year until corrected. My client owed their plan $7,000 in interest for late contributions over a two year period and they will have paid over $50,000 in excise taxes, penalties and interest in addition to the interest payment to the plan because late contribubtions in 2009 and 2010 weren't caught until 2013. Fix it now.

[Bill Presson]

A 5 week blackout? In today's world that's absolutely ridiculous. In any case, the new provider should have been set up to receive the deferral deposits even during the blackout.

The client may have to pay penalties, but it's the new provider's fault. Stupid.

[Guest jc1457]

Thanks so much for your input on this. I thought the same but wasn't sure if I was being overly cautious on this.

[K2retire]

I agree that it's stupid -- but it is also common. If the new record keeper has not yet received the participant data from the old record keeper they will often refuse to accept a deposit.

[BG5150]

From what I understand, the money doesn't have to be allocated to particular accounts, but merely placed in the Trust.

[Guest jc1457]

I agree that it's stupid -- but it is also common. If the new record keeper has not yet received the participant data from the old record keeper they will often refuse to accept a deposit.

Based on what I am hearing from the audit staff, this is what has happened. This happens to be an audit client.

[Bill Presson]

I agree that it's stupid -- but it is also common. If the new record keeper has not yet received the participant data from the old record keeper they will often refuse to accept a deposit.

Yes, this is often the case, but it shouldn't be. If we're taking over an existing plan, accepting new deferral deposits isn't controlled in any way by information coming the prior provider. We would get the complete census from the client and set up the records. Sometimes the client hasn't provided the election forms (assuming we're using paper) by the time we have to accept the first payroll; that's fine, everyone goes into the default.

Obviously, when the wire for prior balances arrive, we can't do anything without the prior provider's breakdown.

If a provider can't get this part right, I would seriously question their knowledge and capabilities.

[Kevin C]

In my experience, the length of the blackout is determined more by the old service providers than the new ones. We've had a few that wait one to two weeks after wiring the funds to send a data file. Then, when you get the file, it may or may not be usable and it may or may not tie to the amount sent. If the old firm does their job correctly, a 5 week blackout is ridiculous. If they don't, it may take that long to sort out the mess they created.

As already mentioned, there is no valid reason to hold new deferrals during the blackout.