Deferral deposit for large plans

[52626]

if only the IRS would give large plan filers the same guidance they gave to small filers ( 7 days) life would be so much easier.

Client is putting together their Committee Procedures and wants to state that deferrals will be transmitted between the 3rd and 7th business day following the date the funds were withheld. The plan has over 100 participants.

I like the 3 days, but wondered if the IRS or DOL would take issue waiting 7 days.

Also if the actual transmittal date fluctuates some times 3 days, sometimes 7 days, if that would raise a concern from the DOL.

Thoughts

Thanks

[Flyboyjohn]

During a webinar today some ERISA attorneys said:

1. DOL is looking for 3 days max from large employers

2. DOL also looks at "quickest" instance as the benchmark, so be careful that the employer doesn't hurry up and one time fund 1 day after pay date

For what it's worth...

[Bill Presson]

Agree with Flyboyjohn.

The DOL has previously said they didn't intend to provide a safe harbor for large employers but if they did it would be significantly shorter than 7 days.

I've also argued with individual investigators that have said any plan with more than 2 days difference from the shortest to the longest deposit day would have the longer times deemed late.

[MoJo]

My dealings with the DOL have centered on the speed with which a corporation can make their federal withholding deposits (income tax withholding) with a depository bank. For large corporations, that essentially means 3 days MAX. If a company can make those "withholding deposits" within 3 days, the DOL seems to think the salary deferrals should be able to be made within the same time frame.

I agree that if you ONCE do it faster, that sets the standard for how fast you CAN do it.

[Peter Gulia]

Let me ask a question (and please understand that it really is my open question from a lack of payroll knowledge):

Once the employer has, on each employee, figured the period's wages, applied section 125 and section 401(k) reductions, counted net wages, computed withholding taxes, applied deductions, and counted payable wages, shouldn't the elective-deferral amounts to be paid over to the plan be known?

What further steps are there before an employer is ready to transmit data and remit money to the plan's service provider?

[Lou S.]

Let me ask a question (and please understand that it really is my open question from a lack of payroll knowledge):

Once the employer has, on each employee, figured the period's wages, applied section 125 and section 401(k) reductions, counted net wages, computed withholding taxes, applied deductions, and counted payable wages, shouldn't the elective-deferral amounts to be paid over to the plan be known?

What further steps are there before an employer is ready to transmit data and remit money to the plan's service provider?

For truly large employers it really shouldn't be an issue. I mean they electronically transmit most employees pay via direct deposit and presumably get the payroll taxes transmitted on time too. There really should not be any impediment that I'm aware of to electronically transmit the 401(k) contributions on or about the pay date.

For small employers it can be a time/cost issue. The cost of setting up an electronic transmission of the employer's 401(k) contributions in the vendors format might be prohibitive for some small employers and their may be someone in HR who along with their other duties has to manually enter the 401(k) deposits and wire (or send a check) to the 401(k) custodian and may need that 7 days leeway.

It's the mid-size companies that are a bit more of a gray area. Though I think everyone might have a different idea of what a mid-size company is.

At least that's kind of the feeling I get. Though I am by no means an expert in payrolls so my understanding could be a but faulty.

[GMK]

The remaining steps are to calculate the deferral and match amounts for each employee and to prepare and transmit (usually electronically) a list of those amounts in a format acceptable to the service provider.

The computer does the calculations, and the list transmission may involve a little human input, so it doesn't take very long.

Most places adjust their schedule for running payroll for expected interferences, like holidays, but delays may occur due to snow days, hurricanes, unexpected absence of whoever does the processing, and like that.

[ESOP Guy]

My dealings with the DOL have centered on the speed with which a corporation can make their federal withholding deposits (income tax withholding) with a depository bank. For large corporations, that essentially means 3 days MAX. If a company can make those "withholding deposits" within 3 days, the DOL seems to think the salary deferrals should be able to be made within the same time frame.

I agree that if you ONCE do it faster, that sets the standard for how fast you CAN do it.

My experience is like MoJo's. I have had DOL auditors take the position that if you can get a tax withholding deposited in x number of days you can get the 401(k) deposited in x number of days. In one case for a large employer I believe they were required to transmit the tax withholding in 24 hours. The DOL auditor said 24 hours was the deadline for the 401(k) funds.

I would add it is important to remember what is key here is DEPOSITED not allocated. While it might be a pain and require some fees you can comply with these rules by opening a checking account in the trust's name at the same bank as the corporate account and do a simple transfer from one account to another. If this company is large enough they might be able to get the bank to waive any fees on the extra account to keep an important client happy.

You then transmit the 401(k) deferrals to where they need to go a few days later. But the legal requirement would be met the moment the cash hit the trust's bank account even if the money isn't allocated and it is a non-interest bearing account (but can only stay that way for a very short time but that is a fiduciary issue-- different rules)

Short of it is you don't say how large is large (101 employees or 10,000?) but I doubt 7 will work and I would be careful going past the tax deposit deadline.

[Flyboyjohn]

In considering the mindset of the DOL investigators bear in mind that they all participate in the Federal retirement plan and their elective deferrals are deposited SAME DAY so they think "If the Federal government can do it same day shouldn't large private employers have the same capability?"

[Peter Gulia]

Thank you for the help.

[K2retire]

Yesterday a DOL auditor told one of my small plan clients that they expect the deposit to be made on the day of payroll.

[GMK]

^Probably can do it if, for example, you calculate the payroll for a given week on the following Monday and pay it on Wednesday.

[Bill Presson]

Yesterday a DOL auditor told one of my small plan clients that they expect the deposit to be made on the day of payroll.

If it's a small plan, I would just smile and continue to use the 7 day safe harbor time frame. The auditor can pound sand.

[K2retire]

Yesterday a DOL auditor told one of my small plan clients that they expect the deposit to be made on the day of payroll.

If it's a small plan, I would just smile and continue to use the 7 day safe harbor time frame. The auditor can pound sand.

That's pretty much what I told the client. We'll see what the auditor says in writing.

[Kevin C]

It wouldn't surprise me if that investigator didn't know there is a small plan safe harbor deposit timing rule. He/she may have been trained on large plans. In previous disagreements with DOL investigators over deposit timing, it became apparent to me that none of them had actually read the rules. I've never been bashful about politely giving them copies of their own rules (don't forget the preamble) with applicable passages highlighted.

[ESOP Guy]

It wouldn't surprise me if that investigator didn't know there is a small plan safe harbor deposit timing rule. He/she may have been trained on large plans. In previous disagreements with DOL investigators over deposit timing, it became apparent to me that none of them had actually read the rules. I've never been bashful about politely giving them copies of their own rules (don't forget the preamble) with applicable passages highlighted.

I have had to hand IRS auditors copies from their own publications before. Odd thing is I used to work for the IRS and they actually do train their people on the law. So I have always been a bit baffled by having to do that. I guess there are that many rules that one can lose track of them,.

[John Feldt ERPA CPC QPA]

Trained on the law (the code) is one thing. I remember having to train an agent (many many years ago) that the treasury regulations also applied and that these generally "interpret" the law. The agent was stuck on the wording of the IRC 410(b) and was not looking at the 410(b) regulations, saying classes of employees can't be excluded from a plan, only age an service exclusions can apply. Of course some odd exceptions may occur, such as the 401(a)(26) regulations being written before the law was changed to apply the participation rules only to DB plans so the 401a26 regulations now get ignored for DC plans. Yet I ramble on...