Late Deposit Question

[Archimage]

For a sponsor that sends in deferral deposits by check, does the IRS/DOL consider them segregated/deposited as of the date the check was mailed or as of the date the check was actually deposited?

[Kevin C]

For the DOL, it's the mailing date, provided the check clears. It's also a good idea for the client to keep a log of when each deposit check was mailed and who mailed it. That log could be very helpful if the DOL comes to visit. A copy of the regulations may also be helfpul.

Footnote #6 from the Final Deposit Regs published in 1996:

\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://benefitslink.com/src/erisaregs/403.html

[Archimage]

Thanks, that is what I thought but couldn't find the documentation.

[david rigby]

Usually, "is mailed" refers to a postmark, not the day you drop it in the box.

[BG5150]

Usually, "is mailed" refers to a postmark, not the day you drop it in the box.

How do you prove a postmark, unless you send it registered mail or some such method?

[MoJo]

BG - you can actually get a "proof of mailing" from the Post Office at teh time of mailing (but you have to go to the PO and pay a fee for that.

Just as an aside, I worked with a company who's auditor flagged some issues with late remittances - and they did exactly the same thing. Payday was Friday - and on Monday or Tuesday (anytime there is an "or" in that phrase, you know there is a problem) they mailed the deposit to Vanguard - where it was received usually 2 to 3 days later, and allocated a day or 2 after that. Not what I would consider the most "sophisticated" of approaches - but "arguably" compliant. We reviewed 4 years worth of deposits, and flagged far fewer than the auditor though was problematic and worked to craft the argument and documentation. Unfortunately. the client didn't want to continue to pay us (arguing that if it was "alright" then why did they need to pay us to produce documentation proving it?

They then got audited by the DOL. The DOL said they didn't "necessarily" agree that "mailing" the money the first business day after payday was "quick enough" and in any event, they had no documentation showing the appropriate business practice justifying the approach. Penalties were almost 4 times what we would have charged (and not saying we would have been successful, but....).

Two morals to the story - first, the DOL is serious about timing - and "mailing" is under scrutiny.

Second, pay me now, or pay me later....