late deposit next steps?

[cripp12]

Due to an over site one of our locations of 122 employees should have had a deposit made on 11/15/2016. It did not get posted to employees 401k accounts until 12/13. Can anyone tell me if I have any next steps to take.

[MWeddell]

First you have to determine whether the employer has violated the deadline in the plan assets regulation, DOL Reg. Section 2510.3-102. The employer needs to deposit the money into the qualified plan's trust as soon as the assets reasonably can be segregated from the employer's general assets. Sounds to me like the employer probably has missed that deadline based on your short post, but it's a bit of a judgment call.

If the deadline is missed, realize that it will be reported on item 4a of Schedule H of the Form 5500, so you've really got to go by the book to correct it. That means using the DOL's Voluntary Fiduciary Correction Program. You ought to be able to search for that term on the internet and take it from there.

[jpod]

You've told us when it was "posted," but when was it deposited, and how was it deposited, by snail mail or electronic transmission?

[austin3515]

6 months ago I would have said "calculate lost interest and call it a day." But since then I have receive 3 letters from the DOL pressing clietns about 3 miniscule late deposits reported on their Schedule H.

So at least until Trump takes office ( ) and changes the policy, I would say talk to a professional about doing a Voluntary Fiduciary Correction Program filing, which is the DOL's program to fix just the sort of thing. It's really not THAT bad, although it is definitely disproportionate to the error (and bigly!).

[rcline46]

They have more than 100 participants, and so the extended (original) deadline is in place, bolstered by when it was deposited in other months., and if a good reason the 15th of the following month (business days) may be appropriate. No reporting, no DFVCP, no late interest. Don't panic until I say so (GG).

[austin3515]

Let me get this straight, you would take the position that, as the situation has been described, there is a chance in "H E double hockey stick" that the DOL will conclude this is timely? I thought it was very clear that thou shall ignore the outside window in the regulations.

[RatherBeGolfing]

Let me get this straight, you would take the position that, as the situation has been described, there is a chance in "H E double hockey stick" that the DOL will conclude this is timely? I thought it was very clear that thou shall ignore the outside window in the regulations.

Well you shouldn't ignore the outside window, but I would say that there is a better chance of a blizzard in Florida than the DOL concluding that a months delay due to an oversight is timely because it fit the outside window...

My understanding is that the outside window was never meant to determine what was timely, but rather determine what is never timely. Anything outside the outside window is deemed to not be timely, no matter the facts and circumstances.

[RatherBeGolfing]

They have more than 100 participants, and so the extended (original) deadline is in place, bolstered by when it was deposited in other months., and if a good reason the 15th of the following month (business days) may be appropriate. No reporting, no DFVCP, no late interest. Don't panic until I say so (GG).

The outside window applies to small plans as well. The 100+ plans are just not eligible for the 7 day safe harbor.

I agree with don't panic. But they should correct and report.

[cripp12]

This group is a manual upload to our vendor and then funded same day. Since the group was over 100 can we fall under the "15th business day of the month following the month in which amounts would otherwise have been payable to the employee."

[RatherBeGolfing]

This group is a manual upload to our vendor and then funded same day. Since the group was over 100 can we fall under the "15th business day of the month following the month in which amounts would otherwise have been payable to the employee."

No, you cannot rely on the 15th day of the month following for a timely deposit, no matter what size you are.

The deposit of participant contributions must be made on the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets. (§2510.3-102 (a)(1))

This means, plain and simple, that you have to make the deposit as soon as you are able. In most cases this will mean the same day it is withheld from the employee’s paycheck. There can sometimes be legitimate reasons why the deposit cannot take place on the same day or maybe the day after. In those cases, a facts and circumstances test will determine whether the delay was reasonable and the deposit couldn’t have been made earlier than it was.

There is an “outside window” or maximum time period for making deposits. This maximum time period is the 15^th day of the month following separation from the employee’s paycheck. This does not mean that as long as you make it by the 15^th of the month following you are ok. It means that even if a tornado swept up your HR person and dropped them on the yellow brick road, the deposit will never be timely if made after the 15^th of the month following. The exact language is

“with respect to an employee pension benefit plan as defined in section 3(2) of ERISA, in no event shall the date determined pursuant to paragraph (a)(1) of this section occur later than the 15th business day of the month following the month in which the participant contribution or participant loan repayment amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the 15th business day of the month following the month in which such amounts would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant's wages).” (§2510.3-102 (b)(1))

You are stuck with late deposits that you now need to correct. Don’t panic though, the correction is a fairly straight forward process. You calculate the lost earnings owed to the participants, pay a small excise tax, and possibly file with the DOL. A good practitioner will be able to do this for you for a reasonable fee.

Does your plan attach an audit with it’s Form 5500? If so, I can guarantee you that the independent auditor will not sign off on the audit without correction.

[cripp12]

Do you recommend fixing the earnings first or file with dol first. Im assuming you mean Voluntary Fiduciary Correction Program filing.

Also is it true the filing would increase the chances of being audited.

[RatherBeGolfing]

You correct first, file second.

Yes, the correction program is VFCP. For simplicity, I would suggest using the VFCP calculator to figure out your lost earnings. Also, if you get your correction done before the end of the year, 2016 will be the only 5500 that reports the failure. If the correction is made in 2017, you have to report the failure in both years.

Filing with VFCP will not increase your chance of being audited. However, taking steps to make sure that the failure does not happen again is part of your correction. If the DOL sees the same failure year after year, then your chance of an audit will increase as they will be wondering why the same failure keeps happening.