When is 'loss date' for late deferrals?

[BG5150]

When you are calculating earnings, what are you using for the 'loss date'?

I've seen some people use just the pay date.  Others, 7 business days later.  Even others going all the way out until the 15th business day of the month following...

From VFCP:

Quote

The Loss Date for such contributions is the date on which each contribution reasonably could have been segregated from the employers general assets. In no event shall the Loss Date for such contributions be later than the applicable maximum time period described in 29 CFR 2510.3

So, what date are you using?

[K2retire]

We use the pay date. We have a DOL audit of one of our plans require that, so we just stuck with it.

[Madison71]

On small plans I tend to use the 7 business day safe harbor.  On large plans, I use what is their average length of deposit on "timely" contributions as long as that is on or before that 7 business days.  I know the DOL does not recognize this for large plans (arguing more advanced systems should result in even quicker deposits), but it is where I start.  I worked on a large plan a few years back where it legitimately took them 8 business days to deposit.  Their internal payroll person left the company and for a few months they clearly had late deposits. We laid out to the DOL this convoluted internal payroll process where it did actually take 8 business days to deposit.  The DOL auditor denied saying he had never approved a large plan going beyond 7 business days. 

[RatherBeGolfing]

I use the pay date as the loss date.  It really is the only thing that makes sense IMHO.  Every auditor (large plan audits) I have ever dealt with has used pay date.

[RatherBeGolfing]

6 minutes ago, Madison71 said:

Their internal payroll person left the company and for a few months they clearly had late deposits. We laid out to the DOL this convoluted internal payroll process where it did actually take 8 business days to deposit.  The DOL auditor denied saying he had never approved a large plan going beyond 7 business days. 

That is pretty bad reason for denying it.  I could defiantly see them argue that just because it actually takes you 8 days doesn't mean that 8 days is reasonable. In other words, if your process causes undue delay, change the process. But to say that 8 days is unreasonable because you never approve anything beyond 7 days is  just lazy

[Bill Presson]

We've always used the pay date. The 7 day safe harbor says if you get it in by then, no harm. Since it wasn't deposited by then, I think the loss date is the date it would have been on their paycheck, but for the election.

I think this is similar to the 5500 late filing penalty. You've got till 10/15, but if you don't file by then, the penalty starts at 7/31, not 10/15.

[Madison71]

RBG - 100% agree. 

You make an excellent point Bill - one I have never thought of before.  I've used the 7 business days in correction filings on small plans and it was never pointed out as an issue.  However, that doesn't mean it is the appropriate date to use. I think pay date may be the way to go based on that reasoning. 

[Larry Starr]

17 hours ago, Madison71 said:

RBG - 100% agree. 

You make an excellent point Bill - one I have never thought of before.  I've used the 7 business days in correction filings on small plans and it was never pointed out as an issue.  However, that doesn't mean it is the appropriate date to use. I think pay date may be the way to go based on that reasoning. 

Agree with Bill.  There is no 7 day period IF you have not met the the 7 day rule.  Therefore, you are back to NO safe harbor and pay date is most appropriate.

[C. B. Zeller]

In cases where one or a few employees were missed on an otherwise normal payroll, I use the date that the other contributions were deposited.

If the entire payroll contribution is late, I do the following:

1. Put together a list of check dates and the dates that the corresponding contributions were deposited (this is usually as simple as downloading a transaction history report and making a pivot table)
2. Calculate the number of days between each check date and deposit date
3. Delete any non-compliant deposits
4. Determine the mode of the above data set
5. Loss date = check date + number determined above

 

[ESOP Guy]

To me this is one of those rare times logic and retirement law work. 

What is the "loss" at issues here?  The company is holding plan assets and has a 0% loan from the plan.  When did that start to happen?  It seems like that has to be pay date.  That is the day the cash became a plan asset.  So the loss date starts on pay date.  The fact you are given a little grace under the rules to get the cash into the plan doesn't change that.  So once you are required to decide when did the cash become a plan asset and the 0% loan started I don't see how pay date isn't always the answer. 

[C. B. Zeller]

The contribution becomes an asset of the plan on the date that it would have otherwise been payable to the employee in cash had they not made an election to defer.

However the loss date as BG quoted is not defined as the date that it became a plan asset. It is defined as "the date on which each contribution reasonably could have been segregated from the employers general assets."

I can certainly imagine a scenario where it's not reasonable for the employer to segregate the contributions immediately on the pay date; for example if the payroll processor sends them a report the next day after the paychecks are cut, then the contributions can't be reasonably deposited until after the employer receives the report.

[John Feldt ERPA CPC QPA]

For the cost of just a few pennies per day for each $1,000 that is late, use the payroll date. If you're investigated by the DOL, they now can't question the choice regarding the loss date. Using the pay date eliminates that scrutiny.