Deposit deadline for employee deferrals

[Belgarath]

Just want to make sure I'm not misrembering - the 7-day "safe harbor" under 2510.3-122(a)(2) it is for plans with fewer than 100 participants at the beginning of the year. The 80-120 rule does NOT apply - it is for 5500 purposes only. I just saw it used for the 7-day safe harbor deposit rule for a plan with over 100 participants at BOY, so I want to make sure I'm not nuts before questioning this.

[ETA Consulting LLC]

The DOL never really issued this type of safe harbor for large plans because of a lack of data pertaining to established business practices of larger companies.  But, if you have a large company with a late deposit who clearly made late deposits of employee contributions (e.g. 2 months late), then what standard would you apply when trying to determine that day they 'should've been' deposited.  I guess you could use the amount of time they customarily made those deposits (and it may be 4 days instead of 7); and that might result in an additional $4 being made in missed deposits.

I guess what I'm trying to get at is when I typically challenge an approach that someone has taken on a correction, I would tend to do two things: 1) Demonstrate why their approach was not even reasonable; and 2) Demonstrate why the approach I endorse is better.  I do this keeping in mind that we're not often working in a clear cut standard, but are instead applying a fix that we're ready to defend as reasonable.

Good Luck!

[RatherBeGolfing]

1 hour ago, Belgarath said:

Just want to make sure I'm not misrembering - the 7-day "safe harbor" under 2510.3-122(a)(2) it is for plans with fewer than 100 participants at the beginning of the year. The 80-120 rule does NOT apply - it is for 5500 purposes only. I just saw it used for the 7-day safe harbor deposit rule for a plan with over 100 participants at BOY, so I want to make sure I'm not nuts before questioning this.

Yes you are correct.  Its fewer than 100 at BOY and 80-120 rule does not apply, so you could have a small plan audit exemption but not qualify for the 7 day safe harbor under §2510.3-102(a)(2)

EDIT: You are correct in questioning the 7 day safe harbor for a plan with 100 or more participant at BOY.  The timing of the deposit could still be reasonable, you just can't rely on the safe harbor.

[K2]

I had a plan once that was audited by the DOL.  They had a couple of hundred employees that they paid weekly.  Most of the time we received the deferrals two or three days after the payroll date.  But there was one occurrence when they submitted the payment the day after payroll.

The DOL determined that the appropriate deadline for this client was one day, because that was the earliest date at which the assets could be segregated from the employer.  They went back three years, 156 payrolls, and calculated late interest on anything deposited after one day.  The grand total was maybe $100 or something stupidly low.  The client asked what to do.  I told them that it would cost them way more than that to fight it, so just pay it.  And they did.