Large plan delinquent deposit determination

[TPApril]

I'm curious if the CPA firms that prepare the financial statements for large plans have a standard determination of when a deposit of 401(k) contributions is late.  ie 7 business days after payroll or the 15th business day of the following month?

Also, ever seen a company get away with the excuse, I mean reason, that the new recordkeeper didn't get set up so there was no way to submit the first few months of payroll until much later?

[WCC]

On 10/26/2024 at 1:52 PM, TPApril said:

I'm curious if the CPA firms that prepare the financial statements for large plans have a standard determination of when a deposit of 401(k) contributions is late.  ie 7 business days after payroll or the 15th business day of the following month?

The auditors we work with look at every period on a spreadsheet to determine the number of days it took for each withholding to be deposited. If they determine the company can reasonably make the deposit within say 3 days, then that is the standard for that company. 

 

On 10/26/2024 at 1:52 PM, TPApril said:

Also, ever seen a company get away with the excuse, I mean reason, that the new recordkeeper didn't get set up so there was no way to submit the first few months of payroll until much later?

No, nor should they. 

[RatherBeGolfing]

On 10/26/2024 at 3:52 PM, TPApril said:

I'm curious if the CPA firms that prepare the financial statements for large plans have a standard determination of when a deposit of 401(k) contributions is late.  ie 7 business days after payroll or the 15th business day of the following month?

Most auditors I have worked with will make this determination based on facts and circumstances (as they should).  I have seen some auditors start with a default position like every company should be able to separate employee contributions from employer assets in 2 business days, and only deviate to longer if it can be substantiated that it is not possible to it in 2 days.

On 10/26/2024 at 3:52 PM, TPApril said:

Also, ever seen a company get away with the excuse, I mean reason, that the new recordkeeper didn't get set up so there was no way to submit the first few months of payroll until much later?

Nope, because it is by definition not a valid reason.  Anything beyond the 15th of the month following has to be corrected.  The regs are very clear on this.

 

[justanotheradmin]

On 10/26/2024 at 12:52 PM, TPApril said:

I'm curious if the CPA firms that prepare the financial statements for large plans have a standard determination of when a deposit of 401(k) contributions is late.  ie 7 business days after payroll or the 15th business day of the following month?

Also, ever seen a company get away with the excuse, I mean reason, that the new recordkeeper didn't get set up so there was no way to submit the first few months of payroll until much later?

Many of the audits I work with start with 3 business days, or look at things like how quickly can payroll taxes be remitted as a guidline. 

As for not having a new recordkeeper - if there is a old recordkeeper - the old one continues to take deposits until the new one is set -up. That is standard and part of the coordination and timeline management that either someone at the company, the TPA, the recordkeeper etc should have managed. 

If that is not possible - there is typically no reason why an outside account in the name of the plan -even just a checking account or basic brokerage account - can't be used. The deposits have to be segregated from employer assets. They go into the plan account - and then when the recordkeeper has the individual accounts ready - the plan account sends the money to the recordkeeper. Happens for brand new plans occasionally too. I encourage plans to avoid it with good planning, but sometimes the unexpected to unavoidable happens and its necessary. If the deferrals go into the plan account timely, even if they aren't at the main recordkeeper, they are timely. There may be other issues, but late deposits won't be one of them. 

[CuseFan]

1 hour ago, justanotheradmin said:

If that is not possible - there is typically no reason why an outside account in the name of the plan -even just a checking account or basic brokerage account - can't be used. The deposits have to be segregated from employer assets. They go into the plan account - and then when the recordkeeper has the individual accounts ready - the plan account sends the money to the recordkeeper

I agree with all the prior comments and wholeheartedly agree with just - the requirement is to segregate from employer assets (i.e., deposit into a plan account) but amounts need not be invested/allocated within that time frame.  Leaving them univested for a prolonged time may have other fiduciary concerns, but not late deposits.

[Tom]

Right or wrong in a couple small cases I excluded Sat/Sun in coming up with the 3-day large plan or 7-day small plan deadlines. 

Right  or wrong 🤔?

 

 

[Peter Gulia]

For what the Labor department describes as a safe-harbor rule regarding “a plan with fewer than 100 participants at the beginning of the plan year”, it’s “the 7th business day following [a measured-from date].” 29 C.F.R. § 2510.3-102(a)(2)(i) https://www.ecfr.gov/current/title-29/part-2510/section-2510.3-102#p-2510.3-102(a)(2)(i).

For those who use an invented presumption of one, two, or three days, one imagines it might make sense to count it in workdays, business days, or banking days.

This is not advice to anyone.

[CuseFan]

20 hours ago, Tom said:

excluded Sat/Sun

agree with that, think it should be business days

[Tom]

Thank you - makes sense!

 

[Patricia Neal Jensen]

Have worked with a plan which was under audit by the IRS.  They applied the methodology articulated by WCC above.  No mercy for large plan filers!