Once 401(k) deferrals are in plan's trust account, when does employer

[Guest deagea]

Is there any regulation regarding the plan posting

the funds sent by the employer to an employee's account?

[Dave Baker]

Is this a 401(k) plan, and are you asking about the moneys deducted from your paychecks as your pre-tax contributions to the plan?

[Guest deagea]

Yes this is a 401k with funds being deducted pre-tax from our paychecks. The question arises because the funds are deposited with a short period of time, but are not credited to our individual accounts until a month or two later.

[Dave Baker]

Yow. That's too long. See this thread of messages (click on the address), where this issue was discussed before:

http://www.benefitslink.com/boards/index.p...=ST&f=20&t=4663

Basically an employer never can wait longer than the 15th business day of the month after the month in which the contributions are taken from employees' paychecks.

[KJohnson]

I am not sure I agree. I have always read the plan asset reg to reqire segregation into the Trust as soon as possible but within 15 days after the end of the month. I don't think this requires posting or allocation within this time period. Here, it looks like the employer is segregating in a timely manner. However, what the Plan does with the interest accrued in the period between when the contribution is made and when it is allocated to a participant's account is an interesting quetio

[Dave Baker]

White flag flying -- I think you're right

[Bill Berke]

I agree that the reg only goes to segregation from employer assets. But, what/why would it take so long to then allocate to specific accounts? Anything longer than a couple of days is probably a general fiduciary breech. Certainly the multitude of financial institutions can allocate within a day or two (if not sooner) and that may be the standard to which this employer will be held. And, in addition to the interest allocation, I have lots of fiduciary liability questions regarding who gets what if the participant selected investments go up or down during the period this money is sitting around waiting for a clerk to do an allocation. I think this is a landmine. Any ERISA lawyers care to comment? The DOL has verbally said at some conferences that even if it was the vendor holding the money, this is a no-no and it is an employer fiduciary breech for allowing delayed allocations.

[Guest Pam Gifford]

There are times when it takes a while for the contribution amount to be reconciled to the payroll data. This could be a payroll problem or a custodial problem where receipt of the deposit is taking too long to get to the recordkeeper. It doesn't have to necessarily mean a clerk is not getting the job done. Assets cannot, generally, be allocated to accounts and invested until a reconciliation is made between the payroll/contribution data and the amount of the contribution payment.

[R. Butler]

I strongly agree with Bill Burke. The letter of the law may only require segregation, but if the money is not invested within a few days it will likely be considered a breach of fiduciary duty.

If deferrals are not segregated timely, the DOL requires as part of the correction that participants be credited with lost earnings. Although sponsors have some latitude in calculating the lost earnings, it is generally accepted that the calculation will be based on rates of return from the investment accounts. This gives me a clue that money should be invested in individual accounts ASAP. If the money did not have to be invested ASAP then lost earnings could be based merely on the rates paid by an interest bearing checking account.

[Guest galdridge]

While the DOL regulations only impose restrictions on the amount of time that it takes to segregate employee withheld contributions into trust, the plan agreement will generally outline the requirements for investment into the specific funds. Additionaly, investment contracts or service agreements with a TPA may also specify the length of time allowed for investment into specific funds.

Glenn Aldridge, CPA

Audit Manager

Bennett Thrasher PC

Atlanta, GA