OK for employer to hold employees' 401(k) contributions in a separate

[Guest scott shoe]

Regarding the DOL's aggressive attitude regarding employee withholding remittance date contribution requirements, I've got a question.

In brief terms, these requirements are that the employer needs to remit (or at least segregate) employee salary reductions to a 401(k) plan as soon as they can reasonably be segregated, but no later than the 15th business day of the following month.

My question is this...in order to fulfill this requirement, can the employer "accumulate" these withholdings in a separate account during the course of the month and then pay to the plan sponsor on monthly basis? (I think they can). And also, can the employer (which currently shoulders the burden of the total plan cost) use the accumulating interest during these months to help pay for the plan costs, thus avoiding the burdensome task of allocating this interest?

[MWeddell]

The separate account must be part of the 401(k) plan's trust. You'll need to make sure it is held by the trustee. Given that typically the employer is not a trustee or an investment manager, this may be hard to do. It'll really have to be a STIF account held by the trustee.

I've not seen the employer get the expenses and given exclusive benefit and prohibited transaction concerns, I don't suggest you do that unless you research a lot more carefully that it's legal. I have seen the written contract with the bundled recordkeeper specify that STIF fund interest is part of the provider's compensation and is used to pay their costs (which would be higher in the absence of such a provision in the contract). That enables the account to not be interest-bearing (from the participant's viewpoint anyway). Slick idea, although I have no idea how the DOL would view it.

Of course, you could suggest to the client that funds be contributed and invested promptly! It may be the easiest solution.