Processing deferrals before payroll date

Found a r/k who posts deferral transactions before the check date.  Basically, they process the contribution file when it comes in.

For example, they processed the 5/9/25 payroll on 5/8.

I didn't think they could/should do that, but they said it was ok.

Do you agree?

What does the recordkeeper’s service agreement provide?

How, if at all, does the recordkeeper adjust its records if the contribution arrives much later than the expected pay date?

How, if at all, does the recordkeeper adjust its records if the contribution never arrives?

If the date a contribution is posted is sooner than the date the contribution purchases mutual fund shares or collective investment trust units, how would a participant check whether her account balance is correctly determined?

If a contribution is invested before the trustee or custodian or its agent has money from the employer, is the service provider’s loan sufficiently documented to meet the prohibited-transaction exemption?

Could the posted dates affect in which plan year a trustee or custodian reports and certifies a contribution amount?

Could the posted dates affect in which limitation year the plan’s administrator assumes an amount is an annual addition?

Did the plan’s administrator accept the recordkeeper’s service agreement without reading it?

Ask the questions @Peter Gulia provided above to assess whether there is an issue.  Focusing on the recordkeeper's service agreement or mutually agreed-upon administrative procedures, keep in mind that the processing date (validations, control totals, compliance checks, available investment elections, ...) are data activities that precede the actual crediting payroll to participant accounts.  The segregation of the payroll dollars (funding) from the control of the employer is the actual funding date (which is looked at by the DOL to determine if something there are late deposits).  Typically for many plans, the movement of payroll dollars is an overnight process.  An aggressive interpretation of when the actual funding occurs would be to say it happens on the date of the instruction of the transfer of funds to the recordkeeper.  Another possible interpretation is the date the funds leave the control of the employer.  Another possible interpretation is the date the funds arrive at the recordkeeper.  A very conservative interpretation is the date the funds are invested.

Smaller recordkeepers do not have the financial resources to front any funds to their clients.  Major recordkeepers may make funds to be available for investment on the payroll date (or date payroll is approved for investing), and the recordkeepers coordinate the date of investment with the date of receipt of funds from the client. 

Theoretically, this is near perfect coordination of activities.  In reality, stuff happens, and the timing goes off the track.  As long as this is not a recurring pattern or a  purposeful manipulation of funds, it does not seem to be a cause for concern for the regulators.

The contributions are funded by the employer, the r/k doesn't front any money.  The R/K pulls the funds via ACH they day they receive the contribution file.  Sometimes that is before the participants get paid.

I thought deferrals to the trust had to be from current, not future income.