reasonable deferral deposit time

Hi

Not a 401k expert. I know of only 7 biz days as a safe harbor deposit dates for any deferrals.

Looking at a plan where I am told that they only can make one deposit per month i.e. their explanation for "administratively feasible" deposit. The owner travels a lot.

The payroll is every 2 weeks.

Is this reasonable? I do not think so but wanted to check.

It is a small plan with 3 participants. 2 HCE's (owner and spouse) and one non-HCE

Thanks

Somehow he ran payroll on time. Should be able to do the same for 401k, traveling or not. 

Ok, then what is a reasonable deposit time, assuming cannot be done automatically and requires personal signatures from the sponsor? Just curious on what can be considered a safe harbor in a situation like this?

Thank you

16 minutes ago, Jakyasar said:

Ok, then what is a reasonable deposit time, assuming cannot be done automatically and requires personal signatures from the sponsor? Just curious on what can be considered a safe harbor in a situation like this?

Thank you

As soon as you can reasonably segregate the deferrals from employer assets. Its going to depend on what the actual process for is, but for something on an ongoing basis, their excuse is not going to cut it.  Reasonable is as soon as it should be possible given the facts and circumstances.

For example, Owner is traveling and Assistant gets quarantined with Covid and cannot go into the office to mail a check to the plan.  The delay is reasonable.  Owner is traveling and only deposits once a month because he cannot be bothered to figure out a better solution (like travel with physical checks if they need his signature). Not reasonable.  

My rule of thumb, absent an unforeseeable intervening event, more than 3-5 days is not reasonable.  If that happens every payroll, you should have figured out a way to improve your procedures.

For small plans (under 100 lives) the DOL has a safe harbor of 7 business days after the pay date. Anything longer than that you are into facts and circumstances to justify why it takes that long. 

All noted and thank you.

If he can get the taxes paid on time, he can get the 401(k) deferrals (and loan repayments; don't forget those!) where they need to be.

If the current process is inadequate, then the process needs to change.

56 minutes ago, BG5150 said:

If he can get the taxes paid on time, he can get the 401(k) deferrals (and loan repayments; don't forget those!) where they need to be.

If the current process is inadequate, then the process needs to change.

Indeed.

Maybe it is time to recommend that he switches to a payroll company that can send the data to the recordkeeper automatically.  Then he can setup with the recordkeeper to "pull" the contribution dollars and process them.  For example, we have a lot of plans that get paid on a Friday.  The payroll companies either send us the data directly or email us to go and pull the data from their "TPA Portal" on the day the payroll is processed in their system (usually Wednesday or Thursday).  Dependng upon the employer's preference, we then order the money from their checking account on Friday (pay date) or Monday to be deposited to the trust company and processed from there.  Another advantage is that the TPA could be setup to access the portal at the payroll company.  Wage and census data can then be pulled for enrollment and plan testing purposes.  I know that he is a small company but there are several payroll companies who provide "TPA Portals" at no extra charge.  These portals can usually be made available to all of the benefits providers for the company (with permission from the employer).

1 hour ago, BG5150 said:

If he can get the taxes paid on time, he can get the 401(k) deferrals (and loan repayments; don't forget those!) where they need to be.

If the current process is inadequate, then the process needs to change.

It is my understanding is what the DOL auditor will tell you if they come in and exam the plan.   If the 401(k) money isn't deposited as fast as the withholding there is an issue.  The only defense after that is the 7 day safe harbor.      

One plan that we have has payroll twice per month, but only deducts 401k deferrals on the second payroll of the month, so monthly 401k deposits.  Small plan... about 5 participants with 401k deferrals.... all doctors.  Haven't had a problem with deposits.  Don't know why they do it this way.

Pam's suggestion is spot on.  There are plenty of payroll services or recordkeepers that can automate the transfer of the assets once payroll has been run.

On 3/17/2021 at 1:55 PM, Jakyasar said:

Ok, then what is a reasonable deposit time, assuming cannot be done automatically and requires personal signatures from the sponsor? Just curious on what can be considered a safe harbor in a situation like this?

Thank you

How soon does the employer pay withholding and other payroll taxes?  It would seem reasonable to me to deposit plan monies at the same time.