The Department of Labor (DOL) has increased its scrutiny regarding the timing for submitting Deferral and loan payments to 401(k) Plans. In its effort to clarify the timing of these deposits, the DOL has a 7-day safe harbor for small plans (Plans with fewer than 100 participants at the beginning of the plan year). Therefore, the DOL will consider contributions deposited with the plan no later than the 7th business day following the date of the withholding to be in compliance. The DOL will likely challenge any deposits beyond this safe harbor date.
A late deposit is treated as an impermissible loan to the Employer, a prohibited transaction, and a breach of fiduciary duty, which will result in excise penalties and the make-up of “lost” earnings while the Employer borrowed these assets from the trust.
Deferrals and Loan Payments must be segregated from the Employers Assets and deposited to the trust within 7 business days after the payroll date. If you are not currently doing this, we strongly recommend you review your procedures to ensure future compliance.
The deadline for large plans to contribute amounts withheld for deferrals and loans is the “earliest date on which such contributions could reasonably be segregated from the employers general assets”. In some circumstances, this has been interpreted as the same time as when taxes are withheld and remitted.
Department of Labor regulations require that employees’ own plan contributions and loan repayments must be deposited into the plan as soon as they can be reasonably segregated from your general assets. Indicate below whether your employees’ contributions and loan repayments were deposited within the required time frame.
IMPORTANT: The Department of Labor and Internal Revenue Service are VERY SERIOUS regarding timely deposits. Plan Design Consultants, Inc. does not monitor these deposits for you. We will rely on your answer below in our commitment to assist you in the compliance of your plan.