Depositing 401k Contributions

Depositing 401k contributions in a timely manner is an issue of extreme interest to the Department of Labor.

For years, many 401k plan sponsors administered their plans under the assumption that they were allowed to transfer contributions and loan repayments up until the 15th business day of the month following the month in which payroll deductions were made.

This is a common misunderstanding in that the 15th day rule is a “no later than” provision. In other words, a drop-dead date.

Are You Depositing 401k Contributions As Soon As Possible?

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The actual law requires the plan sponsor to transfer the contributions/repayments as soon as it is reasonably possible to segregate the assets from the company’s assets. “Reasonable” is not defined, but if the Department of Labor (“DOL”) determines a more expedient way to transfer the contributions/repayments the plan sponsor may rest assured that they are not doing it as soon as reasonably possible.

In other words, the Department of Labor, not the plan sponsor, determines what is as soon as reasonably possible for depositing 401k contributions. If a plan sponsor fails to meet this requirement, or has a late transmittal (usually discovered on audit), they must deposit lost interest on the late contributions/repayments.

Best Practice for Depositing Contributions

Depositing contributions on either the same day or next day is considered to be a best practice.  We recommend having contributions/repayments transmitted no later than two business days of withholding from participants’ payroll. If two business days is impractical the plan sponsor had better have rock solid reasoning supporting the delay. Why is the reasoning so important? The DOL has recently intimated that they are conducting smaller focused audits targeting untimely transmittals. The smaller audits allow the DOL to investigate a greater number of plans.

If you have any questions regarding depositing 401k contributions, please contact your retirement plan consultant.


Related Topics
    late 401k contributions, employee benefits, late contributions to 401k
About Edward Yoo

Edward specializes in employee benefits and financial planning. He helps to create benefits programs that can deliver greater value for employees and employers alike.

Edward is a current member of the San Francisco chapter of the Financial Planning Association. Raised in the San Francisco Bay Area, Edward is committed to improving the lives of local residents. He enjoys volunteering, working with at-risk students through an educational non-profit organization.

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