Are you depositing your employee deferral and loan
payments into your retirement plan on a
timely basis?
What do you mean timely?
The Department of Labor
(DOL ) safe harbor guidelines define
“timely” as within 7 business days
of withholding these payments from employees’ paychecks. These safe harbor guidelines apply only to plans
with fewer than 100 participants on the first day of the plan year.
The DOL has not specifically addressed plans with
more than 100 participants. A couple of
examples we have seen them use during an audit is to review the timeframe in
which deposits are normally made or to review how fast a plan sponsor is able
to remit other types of payments, such as federal tax withholdings. This is often only a couple days after the payroll
date.
Salary deferral contributions and loan payments
that are not deposited within the safe harbor guidelines are considered late
deposits. The employer must make up
earnings on the late deposits, file Form 5330 with the IRS along with payment
of an excise tax, and report the late deposits on Form 5500 (which can be a
trigger to cause a DOL audit for the plan).
How can this mistake be avoided?
Coordinate with your payroll provider to set up
procedures to ensure that the deposits are made timely.
Are there any other options?
Employers
who believe that they will not always be able to deposit salary deferrals and
loan payments to a plan investment account within 7 business days should
consider opening a plan checking account. Salary deferrals and loan payments should be deposited to the plan
checking account immediately following each pay date and then transferred to
the investment account at a later date. Keep in mind that employee funds should not be held in a plan checking
account for an extended period of time but should be transmitted to the
investment account as soon as possible.
If you have any further questions, please contact
your plan’s Account Manager at 1-800-898-9344.
The Author: Angie Krueger, CPA/QKA
Account Supervisor - Retirement
akrueger@abg-mn.com
Disclaimer: This blog is of an informative and educational nature, and should not be considered legal, financial or operational advice. Please contact the appropriate parties for those services. Thank you.
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