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What
is the Deadline for Depositing
401(k) Deferral Contributions?
Pension regulations mandate that 401(k) deferral contributions by employees must be deposited into the Plan's trust within a certain time period. In 1998, the Department of Labor (DOL) issued a directive outlining the "general" rule.
The DOL's general rule regarding the deposit of an employee's contributions to an ERISA pension benefit plan is called the '15 day rule,' because it is generally believed that in order to comply, the employer must deposit the employee's contributions into the plan's trust by the 15th business day of the calendar month following the end of the calendar month in which the contributions were withheld from the employee's paycheck.
However, subsequent to the release of their general rule, the DOL pronounced an expansion of their interpretation of this rule. The regulation further states that the assets of a plan, including amounts a participant has withheld from his or her wages, must be segregated from the employer's general assets as soon as administratively feasible. The DOL has interpreted this as two to three days following a payroll (similar to payroll taxes). In some recent audits, the DOL has assessed penalties against plans that are not in compliance.
In our opinion, plans should now be depositing all 401(k) contributions into the plan account immediately following the payroll date. Note that the deposit does not have to be allocated among all of the investments chosen by the employees; it simply has to be deposited into the Plan. For example, for a weekly payroll, the employer would send a check each week for the 401(k) deferrals that were withheld from the participants' paychecks but the actual allocation among the investments would be made only once a month.
If you need any help complying with this law interpretation, please contact your plan administrator.