Timely deposits of participant deferrals are an important part of a plan sponsor’s fiduciary responsibility. Your auditors will ask about this issue and take a look at compliance with regard to the guidelines as part of the annual audit. This is to ensure plan participants are receiving timely deposits into their accounts.
The Department of Labor (DOL) requires that plan sponsors deposit participant deferrals to the plan as soon as they can be reasonably segregated, but no later than the 15th business day of the month immediately following the month in which the contribution is either withheld or otherwise payable to the participant or received by the employer. The 15th business day rule is not a safe harbor for depositing amounts deferred; rather, the rule sets the maximum time period. For plans with fewer than 100 participants, the DOL permits a seven-business-day safe harbor rule. If the employer fails to make timely deposits, the plan has engaged in a prohibited transaction and the trustees may have breached their fiduciary duties under ERISA. The participant contribution regulation applies in the same way to multiemployer plans that the provisions apply to single employer plans.
The plan sponsor’s policies and procedures may indicate the amount of time it should take to segregate the employee elective deferrals. Plan sponsors should periodically evaluate all of the contributions owed to the plan and determine the earliest date the assets could have been segregated from the general assets of the plan. If any deposits exceed the time deemed reasonable, the remittance is considered delinquent and is considered a prohibited transaction. A general policy requiring timely remittance is recommended.
Corrective Actions and Requirements
Correction of late participant deferrals includes various steps:
The prohibited transaction may be self-corrected by using the DOL Voluntary Fiduciary Correction Program (VFCP). This program allows the voluntarily reporting of errors and the taking of corrective actions without first becoming the subject of an enforcement action. The program outlines specific correctable transactions and acceptable means of correction, eligibility requirements, and application procedures.
In order to avoid dealing with correcting delinquent participant deferrals, plan sponsors should ensure timely remittance throughout the year by establishing and implementing appropriate policies and procedures. Sponsors should monitor the timeliness of deposits of participant deferrals throughout the year to minimize the chance of errors and ensure corrective measures are undertaken if a late deposit does occur.
The DOL has issued a Field Assistance Bulletin 2003-2, which provides further information and on this topic. The FAB is posted at www.dol.gov/ebsa/regs/fab_2003-2.html.
Please contact us if you have any questions.
By Larry Wood, CPA, Senior Manager, firstname.lastname@example.org