A recent article about late 401(k) deposits in the on-line edition of the Los Angeles Times reports, or rather editorializes, that “investment losses from late deposits can add up, but the rules are vague and enforcement is lax.”
The first part is correct. Investment losses can add up, but the rules are not vague, and enforcement is not lax.
Under Department of Labor (DOL) regulations, 401(k) contributions must be deposited by the earliest date on which those contributions can reasonably be segregated from the employer’s general assets, but no later than the 15th day of the month following the month of withholding.
The DOL does, in fact, continue to pay significant attention to the enforcement of this deadline, and has taken the position in their audits that the deadline under this standard almost always occurs prior to the 15th day of the month following withholding. The deadline in almost every case has turned out to no more than one to two weeks following withholding and, in many cases, to be no more than a few days following withholding depending on the employer’s individual facts and circumstances, i.e., the manner in which payroll taxes are withheld.
Form 5500 asks if the employer failed to transmit to the plan any participant contributions within the required time period. If the employer has answered "no" , then it should not be surprised if there is a knock on the door.
Click here to read the article.