When should employee contributions be deposited to the plan?
As soon as deferrals are withheld from an employee’s pay, the employer should be making efforts to deposit those into the plan.
Department of Labor (DOL) regulations require employee elective deferrals to be deposited into the plan account by the earlier of:
- As soon as the amounts can be segregated from company assets; or
- No later than the 15th business day of the month following the month in which they were withheld from the employee’s pay. In most cases, this “maximum time” will not be the earliest that the employer can segregate the contributions from its general assets.
With electronic banking and payment options available today, deposits can easily be made a couple days after they are withheld. “Small plans” with fewer than 100 participants may follow a special “safe-harbor” rule where employee elective deferrals are deemed to have been made timely if they are deposited within seven (7) business days from when they are withheld from the employee’s pay. While the safe harbor rule only applies to small plans, it probably represents the longest that any plan should take to deposit employee elective deferrals. Timeliness will be determined on a facts-and-circumstances basis.
The DOL is actively enforcing these regulations with civil and criminal claims against plan sponsors who do not deposit employee elective deferrals timely. The plan’s annual Form 5500 filing requires plan sponsors to report delinquent deposits. Plans may be at a higher risk for audit where late deposits are concerned, especially if there is a recurring pattern of delinquency. Please carefully review your internal payroll procedures to ensure that employee elective deferrals are deposited in a timely manner.