Are your employees’ deferrals being deposited in a timely manner to their 401(k) accounts? This is one of the top compliance issues the IRS has noted over the past several years in 401(k) plans. The Department of Labor (DOL) has ruled that employee deferrals to large 401(k) plans (those that have one hundred or more eligible employees) are to be submitted by the fifteenth business day of the month following the month in which the contribution is withheld from the employees’ wages, or the earliest date on which the contributions can reasonably be segregated from the employer’s general assets. Note that the previous sentence states “or”, which means the contributions should be submitted at the time they can be segregated from the employer’s assets.
This rule does not apply to those that are safe harbor plans, which generally requires employees’ deferrals be submitted within seven days of the date the employees were paid, or the earliest date on which the contributions can reasonably be segregated from the employer’s general assets. Small plans (those that have fewer than one hundred eligible employees) are generally allowed the same provisions, whether they are a safe harbor plan or not.
The best way to completely avoid having any late submissions is to submit the employees’ contributions at the time payroll tax deposits are made. If the contributions are deposited via a manual check, I highly recommend setting up an electronic payment method to stay within the guidelines.
Do you think you are late? Contact me for a free consultation regarding the next course of action.
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