What Constitutes “Timely” when Remitting Employee Deferrals?

A challenging, but important, aspect of being in compliance with Department of Labor (DOL) requirements when evaluating your employee benefit plans is timely remittance of employee deferrals. 

If a plan provides for salary reductions from employees’ paychecks for contribution to the plan (such as in a 401(k) plan or a SIMPLE IRA plan), the employer must deposit the contributions in a timely manner. The law requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. If employers can reasonably make the deposits sooner, they need to do so. 

The Safe Harbor Rule applies to small employers with less than 100 participants in their 401(k) plan. If amounts withheld as elective deferrals are deposited with the plan’s trustee within seven business days, the deposit will be deemed to be timely.

In the end, consistency and actually defining what is reasonably within your organization is key. 

For further compliance assistance regarding Employee Benefit Plans, visit the Department of Labor website or contact a member of the Bergan Paulsen team. 

Bergan Paulsen is a member of the American Institute of CPAs’ Employee Benefit Plan Audit Quality Center. The center is a voluntary membership organization established to promote the quality of employee benefit plan audits.