Timely Deposits of 401(k) Elective Deferrals
2004-02/12 Mary Ellen Schill

Over the past few years, the Department of Labor (“DOL”), through its sub-organization, the Employee Benefits Security Administration (“EBSA”), has increased its scrutiny of 401(k) plans to ensure participant elective deferrals are deposited timely.  DOL regulations require that 401(k) deferrals be deposited in a 401(k) plan’s trust by the earliest date the employer can reasonably segregate the contributions but in no event may the deposit be made any later than the 15th business day of the month following the month of deferral.  The EBSA believes employers have been misinterpreting the regulation to mean that all employers have the option to deposit elective deferrals as late as the 15th business day of the month following the month of deferral.  Rather, under the EBSA’s interpretation of the regulation, each employer must deposit elective deferrals as soon as that employer can reasonably segregate the elective deferrals, even if this date is before the 15th business day of the month following the month of deferral.  The determination of the date by which the elective deferrals can reasonably be segregated is a facts and circumstances analysis based on such factors as each employer’s timing history for prior deposits, but in most cases the EBSA believes this date will be before the 15th business day of the month following the month of deferral.

Accordingly, to ensure the correct interpretation of the regulation and, therefore, timely deposits, the EBSA has added language in the instructions for Line 4a of Schedule H of the 2003 Form 5500 for plans with more than 100 participants.  This is the question which asks whether there have been late deposits of elective deferrals.  The instructions now require that the plan’s auditor verify the employer’s answer.  Furthermore, the EBSA is now requiring auditors to disclose their verification or lack thereof in the plan’s audit report.  The EBSA hopes the auditor verification will bring plans into compliance with its interpretation of what constitutes a late deposit.  Please note that small plans, plans with less than 100 participants, must answer Line 4a of Schedule I of the 2003 Form 5500 to report late deposits of elective deferrals.  However, because a small plan is not required to be audited, the employer must be sure to verify that its own analysis of late deposits is in accordance with the EBSA’s interpretation of what constitutes a late deposit.

Furthermore, the EBSA will no longer require employers to also mark Lines 4d of Schedules H or I and to complete Schedule G to report a late deposit of elective deferrals on the 2003 Form 5500.  The only 2003 Form 5500 reporting requirement for late deposits will be on Line 4a of Schedule H or I. 

In addition to the reporting of late deposits of elective deferrals on the Form 5500, employers should be reminded that if there is a late deposit the employer must also file a Form 5330 to pay the excise tax attributable to the late deferral (even if the tax is a very small amount) and contribute the late deferral and any interest to the plan in accordance with the principles of the DOL’s Voluntary Fiduciary Compliance Program.

The Employee Benefits Group at Ruder Ware encourages you to contact us if you have late deposits which require correction and the filing of Form 5330.  We can also be of assistance with any other employee benefit concerns you may have.  You can contact Mary Ellen Schill with your concerns.

© 2004 Ruder Ware, L.L.S.C. Accurate reproduction with acknowledgment granted. All rights reserved.
This document provides information of a general nature regarding legislative or other legal developments. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed.