Ensuring Participant 401k and loan repayments meet DOL regulations

The Department of Labor (DOL) and Internal Revenue Service (IRS) have been focusing on the timeliness and accuracy of contribution and loan repayment deposits for the last ten years and will examine those transactions closely during an audit.  Plan Sponsors and Trustees are responsible for ensuring the timeliness and accuracy of deposits.  The most effective way to ensure that standards are met is to implement internal controls with set procedures. Examples of procedures are:

  1. Frequent payroll reconciliations -  once a month (or every pay period), prepare a reconciliation of the payroll record totals to the total checks or ACHs issued, where any discrepancies are researched and resolved. 
  2. Deposit with each payroll – make a practice of making a deposit every payroll period.
  3. Review and sign off on manual input – If the contributions and loan repayments are being input manually on the vendor website, conduct a second review to ensure that the amounts input are correct by Participant and by source.
  4. Reconcile totals with each pay period – with each payroll period, pull control totals from  the payroll records to compare to the totals on the input at the vendor website, whether manual or electronic input.
  5. Annually, review total deferrals per the W-3 to a list of payroll periods with the pay date and related deferral amounts – make sure the totals agree, with any discrepancies researched and resolved.  Compare payroll dates to actual deposit dates and research any delayed deposits.
  6. Cross-train employees on payroll deposit procedures – ensures that deposits are not delayed if the employee with primary responsibility is out on vacation or ill.

What is a late deposit?  The DOL has issued guidance for “small” plans for the timing of payroll deposits, but has not yet issued the same guidance for “large” plans.   The Plan Sponsor is expected to segregate the funds from company accounts as soon as administratively possible.  This timing can vary depending on the company but generally the DOL and the IRS expect the Plan Sponsor establish a consistent pattern of submitting the payments to the investment provider.

Determining whether your Plan is a “small” or “large” plan is a year-to-year determination based on the number of participants as of January 1st for the year in question.  A Participant is defined as any employee who is eligible to be in the Plan, regardless of whether he actually has a balance, plus any terminated employees with a balance.   In general, a Plan with over 100 Participants is considered a “large” plan and the DOL will consider many factors in determining whether deposits have been made as soon as administratively possible, including reviewing historical deposit dates.  For “small” plans, the DOL has provided a safe harbor of seven business days for deposits.   Any deposit outside that timeframe is considered late, absent a compelling reason for the delay.  

The internal controls necessary to ensure the Plan’s compliance should be designed to meet your company’s specific circumstances.  Many contribution errors may be self-corrected.  However, should the DOL or IRS uncover deposit timing errors or missed deposits upon audit, the penalties may be substantial. 

The correction of late deposits is outside the scope of this article.  If you discover late deposits, we urge you to contact your Third Party Administrator for assistance as soon as possible.

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