The Department of Labor (DOL) has focused on the timely remittance of employee contributions to retirement plans for a few years. And recently, they stepped up efforts during agency-conducted audits, making this a key area of detailed review. The timeliness of your remittances will be under the microscope, and not only the frequency, but also the consistency.
You must remit retirement plan contributions that are withheld from a participant’s wages to the plan on the earliest date on which the contributions can reasonably be segregated from the employer’s general assets. This can’t happen later than the 15th business day of the month following the month in which the participant’s contributions were withheld from the payroll (payroll date).
In years past (and maybe even now), employers operated under the misconception that the 15th business day of the following month was a safe harbor date. They believed that, as long as contributions were remitted by that date, they were operating properly under the DOL guidelines.
Not so. You should remit contributions as soon as you can segregate the amount of the contributions from your general assets.
Forgiveness for small plans
Good news for small (non-audited) plans! There is a safe harbor for you. If you remit contributions within seven business days of the payroll date, the DOL considers that “timely” under this safe harbor. The DOL may consider any deposits made outside of the seven-day window to be untimely.
What about large plans?
Unfortunately, the DOL hasn’t implemented a similar such safe harbor for large (audited) plans. Why? It’s hard for the DOL to set a safe harbor for large plans because of varying levels of complexity in payroll systems and the sophistication of the accounting function. So, the guidance for large plans remains “as soon as administratively feasible,” which is subject to interpretation by both the DOL and the plan sponsor.
The DOL doesn’t operate under the idea that large plans are more complicated and, therefore, should have more time than a small entity. It finds that, with more sophisticated systems in place, large plans are able to remit contributions more quickly than small plans. A large plan that simply adopts the small plan seven-day safe harbor doesn’t necessarily alleviate the plan from DOL scrutiny relating to the timeliness factor.
What if the deposit is late?
If the DOL finds a violation of timely deposits, it will typically review three years of contributions. This period can be expanded if the DOL believes the situation is abusive. Not only can this process result in fines and penalties, but you may have to spend a lot of time gathering the data that the DOL requests in its investigation.
Employee Contribution Compliance Help
Not sure if you’re meeting the DOL’s guidelines? Have questions about the DOL’s guidelines on employee contribution? Contact Rea & Associates. Our Ohio benefit plan administration and benefit plan audit teams can help you determine if you are compliant with these guidelines or how you can become compliant.