DOL rules currently state that contributions made by employees into 401k plans, are converted to plan assets, from the earliest possible date in which these payments can be divided from the general assets, but not later than 15 days after date of receipt. This is a bit unclear and subject to interpretation.
The regulations provide however no assistance regarding how the employer should establish whether he is in compliance to the rule or not. The fact is that small employers will think that they are in compliance with the general rule, since they transfer the funds by not later than the 15th day. In reality however the DOL may determine that under the general rule, since the business is small and has only a single payroll system, he is able to separate the funds at a much sooner date.
DOL investigators normally assume that 401k plan contributions for small employers should be segregated within just 7 days from the payment date. If the employer is found in breach of this 7 day presumption, he should in this case contest the interest earnings that are to be assessed against him, and try to press as much as he can the time line forward. We must not forget that this is not the general rule but only a presumption and you may contest also that the general rule states that every business has to be taken separately.
An employer may want to place out a time line that documents the concrete steps to segregate the contributions, and also the time required for each step, and this might include:
• The time needed to calculate the contributions
• Manually processing loans for each payroll
• Verifying the calculations
• Communicating the amounts to the payables dept.
• Time required for financial institution to receive the check and process the transaction
• Time needed to provide investment firm with allocation instructions to participants.
Late deposits will be subject to interest rates which vary. They also have to deliberate reimbursing the participants for any lost earnings and where there is a breach, a penalty of 20% will also be charged to the employer. Since DOL investigations are under way, it might be a good idea for employers to review their procedures and compliance.
Reference: http://www.401khelpcenter.com/401k/perdue_401k_deposits.html
Wednesday, April 8, 2009
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