Plan Sponsors have an important fiduciary responsibility to ensure that all amounts withheld from an employee’s check are remitted to the Plan’s custodian without exception. However, this responsibility extends one step further, with a requirement that employee money is remitted in a timely fashion. But what does “timely” mean, and what should be done in the event that employee deferrals are not remitted soon enough?
Generally speaking, timeliness is defined differently depending on the size of the Plan. For Plans with less than 100 participants, employee deferrals and loan repayments must be remitted by the seventh business day after the paycheck from which those amounts were withheld. For plans with 100 or more participants, employee deferrals and loan repayments must be remitted as soon as administratively possible, but never later than the 15th business day of the month after the check was issued. It is important to note that there is no safe harbor for this requirement; therefore the 15th business day should be considered the maximum ceiling rather than the floor for the purposes of determining timeliness.
For plans with greater than 100 participants, there are a few best practices that Plan Sponsor should be aware of:
1. Coordinate with payroll provider and employees who are responsible for remitting employee deferrals and determine what is the earliest date that employee deferrals and loan repayments can be sent to the Plan’s custodian.
2. Formally document this information in writing and make all responsible parties aware of this policy.
3. Document any changes to this policy, as well as the reason and circumstances for any deposits that are not remitted in accordance with this policy.
If a Plan Sponsor determines that any deposits were not made in a timely fashion, the IRS recommends the following steps should be taken:
1. Determine which deposits were late and calculate the lost earnings necessary to correct.
2. Deposit any missed elective deferrals, together with lost earnings, into the trust.
3. Review procedures and correct deficiencies that led to late deposits.
The amount of late employee deferrals and loan repayments will also need to be reported on Schedule H – Part IV – Line 4a of the Form 5500 filing, and a supplemental schedule of delinquent participant contributions and loan repayments will also need to be attached. The Plan Sponsor may also be responsible for an excise tax on any lost earnings due to participants.
Dennis Giangregorio, CPA is a Director at Chestnut Hill, MA CPA firm, Samet & Company PC and can be reached at firstname.lastname@example.org or 617-731-1222. Shawn P. Huxley, CPA, MSA is a Director at Samet & Company PC and can be reached at email@example.com or 617-731-1222. James Alexander is a Supervisor at Samet & Company PC and can be reached at 617.731.1222 or firstname.lastname@example.org
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