Dealing with Late Deposits on 401(k) Plans

As the plan sponsor for your employees’ retirement benefits plan known as the 401(k), you have the fiduciary responsibility of ensuring accurate and timely deposits of the contributions, loan repayments, and other withheld deductions related to the plan. But what happens when you have been remiss in your fiduciary responsibility? Here are tips from a trusted Rochester CPA in dealing with said late deposits.

Know the Requirements

The first step is to know the general requirements for 401(k) plans in terms of the timing of their deposits. The date of deposits depends on the number of participants such that:

• If you have fewer than 100 participants in the plan, the employees’ contributions and loan repayments should be deposited by the 7th business day after the pay period pertaining to the amounts withheld.
• If you have 100 or more participants in the plan, the deposit must be made either on these two dates, whichever is earlier - (a) the date when the withheld amounts can be segregated from the assets of the business; or (b) the 15th business day of the month after the pay period pertaining to the withheld amounts.

Ask your trusted Rochester CPA about possible exceptions but the above mentioned rules apply to most plan administrators. Keep in mind, too, that a few 401(k) plan vendors will send reminder about late plan deposits but said reminder are usually worded in such a way as to exclude all fiduciary responsibility on their part. You, as the plan administrator, must assume said responsibility.

Keep Records

In most instances of late deposits, you have the option of self-correcting the issue by making the deposits and then calculating the lost earnings caused by the late deposit not being invested in a 401(k) plan. You will not be required to file the necessary paperwork with the Department of Labor and/or with the Internal Revenue Service especially when the late deposits pertained to just one to two payroll cycles. You must, however, keep records of your actions as future reference for audit work by an independent Rochester accountant, for example.

Kick the Problem

As your trusted Rochester CPA will say, a late deposit should not be cause for concern but you should kick the problem, so to speak, as early as possible. Always remember that one or two late deposits are mostly inevitable considering human nature. But when such tardiness becomes chronic, remains unresolved for several payroll cycles, and/or becomes fraudulent in nature, you will have problems with government authorities on your hands.

Why? Late deposits can trigger audits by the DOL and/or IRS, which can lead to sanctions including penalties. The DOL will determine whether the 401(k) plan deposits were accurate and timely often by looking at the earliest possible date that you, the plan sponsor, could have made the deposits but did not. This is where your meticulous records come in as well as your valid explanation for the missed deposits.

Your best plan of action: Consult with your trusted Rochester CPA about the appropriate methods to kick the problem even before it becomes an audit trigger. Keep in mind that not only will your company be subjected to a DOL audit but you may be penalized by the IRS in the form of excise taxes.