Why Plan Sponsors Should Pay Attention to Timeliness of Contribution Remittances
Published on by Jessica Doremus in Benefit Plan Audits
When offering a Defined Contribution Plan, contributing employee deferrals into participants’ accounts from their paychecks is an area that the Department of Labor (DOL) investigates in detail – so it’s critical to be on top of plan management.
The DOL expects plan sponsors to contribute employee deferrals and loan repayments into employee accounts as soon as reasonably possible and on a regular basis, but no later than the 15th business day of the following month. This means that the 15th business day of the following month is the last possible day that can be considered timely, however, the DOL does not deem this date to be “as soon as reasonably possible.”
The term “reasonably possible” varies based on each company. The DOL will look at the history of previously made deposits and assume that the pattern established by the plan sponsor is the typical time that contributions should be remitted. This pattern will be used to determine the reasonable time that contributions are typically made. For some companies with streamlined operations, this may be within a few business days of payroll pay dates. For bigger companies with various locations, the historical pattern may be longer than a few business days.
Here’s an example: if based on a company’s history, payroll is paid on Friday, and employee contributions are historically remitted by Monday or Tuesday the following week, then any contributions remitted on Wednesday or later should feature documentation as to why they were remitted later than the historical pattern.
The DOL finalized a regulation in 2010 relating to a Seven Business Day Safe Harbor Rule for Small Plans. This regulation states that employers who are sponsoring a small plan, deem employee contributions to be timely if they are deposited with the plan no later than the 7th business day following the date the contributions are received by the employer. Eligibility for this safe harbor regulation is based on a 100-participant measurement as of the first day of each plan year.
Plan sponsors are typically not aware that remittances made after their historical remittance time can be scrutinized by the DOL. Holidays, employee absences, and various other factors can play into the delayed remittances that may be overlooked by plan sponsors.
Plan sponsors should be aware of the remittance schedule and review this throughout the year in order to help limit the number of remittances that could be scrutinized by the DOL. Additionally, it’s a good idea to have multiple employees trained on the remittance procedures in case of employee absences. This could help lead to fewer delays in remittances if key employees are absent (in other words – have a backup plan!)
If there is a remittance made later than your historical remittance period, it’s important to document why this delay occurred. This will help your auditor and the DOL understand the situation that occurred and if any remedy is needed.
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