Timing of Contributions

Plan management should monitor the timeliness of their employee remittances. Effective remittance monitoring can be achieved by establishing a remittance policy that includes regularly reconciling plan contributions per the trust statement to the payroll records. These duties should be assigned to competent individuals that can perform these reconciliations on an ongoing basis.

Because the determination of whether a delinquent contribution has resulted in a prohibited transaction is based on the facts and circumstances that caused the delay, delinquent employee contributions and loan repayments need to be investigated. Plan management may need to consult with its ERISA legal counsel to determine whether certain deposits should be considered prohibited transactions.

The general rule as interpreted by both the DOL and the courts has been that if the employer was able to segregate other payroll-related items from general assets (most notably tax withholding payment amounts) at an earlier date, so too must 401(k) participant contributions be segregated. DOL regulation 2510.3-102 provides a 7-business-day safe harbor rule for employee contributions to plans with fewer than 100 eligible participants (or small plan filers); this safe harbor does not apply to plans that require an audit under ERISA. In general, the DOL would expect plans requiring an audit to segregate contributions sooner than 7-business-days.

Failure to properly report delinquent employee contributions in the Form 5500 can lead to reporting compliance enforcement action. If the delinquent contributions are not properly disclosed on Schedule H, Item 4a, the filing may be rejected (for deficiencies in the Form 5500 filing), and if not corrected, the plan administrator can be assessed a monetary civil penalty assessed from the date the filing was originally due.

• Remit the late contribution as soon as possible 
• Calculate how much the employees would have earned on their 401(k) contribution 
• Use the Voluntary Fiduciary Correction Program (VFCP) online calculator on the DOL's website 
• Use internal controls to ensure future compliance with the DOL's remittance rules 
• Notify employees about any adjustments

The DOL Voluntary Fiduciary Correction Program (VFCP) offers plan management a means of self-correcting prohibited transactions, including delinquent participant contributions. The program includes specific transactions and their acceptable means of correction, eligibility requirements, and application procedures.