Timely Remittance of Contributions – What to Know!

Kimberly A. Reed Principal, CPA

1 November 2018

Department of Labor (“DOL”) rules require that the employer deposits deferrals to the trust as soon as the employer can; however, in no event can the deposit be later than the 15th business day of the following month. Remember that the rules about the 15th business day isn’t a safe harbor for depositing deferrals; rather, that these rules set the maximum deadline. DOL provides a 7-business-day safe harbor rule for employee contributions to plans with fewer than 100 participants. Rules about the timing of matching contributions or other employer contributions are different from those for elective deferrals. The employer must meet the following rules to obtain a current tax deduction:

  • Contributions made by the employer to match deferrals may be made at the time of the elective deferral contribution or later, but not later than the filing deadline of the employer’s income tax return, including extensions.
  • Employer contributions that aren’t tied to elective deferrals must be made by the filing deadline of the employer’s tax return, including extensions.

Review your plan document for the timing and amount of your matching and other employer contributions.

The IRS provides the following tips for how to avoid late payments and the costly fix associated with them in their 401(k) fix it guide:

  • Establish a procedure requiring elective deferrals to be deposited coincident with or after each payroll per the plan document. If deferral deposits are a week or two late because of vacations or other disruptions, keep a record of why those deposits were late.
  • Coordinate with your payroll provider and others who provide service to your plan, if any, to determine the earliest date you can reasonably make deferral deposits. The date and related deposit procedures should match your plan document provisions, if any, about this issue.
  • Implement practices and procedures that you explain to new personnel, as turnover occurs, to ensure that they know when deposits must be made.

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