Timely Remittance of Participant Contributions

Ensuring a company’s retirement plan is operating according to plan documents, IRS regulations and Department of Labor (DOL) rules is not an easy task. There are dozens of processes that must be monitored including making sure participants are engaging in the plan, proper disclosures and notices are sent, reviewing and managing plan investments as well as the coordination of the annual compliance work that needs to be completed which includes the benefit plan audit. While many of these responsibilities are managed by the Plan Administrator others require the combined cooperation of various departments (or outsourced providers) to ensure processes are happening as expected. A common challenge many companies face is making the timely remittance of employee’s elective deferrals into the plan trust. Although an increasing challenge for many, there are steps that companies can take to proactively manage these procedures and come into compliance with DOL regulations. To help clients, prospects and others understand these issues and how to correct any errors, Hanson & Co. has provided a summary of key information below.

Timely Remittance Rules
When an employee requests that a percentage of their earnings be placed into their retirement plan they often assume this happens on the day their paycheck is issued. Many are surprised to learn that this is rarely the case. According to DOL Regulation 2015.3-102, a plan sponsor must deposit an employee’s elective deferral into the plan trust no later than the 15th business day following the end of the month in which deferrals are made. Ideally, employee elective deferrals should be deposited into the plan trust as soon as the contribution can be separated from other assets, but no later than the timeline outlined above.

If your retirement plan has less than 100 participants, the rules are slightly different. According to the DOL, these “smaller plans” have a seven-day safe harbor period in which deferrals can be deposited into the plan trust. In other words, they have seven business days following the date which the employee was paid to remit the contribution into the plan trust. The DOL encourages all other employers to remit these contributions as soon as they can.

Establish Best Practices
The best way to avoid plan errors from occurring is to establish a system of best practices to ensure your plan maintains compliance. Consider working with your payroll and other service providers to determine the earliest date that remittances can be made into the plan trust. Develop a system for verifying that remittances were made and work with staff to ensure they are aware of the procedures as well as the importance of validation. This can go a long way to resolving discrepancies before they turn into errors.

Correcting the Error
If you have found the plan has committed an error, it can likely be resolved using the IRS Employee Plans Compliance Resolution System. To resolve the mistake, determine which deposits were late and calculate the lost earnings necessary to remediate the issue. Then deposit the missed elective deferrals along with lost earnings and review procedures to remedy the error that led to the late deposit. Depending on the circumstances, the error can be resolved through the Self Correction Program (SCP) with no fine assuming the following:

  • The plan is not under audit,
  • A corrective contribution is made within 2 years and the mistake can be classified as insignificant.

In the event the above criteria are not met, the error can be corrected using the Voluntary Compliance Program (VCP) which includes a user fee assuming the plan is not under audit.

Contact Us
Staying compliant with DOL and IRS regulations for maintaining your company’s benefit plan is a bit of a moving target. However, through regular review and implementation of best practices, you can ensure the plan is operating appropriately. If you have questions about timely remittance rules, corrective action, best practices or need assistance with your next benefit plan audit, Hanson & Co can help. For additional information please call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.