A brief technical paper that Advisors can use to open a dialogue with Plan Sponsors about payroll deposits and integration.

1. Deposit Timing Failures
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2. If deposits fail to be made in a timely manner (or not
at all), the plan sponsor could be considered to be in
control of those 401(k) plan assets. Further, the
deposits may be considered a loan of assets to the
plan sponsor which is prohibited under ERISA and
subject to excise tax. The plan sponsor could be
personally liable and required to back pay up to 6
years, depending on the history of noncompliance.
Along with these corrective fines, penalties can include a 15% prohibited transaction
excise tax. Prohibited transactions can also lead to plan disqualification.
Plan sponsors have a fiduciary responsibility to make sure employee deferrals are deposited
as soon as possible. The Department of Labor (DOL) has been cracking down on both
small and large businesses, conducting random audits to ensure that these regulations
are being followed. Additionally, the Internal Revenue Service (IRS) has published details
on the top ten 401(k) compliance issues, these are issues the IRS will focus on when
conducting plan audits. Number one on the list: late deposits of 401(k) deferrals.1
Under the Safe Harbor rule, employers are required to deposit all 401(k) deferrals as soon as
administratively feasible, but the deadline varies depending upon the size of the business. Small
businesses, classified as having under 100 participants are required to deposit all employee
contributions by the 7th
business day after those amounts were withheld from the participant’s
paycheck. Large businesses, classified as having over 100 employees, must ensure that employee
contributions are deposited no later than the 15th
business day after the paycheck was issued.
ISSUE: Government regulations require that plan sponsors deposit
employee deferrals as soon as administratively feasible, but no later
than the 15th business day of the month following the month in which
the contributions occurred. Failure to deposit contributions within
this time frame results in fines from the Department of Labor.
RESULTS: Regulations can affect
all plans regardless of size; failing
to stay compliant can result in
lawsuits, fees, penalties, and
possibly plan disqualification.
OPPORTUNITY: Advisors could prospect plans that
have significant failures by addressing the disconnect
between payroll providers and recordkeepers
A final way advisors can help plan sponsors stay compliant is to have an integrated payroll
system that sends automatic updates when the deferrals are ready to be deposited.
This is a great opportunity for advisors to partner with plan sponsors to talk about
commonly faced problems between payroll providers and recordkeepers. Advisors can use
this opportunity to demonstrate the value of working with an experienced advisor.
Disconnects between payroll providers and recordkeepers can happen for a variety of reasons
including: staff shortages, vacations, and clerical errors. Plan sponsors who have been audited
understand, that as a fiduciary, they are required to act in the best interest of the participant.
Share with plan sponsors how partnering with you and your team can help with operational
oversight and help to keep them in compliance. Additionally, you can assist with precautionary
measures such as self-audits. Audits can be a real administrative and financial concern for plan
sponsors, however, partnering with an experienced retirement plan advisor may reduce the
likelihood of penalties, fees, and corrective actions as a result of an audit.
Three ways advisors can help plan sponsors stay compliant:
Establish a procedure requiring
elective deferrals to be
deposited coincident with or
as soon as administratively
possible after each pay date.
Plan ahead to avoid late
deposits caused by vacations
or other disruptions. However,
if minor unavoidable delays
occur, keep a record of why
those deposits were late
(realizing that the DOL could
still require corrective action for
violating the DOL timing rules).
Coordinate with payroll
providers and other service
providers to determine the
earliest date deferral deposits
can reasonably be made.
The date and related deposit
procedures should match
plan document provisions.
Implement prudent practices
and procedures to ensure
deposits are made in a timely
manner. This is especially
important in regards to
turnover and new personnel.
retirementplanvision.com
1
Rand, Denise. “Top Ten 401(k) Compliance Issues.” HR Daily Advisor. February 2015.
2
Sammer, Joanne. “Handling Late 401(k) Plan Deposits.“ SHRM.org. March 2013
https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/late-401k-deposits.aspx
3
www.compliancedashboard.net/401k-find-and-fix-401k-plan-error-you-failed-to-
deposit-employee-elective-deferrals-in-a-timely-manner-oh-my/

3. Q: Do you have a procedure requiring employee
deferrals to be deposited each payroll?
Coordinate with the payroll provider and recordkeeper for employee deferral integration.
Having this in place will create a streamlined process should any problems arise.
Q: Who is your payroll provider and do they offer payroll integration?
Ask your recordkepper if they offer payroll integration. System integration
can help keep you compliant, reduce paperwork, and ensure timely
investment of employee contributions before the deadlines.
Q: Have you coordinated with your payroll provider to determine
the earliest date you can reasonably make deferral deposits?
Due diligence is a key component of fiduciary responsibility. It is important for plan sponsors
to establish a process and a reasonable time line for deferral deposits. If deposits are delayed,
actions to remedy the situation should be made and documented in your fiduciary folder.
PLAN SPONSOR QUESTIONS: Advisors may ask plan
sponsors the following questions to open a dialogue
about history of compliance and goals going forward.
IMPORTANT NOTICE:
This information, including any letters, attachments, and/
or other materials designed for potential use with plan
sponsors, fiduciaries, plan participants, et al must be
reviewed and approved by the compliance and legal
department(s) of the Financial Professional’s firm prior
to any use to confirm that they meet the firm’s legal
and compliance policies and standards. The Financial
Professional and his/her firm are solely responsible for
the Financial Professional’s use of this information and
any materials included herein, and for ensuring that all
services provided by the Financial Professional conform to
the firm’s legal and compliance policies and standards.
This information was developed as a general guide to
educate. It is not intended as authoritative guidance or
tax/legal advice. Each plan has unique requirements. Use
of the information provided does not ensure compliance
with ERISA regulations. You should consult your attorney
or tax advisor for specific guidance on your plan.
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