Timely 401(k) and Roth Deferral Contributions
The Department of Labor (“DOL”) has finalized regulations establishing a “safe harbor” for a small employer to timely deposit 401(k) and Roth contributions, voluntary employee contributions and loan repayments.
The general rule is that contributions must be deposited on the earliest date on which the contributions can be reasonably segregated from the employer’s general assets, but no later than the 15th business day of the month following the month in which the contribution or loan repayments are received by the employer. There has been confusion in the past because employers believed the “15th business day of the month following the month” was a safe harbor. However, it was not. The DOL evaluates the earliest date on which contributions can be reasonably segregated and may actually begin with day 1. The deposit safe harbor gives only small plans a definitive measure for the deposit of 401(k) contributions and loan repayments.
- Deposits made to the trust no later than the 7th business day following the date the employees would have received the contributions (payday) fall under the safe harbor.
- “Deposited” means placed in an account of the plan, without regard to when amounts are actually allocated to a participant’s account or invested per a participant’s investment election.
- The 7 business day safe harbor is not mandatory. If an employer makes a deposit after seven days, the employer may still be able to show the deposit was made timely.
- There is no safe harbor for large plans (100 or more participants). This rule only applies to plans with fewer than 100 eligible participants at the beginning of the plan year. This participant count includes terminated participants with account balances, and eligible participants, even if they are not actively deferring to the plan. Please contact your TPA or bundled provider if you are unsure of your plan’s participant count.