While it might not seem like that big of a deal if 401(k) deposits are made a couple days or weeks late, the Department of Labor (DOL) considers those payroll withholdings to be plan money on the deposit deadlines regardless of where the money is physically located. To the extent those monies are still in the plan sponsor’s control, the delayed deposit is treated as a prohibited loan of plan assets to the plan sponsor, which is a very big deal (not in a good way). If that wasn’t motivation enough to fix the delinquency, the fact that late deposits must be reported on the Form 5500 each year until fully corrected (which is like waving a red flag in front of a bull, only the bull here is the DOL) certainly should be motivation to fix it. Pronto!
Topic Archive: Correction of the Quarter
ABC Company maintains a 401(k) plan that includes the following provisions:
- It operates on a calendar year.
- Compensation is defined as W2 wages with pre-tax deferrals added back and no exclusions.
- Eligible participants can defer up to the IRS limit $18,500 + $6,000 for those age 50 or older (2018 limits, indexed for inflation)
- The company provides a match equal to 100% of the first 5% deferred by each participant, calculated using compensation and deferrals for the full year.
In addition to regular compensation, ABC pays performance-based bonuses at the end of each calendar quarter.
While compiling the year-end census, it was noted that the overall deferral percentages did not appear quite right for certain employees based on their elections. On closer review, it was determined that employees who received quarterly bonuses did not have any 401(k) deferrals withheld from those amounts. With no deferrals withheld, ABC also did not make the corresponding matching contributions.