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Top 10 Mistakes Plan Sponsors Make – Mistake #6 – Timely Deposits

Top 10 Mistakes 401k Plan Sponsors Make: Mistake #6 – Timely Deposits

How soon do 401k and 403b plan sponsors have to deposit participant contributions after payroll? You will be surprised to learn from attorney Sarah Ivy of Fisher Broyles that what the DOL expects and what the rule is can be different in 401kTV’s countdown on the Top 10 Mistakes Plan Sponsors make.

The repercussions of late deposits are significant including breach of fiduciary responsibility and even allegations of theft. What should you do about it and how timely do plan sponsors have to make to make deposits? Watch this short video to learn more.

Full Transcript Below:

Colin Clark:                   This is Colin Clark. I’m a retirement planning consultant with the Washington Financial Group. Welcome to 401K TV. We are up to number six, down to number six in our series, the top 10 biggest mistakes that 401k and 403b plan sponsors make according to advisers. I’m here today with Sarah Ivy of FisherBroyles. She’s a partner there.

Sarah Ivy:                     Yes.

Colin Clark:                   Welcome, Sarah.

Sarah Ivy:                     Hi, Colin.

Colin Clark:                   I know you’re a nationally renowned speaker. You’ve been practicing [Ariza 00:00:33] law since 1998 and so we really appreciate your expertise. Is it okay if we ask you a few questions?

Sarah Ivy:                     Absolutely.

Colin Clark:                   Excellent. So topic number six today is the failure to timely deposit employee deferrals. So what does the DOL mean by timely?

Sarah Ivy:                     That’s a great question, Colin. What the DOL means is not exactly what it says which creates a lot of confusion for plan sponsors. The DOL rule is that the deposits must be made no later than the 15th day of the month following the month that which the amounts were withhold from the employee’s pay. So for an example, if an employee is paid January 15th, the deposit has to be made by February 15th. But the reality, the rule is the deposits must be made as soon as possible, as soon as the amounts can be taken from the employee pay and contributed to the retirement plan trust, that’s the deadline. So it’s employer specific.

Colin Clark:                   So why is that important? Are there any repercussions if we don’t measure up to those standards?

Sarah Ivy:                     Absolutely. The DOL takes a position that if you fail to timely deposit elective deferrals, you’re essentially breaching a fiduciary duty. The failure to deposit timely results in a loss of income to the participant. It’s almost treated like a theft, when the reality, the individual should have had the amounts contributed on let’s say January 1, but instead it’s not contributed till the 15th of February, we’ve got a significant time gap where the individual is losing investment income.

Colin Clark:                   Well, we are dealing with other people’s money. So what should plan sponsors be doing to make sure they’re in compliance?

Sarah Ivy:                     The first thing they should do is determine how quickly the funds can get from payroll to the employee to the retirement trust account. That’s their maximum time period. If it’s three business days, then they need to be looking every time they remit elective deferrals. They need to make sure that those deferrals hit that retirement account within three business days.

Colin Clark:                   Wow. So I guess I can’t ever go on vacation, huh?

Sarah Ivy:                     That’s not actually the case. I mean, there are certain exceptions. But if you go on vacation, you definitely want to make sure that there’s somebody backing you up who knows the rule and understands the importance of getting those moneys in the account.

Colin Clark:                   That’s great, Sarah.

Sarah Ivy:                     Thanks so much for this valuable information. So again, this is Colin Clark with Washington Financial Group. You’re watching 401K TV and stay tuned for number five on the top 10 biggest mistakes that 401k and 403b plan sponsors make according to advisers. See you next time.



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