Evaluating Participant Elective Deferral Deposit Timeliness

by David R. Dacey, CPA

Company A’s employee benefit plan is undergoing an independent  audit of its financial statements. As part of that audit, the auditor reviewed a series of deposit transactions of employee withholdings of retirement 401(k) monies. The auditor selected eight transactions for review of a total of 24 transactions during the year.  For those transactions selected, the auditor noticed that the number of days to deposit the retirement plan withholdings ranged from a low of two business days to a high of fifteen business days. Does Company. A have a fiduciary issue related to its processes for depositing employee withholdings for 401(k) retirement plan?  If so, what is the issue?

Company A does indeed have a fiduciary issue! Based on the trends identified by the auditor, Company They has demonstrated the ability to deposit the employee elective deferrals within two business days.  Based on this observation, any time frame in excess of the two business day window, could be deemed by an outside party to be unreasonable. Company A would be well served to put a process in place to remit employee retirement plan withholdings to the custodian, on behalf of the participant as soon as reasonably possible. For any withholdings, for which Company A does not timely make the deposit on behalf of the employee within a reasonable timeframe, lost earnings for the participant should be calculated and deposited on behalf of the participant into their 401(k) account. To close the loop, plan management would be well served to consult with qualified legal counsel on whether excise tax returns should be filed.