On January 14, 2010, the Department of Labor (DOL) published final rules relating to the safe harbor 401(k) deposit rules. The final rules were issued to protect employee contributions deposited to small pension and welfare benefit plans with fewer than 100 participants by providing a safe harbor period of seven business days following receipt of withholding by employers. The purpose of this rule is to give employers greater clarity in remitting participant contributions.
When an employer withholds employee contributions (including 401(k) contributions, Roth 401(k) contributions, and loan payments) from an employee’s pay, the monies must be segregated from the employers assets and deposited into the plan.
Old rules regarding the timing of how long this process can take were:
Employers are required to deposit employee contributions that are withheld from an employee’s pay to the retirement plan as soon as administratively feasible, but no later than the 15th business day of the following month.
New, current rules regarding the time of how long this process can take are:
Employers are required to deposit employees contributions that are withheld from an employee’s pay to the retirement plan as soon as administratively feasible, or by 7 business days of the date they were withheld in order to be deposited timely.
Note that under the safe harbor deposit rules, contributions are considered timely if deposited within 7 business days even if it is administratively feasible for the employer to deposit the contributions more quickly.
If you have been depositing employee contributions by the 15th business day of the following month, please review the deposit process. Determine if you can satisfy the 7 business day time frame. If you can not, determine how long administratively feasible is for your company and note the process. Then begin depositing employee contributions withheld from an employee’s pay as soon as administratively feasible, or by the 7th business day following the date the monies were withheld from the employee’s pay.
Note if your payrolls are frequent, such as weekly or biweekly, it is not considered timely to hold employee contributions and make one deposit for multiple payrolls. Deposit each payroll as soon as administratively feasible or by the 7th business day following the date the monies were withheld from the employee’s pay.
If you have questions about the safe harbor deposit rules contact Administrative Retirement Services, Inc.