Effective February 3, 1997, plan sponsors are required to make timely deposits of employee 401(k) contributions paid by a participant to an employer or withheld by an employer. The deposit must be made by the earliest date from which these contributions can reasonably be segregated from the employer’s general assets. However, the deposit must be made no later than the 15th day of the month following the month in which participant contributions are made or withheld.

The plan sponsor may obtain an extension to deposit for an additional ten business days in a single month. The plan sponsor must provide true and accurate written notice to plan participants within five business days after the end of the extension period stating:
     > that the employer elected to take such extension for that month;
     > that the affected contributions have been transmitted to the plan;
     > most importantly, the reason why the employer cannot reasonably segregate the participant contributions within the required time period.

Prior to such extension, the sponsor must obtain a performance bond or irrevocable letter of Credit in the amount of the participant contributions. Within five business days after the end of such extension period, the plan sponsor must provide a copy of the notice to the Secretary of the Department of Labor. A letter certifying that such notice was provided to participants and that the bond or letter of credit was obtained must be included. 

Federal Form 5500 asks “were any participant contributions transmitted to the plan more than 31 days after receipt or withholding by the employer?” Note that this form is signed by plan sponsors under penalties of perjury, which lists a penalty of up to $10,000, five years imprisonment or both for making false statements or representations of fact. 

On August 16, 1999 the Department of Labor filed two separate lawsuits alleging that tax code Section 401(k) plan officials violated the Employee Retirement Income Security Act by failing to make timely deposits of employee contributions to the plans.  In both suits, the DOL is seeking an order that the defendants repay the plans with interest.

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