 NEWSLETTERS Volume 2, Issue 2 .................... April 2001 Why it’s important to make timely deposits of your For Example We should also mention that it is considered a breach of fiduciary duty. Any fiduciary who engaged in a prohibited transaction is personally libel for any loses to the plan and must restore to the plan any profit made by the fiduciary through the use of the plan assets. A prohibited transaction can be corrected by undoing the transaction to the extent possible. But in any event, by placing the plan in a position no worse than the position it would have been in had the party acted under the highest fiduciary standards. For any gains that would have been to the individual account, the plan must also pay the individual the profit. The above example went into effect February 3, 1997, which states that 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 business 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. The written notice must state the following:
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 "Did the employer fail to transmit to the plan any participant contributions within the maximum time period described in 29 CFR 2510.3-102?" which refers to the time period above. 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 misrepresentations of fact. On August 16, 1999, the Department of Labor filed two separate law-suits 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. At Administrative Retirement Services, Inc., we cannot stress enough the importance of making these deposits during the correct time frame. Should the plan's benefits do well in a month, this could be a very costly error, taking the 15% penalty into consideration as well as the repayment of any monies which should have been earned during that time. Should you have any questions, please give us a call at 630-469-2030 and we’ll be happy to assist you. © Administrative Retirement Services, Inc. 2000
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