401(k) Deposit Rules & Bonus Elections

Wednesday, June 21, 2017

401(k) Deposit Rules

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 employer's assets and deposited into the plan.

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 after 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.

For larger plans (100 participants or more), the determination of whether the deposit was timely is based on the individual employer's facts and circumstances. In many cases contributions deposited within 2 business days after the date they were withheld would be considered timely.

Bonus Elections

401(k) contributions must be withheld from a participant's bonus compensation, unless otherwise indicated in the plan document. The other options are to have a special election each year for bonuses where each participant can decide whether to have 401(k) contributions withheld from their bonus, or to have bonuses not be subject to 401(k) contributions.

If you have any questions, please do not hesitate to contact your ARS Plan Administrator