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A Plan Sponsor's Responsibility to Remit Employee Conrtibutions

Thank you to our guest blogger - Chris Martin, CPA, Sobel & Co. who has offered these ideas:

One of the most talked about “hot button” topics with the Department of Labor (“DOL”), as it relates to employee benefit plans (“EBP’s”) is how timely a plan sponsor remits their employees’ elective contributions to their benefit (401(k), 403(b), etc.) plan. 

Why is this so important? 

Think of it this way…an employee elects to defer a percentage of THEIR salary to THEIR respective benefit plan.  If an employer were to hold onto that money for a period beyond what is reasonable (see below), they are in essence creating a related party loan on the employee’s money.  Not only is this a prohibited transaction under IRS guidelines, it just is not a good business practice.  To be fair, the DOL’s rules for remitting employee contributions timely to a plan are not exactly clear.  They use the phrase, “earliest date on which the contributions can reasonably be segregated from corporate assets, but in no event later than the fifteenth business day of the month following the month in which the amounts were withheld from wages.”   If you are unfortunate enough to be under audit by the DOL, you will quickly learn that using the aforementioned 15 day rule, it could still land you in hot water. 

What’s the best option?

  • A best practice is to remit them when payroll is actually run, or when employee payroll tax liabilities are remitted to their respective agencies.  This is generally within two to three days of when employees physically receive their payroll, or sometimes even before. 

 

  • Another best practice is to be consistent with the number of days between pay date and remittance.  The DOL will look at the “track record” of the remittances.  For example, if you remit contributions one pay period in 1 day and others in 4 or 5 days, it could be argued that you reasonably could segregate the funds and remit all contributions in one day. 

Any questions? Chhris can be reached at christopher.martin@sobel-cpa.com or 973-994-9494.