Delinquent Participant Contributions in Employee Benefit Plans

Sand running through the shape of hourglass oOctober 9, 2019 – As a general rule, Department of Labor (DOL) regulations specify that salary deferrals and loan repayments withheld from employee paychecks should be remitted to contributory employee benefit plans as of the earliest date on which such contributions can reasonably be segregated from the plan sponsor’s general assets. While the regulations further state that in no event shall the deferrals be remitted later than the 15th business day of the month following the month in which the deferrals were withheld, it is important to note that the 15th business day rule does not represent a “safe harbor”. The DOL expects that plan sponsors should be able to remit amounts withheld from employee paychecks to the plan on a payroll date frequency rather than a monthly frequency, and has repeatedly shown in its enforcement actions that it expects 1) the amount of time necessary to remit amounts withheld to be consistent from pay period to pay period and 2) the amount of time necessary to remit amounts withheld to be consistent with the amount of time necessary to remit income tax withholdings to the IRS.   Failure to remit participant withholds to the plan in a timely fashion can result in fines and penalties in the event that the Plan is examined by the DOL.

In an effort to avoid late contributions, it is recommended that plan sponsors implement preventative processes, which may include:

  • Establishing a procedure that requires participant contributions to be deposited coincident with each payroll date on a consistent basis;
  • Training a backup employee to cover for vacations or unexpected disruptions in the process;
  • Coordinating with their payroll provider to determine the earliest date they can submit deferral deposits; and
  • Establishing a log of remittances including payroll dates and dates received by the plan. Log descriptions should include an explanation of why deposits are late and have the log reviewed by senior management to facilitate continuous improvement.

Late contributions continue to be one of the most prevalent prohibited transactions.  As a result, the Employee Benefits Security Administration (EBSA) has designed the Voluntary Fiduciary Correction Program (VFCP) to assist plan sponsors in voluntarily correcting Employee Retirement Income Security Act of 1974 (ERISA) violations, which include delinquent participant contributions.  Plan Sponsors can submit an application to EBSA demonstrating self-correction of the delinquent contributions, which may require corrective action including:

  • Determining which deposits were late and calculating the related lost earnings;
  • Depositing of the missed deferrals including lost earnings;
  • An analysis of procedures and correction of the deficiency that facilitated the late deposit; and
  • An attachment to the Form 5500 showing late deposits.

When the plan sponsor makes corrections under the VFCP the plan sponsor will receive a no action letter upon satisfactorily correcting the violation submitted in the application.  As a result, participation in the VFCP allows the plan sponsor to avoid civil enforcement action, legal action and civil penalty.

This article is an excerpt from Dopkins Employee Benefits Newsletter.  To read the complete content, please click here.

For more information, please contact William Craven at wcraven@dopkins.com.

About the Author

William C. Craven CPA

Bill is part of the Assurance Services Department and helps provide management with financial information by researching and analyzing accounts and preparing financial statements.

Join Our Team

Whether you are evaluating career opportunities as an accountant, business consultant or IT professional, you'll want to know what differentiates Dopkins & Company from all the competition. Learn more today.

Careers