{"id":31453,"date":"2016-03-31T19:21:32","date_gmt":"2016-04-01T00:21:32","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/new-deadline-to-deposit-401-k-contributions.html"},"modified":"2017-11-07T10:47:58","modified_gmt":"2017-11-07T15:47:58","slug":"new-deadline-to-deposit-401-k-contributions","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/business-operations\/new-deadline-to-deposit-401-k-contributions.html","title":{"rendered":"New Deadline to Deposit 401(k) Contributions"},"content":{"rendered":"
\n
\n

This article was edited and reviewed by FindLaw Attorney Writers<\/a><\/em><\/p>\n\n | Last reviewed\n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n\n

In an effort to stop companies’ misuse of their employees’ 401(k<\/a>) contributions, the Department of Labor<\/a> (the "DOL") issued a rule requiring companies to put into trust employee contributions no later than the 15th business day of the month immediately following the month in which the contributions<\/a> are received or would otherwise be available to the employees in cash. While the new outer limit dramatically shortens the old 90-day limit, it does not modify the general rule that employee contributions must be put into trust as soon as they can reasonably be segregated from the employer’s assets.<\/p>\n

Welfare Plans<\/b><\/p>\n

The rule does not modify the old 90-day outer limit that applies to employee contributions to welfare plans (e.g., deductions from wages for contributions to an insurance policy or for medical services). However, it does not affect the exception from ERISA<\/a>‘s trust and reporting rules that is available to certain welfare plans (e.g., cafeteria plans) under T.R. 92-01<\/a>.<\/p>\n

DOL Abandons Rule in Proposed Regulations<\/b><\/p>\n

The DOL’s proposed regulations would have keyed the maximum period to the same number of days as the period that an employer has to deposit withheld income and employment taxes under IRS<\/a> rules. Due to many objections, the DOL abandoned that rule.<\/p>\n

Service providers asserted that it would not be feasible for them to administer a rule that had a different maximum time period based on the size of the employer. Moreover, the consensus was that there are significant differences between processing of withheld incomes and employment taxes and processing contributions to pension plans. The deposit of contributions to pension plans requires a significant amount of work for both small and large employers (e.g., accounting and reconciling for investment changes and allocations).<\/p>\n

Limit is Set According to "Business Days"<\/b><\/p>\n

The DOL cast the new outer limit in terms of business days rather than calendar days. The DOL recognized the fact that Saturdays, Sundays and national legal holidays reduce the total number of days in which employers can make arrangements to put their employees’ contributions into trust.<\/p>\n

Permanent Extension Procedure<\/b><\/p>\n

An interesting feature of the rule is that it provides a procedure for employers to extend the maximum period for depositing a month’s worth of contributions. Under the procedure, an employer can obtain an additional 10 business days. The procedure is available to pension plans only. The procedure requires the following three steps:<\/p>\n

    \n
  1. The employer must obtain–prior to the beginning of the extension period–a performance bond or irrevocable letter of credit in favor of the plan guaranteed by a bank or similar institution that is supervised by the Federal government or a State government. The amount of the bond or letter of credit must not be less than the amount of the participant contributions received or withheld by the employer during the previous month. The bond or letter of credit must remain in effect for at least three months following the month in which the extension period expires.<\/li>\n
  2. The employer must provide a written notice to plan participants within 5 business days after the end of the extension period. The notice must:<\/li>\n