DOL enforcing timely deposit

ALERT: Aggressive DOL enforcement emphasizes need for timely deposit of employees’ retirement plan contributions

December 15, 2015

DOL is cracking down on employers who are late depositing employee earmarked funds withheld from their paychecks into their retirement plan.

When employees earmark funds to be withheld from their paychecks for deposit into their employer’s retirement plan, that employer has a legal and regulatory responsibility to move the funds into the retirement plan within a specific timeframe. ERISA law and the US Department of Labor (DOL) specify the plan sponsor’s deadlines to do so – and employers should note that DOL is backing up its directives with enforcement as well. The need for timeliness in depositing the funds applies to both plan contributions and loan repayments.

What if I'm late paying?

Plan sponsors who don’t meet the DOL’s timeliness criteria could face both financial penalties and criminal charges, including embezzlement. Although every plan likely has the occasional unintentional delay, employers can and should correct and document missed payments to demonstrate their intent to comply as well as to help mitigate any resulting penalties if the delay is discovered.

According to the DOL, plan contributions and loan repayments must be paid to the plan “as soon as reasonably possible” following the date that it is withheld from employees’ pay. At the latest, the contribution must be paid by the 15th day of the month following the date that it would have otherwise been paid over to the employee. In recent years, the DOL has taken the position that rule is not applicable in most cases, and allows too much time; they believe most employers should be able to make plan payments in 5 to 7 days. (Small plans with fewer than 100 participants can use a 7th business day safe harbor provision.)

In a 2011 court case, an employer’s owners were found guilty of failing to contribute more than $100,000 of employee deferrals over several years. Despite the defendants’ argument that they did so to keep the company in business (the funds were used for general company expenses), the court sentenced them to two years of probation, a $20,000 fine, and 240 hours of community service. This is just one example of the actions the DOL will take to pursue cases where employers have failed in their fiduciary responsibility to contribute plan deferrals in a timely manner.

Questions?

If you have any questions regarding your organization’s 401(k) plan, please contact Brad Bechtel using his contact information below.

Brad Bechtel

Senior Vice President
Employee Benefit Services

Brad Bechtel leads AGH’s employee benefit services (EBS) division, which serves clients nationwide. EBS is one of the region's largest providers of retirement plan recordkeeping services for daily valuation plans. The division provides consulting services to clients on employee benefit plans including plan design, implementation, operation, fiduciary due diligence, compliance, and through affiliate AGH Wealth Management, discretionary and non-discretionary investment fiduciary services, investment advisory services and employee education.

Bechtel is experienced in executive compensation, including non-qualified, phantom stock, top hat, and excess benefit plans as well as other deferred compensation approaches. He has consulted for numerous Fortune 500 corporations on investment management and fiduciary due diligence. He also provides search and selection due diligence consulting services for companies seeking new investment and recordkeeping providers for their qualified plans. Bechtel is a registered investment advisor who holds Series 7, 24, and 66 FINRA registrations, and he is a member of the American Society of Pension Professionals & Actuaries.

Information in this document has been obtained by Allen, Gibbs & Houlik, L.C. from sources believed to be reliable. However, AGH does not guarantee the accuracy nor completeness of any information. This communication does not and is not intended to provide legal, accounting or other professional advice or opinions on specific facts or matters, and accordingly, AGH assumes no liability whatsoever in connection with its use. Nothing in this communication can be used to avoid penalties that may be imposed by a governmental taxing authority or agency.

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