The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in North Carolina is representative of a common question we receive regarding DOL investigations of retirement plans. The advisor asked:
“What is the leading retirement plan issue the DOL investigates?”
Highlights
• The perennial top concern of the Employee Benefits Security Administration (EBSA) division of the DOL is timeliness of employee salary deferral deposits.
• The deadline for depositing employee salary deferrals to a 401(k) depends on the size of the plan based on the number of participants.
• For a plan with 100 or more participants, the plan sponsor must deposit deferral as soon as they can reasonably be segregated from the employer’s assets, but not later than 15 business days following the month the deferrals are withheld from the participants’ pay. Keep in mind that the DOL emphasizes the “as soon as” part. If a plan has demonstrated it can deposit deferrals within three days, then that is the deadline.
• A plan with fewer than 100 participants has seven business days to remit the employee salary deferrals to the plan pursuant to safe harbor guidelines issued in 2010.
• If the plan sponsor takes more time than permitted to deposit employee salary deferrals, the DOL can take action against the plan sponsor.
• If a plan sponsor fails to meet the deferral deposit deadline, the DOL has a plan correction program available, the Voluntary Fiduciary Correction Program (VFCP).
• By following the VFCP guidelines and restoring the plan, participants and beneficiaries to the condition they would have been in had the breach not occurred, a plan sponsor can avoid DOL and potential IRS penalties.
• If the plan sponsor does not correct the deposit deadline failure and the DOL audits the plan, the plan sponsor will still be required to correct the failure, but may also be subject to fines and penalties.
Conclusion
Timeliness of participant contributions has and will continue to be the leading concern for the DOL. Financial advisors who are aware of the intricacies of the DOL’s deferral deposit deadline can help their plan sponsor clients avoid this fiduciary tripwire.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission.
