Timely Remittance: A Few Days Late, A Lot at Stake

Every payroll cycle, retirement plan sponsors carry a quiet but consequential responsibility: making sure the retirement contributions withheld from employee paychecks are deposited into the plan without delay. Employees trust their employer to handle their money faithfully once it’s withheld, and every day it sits undeposited is a day it isn’t saved, isn’t invested, and isn’t building toward their future. Even though the tasks are likely handled by third parties, the Department of Labor considers timely remittance a fiduciary responsibility of sponsors. Clarity on “timeliness,” and vigilance is necessary, payroll after payroll, month after month.

What Is Timely?

Once an employer withholds a deferral from an employee’s paycheck, that money must be segregated from the company’s general assets and deposited into the plan’s trust as soon as it’s reasonably possible to do so. In practice, most sponsors don’t run this process themselves. Payroll providers, recordkeepers, and third-party administrators typically handle the mechanics of withholding, transmitting, and depositing contributions. That division of labor is normal, but it doesn’t shift the underlying responsibility. The DOL is clear that a plan sponsor cannot outsource fiduciary duty along with the task. If a service provider’s file transfer fails, a payroll system glitches, or a deposit simply gets delayed, the obligation to catch it and fix it still sits with the sponsor. 

Monitoring the process, not just delegating it, is a plan sponsor obligation, so it is imperative to understand exactly what the Department of Labor says about timely remittance, which is this: 

The law provides a definition of what is timely.  It requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. However, it is very important to note, that if employers can reasonably make the deposits sooner, they are required to do so. For example:

• An employer has a biweekly payroll and can reconcile and forward the contributions by the 5th business day after payroll. 

• In order to meet the requirements of the law, the employer must deposit employee contributions by the 5th business day after payroll.

• It would not be timely if the deposits were made on the 15th business day of the next month.

While it is helpful to know that plans with fewer than 100 participants get a seven-business-day safe harbor, if a sponsor’s payroll process allows for a faster turnaround, the DOL expects the deposit to happen that fast, and not take as long as the rule technically permits. CPAs at Hawkins Ash underscore that the DOL takes “as soon as possible” seriously, and reminds us that even if the person who regularly handles the associated tasks is absent, there should be no delays with timely remittance:

Amounts withheld from employees are their assets and should be invested and working for their benefit right away.  In the same way that employee deferral contributions should be working for participants right away, loan repayments should be treated with the same urgency.  Loan repayments are participant assets and should be transmitted promptly into the plan to allow for timely reinvestment.  Both are participant funds that should be deposited and working as quickly as administratively feasible….

Plan sponsors are also wise to understand that for the DOL, a late deposit isn’t just a missed deadline. Once money is withheld but not yet deposited, it’s treated as a plan asset improperly held outside the trust, which makes it a prohibited transaction under ERISA, a fiduciary breach with real consequences, not a technicality that quietly resolves itself. Specific pointers about timely remittance from Hawkins Ash include: 

• Once a plan sponsor establishes a time frame of what it looks like to separate the deferrals from the employer’s general assets and remit deposits, that is what the DOL is expecting.  This is what is considered administratively feasible and is based on the individual employers’ actual operational capabilities….
• Often this timeframe is one to three business days and is supported by the documented processes and internal controls put in place.  
• …If you were to talk to the DOL, you would need to defend why your remittances take the amount of time they do.  This means maintaining the shortest and most consistent remittance time is what the operations of the plan should allow for.  
• If you establish that you can remit deposits the day after the payroll occurs, that is what the DOL will be anticipating you to do going forward….

Good To Know: Number 8 on The IRS List of Mistakes…

The IRS acknowledges that mistakes are a reality, and lists “late deposit” eighth on a list of twelve common errors. Among IRS resources for addressing these oversights is the 401k plan fix it guide, which provides actions to take in the event any of these errors occur:

1. Plan document not updated
2. Failure to follow plan terms
3. Incorrect definition of compensation
4. Employer matching contributions missed
5. Failed ADP/ACP nondiscrimination tests
6. Exclusion of eligible employees
7. Excess elective deferrals
8. Late deposit of deferrals
9. Participant loan errors
10. Improper hardship distributions
11. Top-heavy plan minimums missed
12. Delinquent Form 5500

At the Department of Labor the Voluntary Fiduciary Correction Program “is

 a helpful resource for employers and plan officials to voluntarily correct violations of the Employee Retirement Income Security Act (ERISA).” As the DOL explains:

The Voluntary Fiduciary Correction Program (VFCP) is a voluntary enforcement program that allows plan officials to identify and fully correct certain transactions such as prohibited purchases, sales, and exchanges; improper loans; delinquent participant contributions; and improper plan expenses. The program includes 19 specific transactions and their acceptable means of correction, eligibility requirements, and application procedures. If an eligible party documents the acceptable correction of a specified transaction, EBSA will issue a no-action letter. 

Mistakes are indeed part of life, and that’s why the retirement plans (and sponsors) that succeed are those that treat governance, documentation, and monitoring as a continuous habit. That, paired with the right coverages, is what actually protects a plan sponsor when letters of inquiry arrive from regulators, plan participants complain, or plaintiff attorneys come knocking. Uniquely, Colonial Surety Company offers an affordable and efficient ERISA Bundle that combines three essential protections in one seamless package for retirement plan sponsors:

• ERISA Fidelity Bond — Fulfills your federal mandate to protect plan assets from fraud and dishonesty
• Fiduciary Liability Insurance — Provides up to $1,000,000 in coverage for legal defense costs and penalties arising from fiduciary errors, administrative oversights, and participant claims
• Complimentary $50,000 Cyber Liability Insurance — Protects your plan and company against regulatory actions following a data breach, addressing the DOL’s cybersecurity guidance directly by including expert response services.

Don’t wait for a participant complaint, DOL inquiry, or cyber threat to find out what you’re missing. 

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