Current Thinking

Depositing Plan Contributions Timely

Does your company sponsor a 401(k) plan? If it does, you know how important it is to comply with the many government regulations that affect your plan. One area that often causes confusion among plan sponsors is the “deadline” for depositing employee contributions into the plan’s trust account.

General rule. Federal pension regulations basically provide that employee contributions become plan assets as of the earliest date on which the contributions can reasonably be segregated from the employer’s general assets. Since this earliest date standard does not set a clear-cut deadline, employers have had to make their own determination of what is reasonable and hope that it won’t be challenged if government auditors examine the plan.

Cost of noncompliance. Not getting it right can prove costly. Failure to timely deposit contributions is considered a prohibited transaction and may result in significant penalties, including possible loss of the plan’s tax-qualified status.

Seven-day safe harbor. Employers that sponsor small plans (those with fewer than 100 participants) can avoid potential problems by satisfying a seven-day safe harbor rule. Under the safe harbor provision, employers that deposit employee contributions in a plan account within seven business days after the contributions are withheld from employees’ wages or received by the employer will automatically satisfy the law’s requirements. Allocations to specific participant accounts and investments do not have to be completed within the seven-day window, as long as the contributions have been deposited into the plan’s trust account. A similar seven-day safe harbor is available for deposits of plan loan repayments.

Note that sponsors of large plans — 100 participants or more — must continue to deposit contributions as of the earliest date the contributions can reasonably be segregated from the employer’s general assets.


FOR PLAN SPONSOR USE ONLY.  This material is provided solely for informational purposes and does not constitute investment, tax, legal or accounting advice on the matters addressed. Neither Pentegra Services, Inc., its subsidiaries, nor any of their respective employees intend that this material should be relied on as investment, tax, legal or accounting advice, which should be sought from a professional advisor. Performance information shown, if any, reflects past performance and does not indicate or guarantee future investment results. ©2018 Pentegra Retirement Services

About the Author

Chuck Coldwell

Chuck Coldwell is Vice President – National Director, Consulting and BOLI Services at Pentegra. He oversees Pentegra’s retirement services consulting, marketing and communications business development practice areas. In these roles, he works closely with Pentegra’s teams to develop strategic initiatives designed to enrich the client and participant experience and meet the ongoing needs of clients. He also leads Pentegra’s BOLI business development efforts, working with clients to design customized strategies for benefit financing using BOLI. A Qualified Pension Administrator (QPA), he holds a B.A. in Economics and Psychology.