This article discusses the deadlines for depositing participant contributions in a 401(k) plan’s trust or custodial account and the process for correcting any late deposits.
In last month’s 401(k) Compliance Check, we discussed the importance of ensuring your 401(k) plan’s designated decision-makers are actually authorized to make plan decisions. In this month’s Compliance Check, we look at another critical issue for employers – the need to deposit participant contributions in the plan’s trust or custodial account in a timely manner, and what to do when they aren’t.
As the sponsor of a 401(k) plan, you have a fiduciary responsibility to timely deposit participant contributions in your plan’s trust or custodial account. Failing to do so is a fiduciary violation,1 and constitutes a “prohibited transaction"2 that will likely subject you to an excise tax. Depositing participant contributions with your 401(k) plan on time avoids those headaches.
What’s the “general” rule for depositing participant contributions? Under Department of Labor (DOL) guidance, a 401(k) plan participant’s elective deferrals and plan loan repayments (collectively, participant contributions) constitute plan assets. As a result, a plan sponsor must forward those participant contributions to the plan’s trust or custodial account by the earlier of:
The earliest date the plan sponsor can reasonably segregate participant...
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