What are the required guidelines for contributions?
The information detailed below is provided to help you better understand your obligations regarding the timely remittance of retirement plan contributions. It is our desire to assist you as you guide and direct your retirement plan to meet the required guidelines.
Plan Sponsors and Plan Administrators of 401(k) and 403(b) retirement plans are required to submit retirement plan contributions to the retirement plan provider in a timely fashion. The contributions cannot be commingled with other company assets and "sat on". These required contribution timelines are addressed by both the Internal Revenue Service (IRS) and the Department of Labor (DOL) and are frequently referred to as Funding Requirements.
In recent years, both the IRS and DOL have identified serious non-compliance issues with regards to the timeliness of retirement plan contribution submissions. According to the DOL, nearly 90% of the applications submitted through its Voluntary Fiduciary Correction Program (VFCP) involve delinquent employee contribution violations.
There is one set of funding requirements for ERISA plans. There is a second set of funding requirements for non-ERISA plans.
If you are not sure if your retirement plan is subject to ERISA, check your Plan Document. As a general rule:
- ERISA Plans are 403(b)(7) Non-Church Plans with employer contributions. All 401(k) plans are subject to ERISA. These plans are required to carry an ERISA Fidelity Bond.
- Non-ERISA Plans are 403(b)(9) Church Plans that have not affirmatively elected to be covered by ERISA. (Few church plans self-elect to be covered by ERISA.) Non-ERISA Plans also include 403(b)(7) Non-Church Plans that do not include employer contributions and have "limited employer involvement" as defined by the Internal Revenue Code. Non-ERISA plans are not required to carry an ERISA Fidelity Bond.
Under ERISA, employee salary reduction contributions must be deposited into the plan "as soon as they can reasonably be segregated from the general assets of the employer, but no later than the 15th business day of the month following the month in which they were withheld." In the event of a retirement plan audit, the Plan Sponsor must demonstrate that the deposit was made "as soon as the contributions could reasonably be segregated from the general assets of the employer." In many cases, this submission date will fall well before the 15thbusiness day of the month following the month in which the salary reduction contributions were withheld.
With this in mind, the Department of Labor has released a "Safe Harbor" ruling for retirement plans with fewer than 100 participants. If a retirement plan with fewer than 100 participants utilizes this safe harbor contribution timeline, the Plan Sponsor will not need to demonstrate that the deposit was made "as soon as the assets could be segregated from the general assets of the employer."
Under the safe harbor ruling, a plan with fewer than 100 participants is deemed to satisfy the funding requirement if "employee contributions and/or loan repayments are deposited with the provider not later than the seventh (7th) business day following the date that the employee would have otherwise received the cash" (i.e. pay date).
ERISA Plan Sponsors are encouraged to follow this safe harbor funding requirement. Submit your contributions by the 7th business day following the pay date.
Sponsors of non-ERISA retirement plans are subject to the Funding Requirements as outlined in the 403(b) regulations. Such employers are required to transmit participant's contributions to the provider "as soon as the funds were segregated from the employer's other assets. They, however, have to deposit the funds no later than the 15th business day of the month following the month in which contributions are received or withheld by the employer."
Stated otherwise, the retirement plan elective deferral contributions need to be deposited into the Plan as soon as is administratively possible, but in no case later than the 15th of the month following the month in which the contributions were withheld.
There are no Form 5500 filing requirements for non-ERISA plans. Nonetheless, in the event of an IRS audit of the retirement plan, documented funding history will be examined for compliance.
Click here to download a PDF of the Federal Register providing complete details on this topic.
For any questions related to plan contribution funding requirements, please contact our Third Party Administration Service Department at (888) 879-1376 or email PlanSponsor@envoyfinancial.com.