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The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) is committed to protecting employee contributions to 401(k) and other defined contribution plans. As part of this commitment, they want to ensure that employee elective deferrals and loan payments are deposited to the plan’s trust account in a timely manner and have provided employers a guideline for the deposit timing.
Department of Labor rules on the timing of plan contributions depend on the type of contribution. The rules require that employee elective deferrals are deposited to the trust as soon as they can be segregated from employer assets. But in no case, later than the 15th business day of the month immediately following the month in which the contribution was withheld. The Department created a safe harbor rule for small plans (with fewer than 100 participants) under which deposits of employee deferrals will be deemed to be in compliance if made within seven business days of withholding or receipt. Deposits of participant loan payments follow the same rules as for employee deferrals.
Rules about the timing of matching and other employer contributions are different. In order to obtain a tax deduction, matching contributions may be made at the time of the elective deferral or later, but no later than the filing deadline of the employer’s income tax return, including extensions. Other non-matching employer contributions must be deposited by the employer’s tax filing deadline, including extensions.
Review your plan document for the timing of your plan’s contribution and contact your Plan Consultant if you have any questions.