How quickly should 401(k) deposits be remitted?

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As the payroll processor at our company, how quickly do I need to deposit 401(k) contributions into employee accounts?

Sincerely, Payroll Pam

Dear Payroll Pam,

Any employer that deducts retirement plan contributions from employee paychecks must deposit this money as soon as possible, and in no event can the deposit be later than the 15th day of the following month. However, delaying until the 15th of the following month may prompt an undesirable Department of Labor (DOL) investigation.

On January 13, 2010, the DOL issued a final ruling for employers with fewer than 100 employees. The ruling stated that plans that deposited retirement plan contributions within seven business days are deemed to be in full compliance. Larger employers with more complex payroll systems do not have an explicit guideline.

Best practices are to set up a regular ongoing procedure to remit 401(k) contributions as close to the pay date as possible. Cutting checks immediately is most important for those who use snail mail to deposit payments with the plan custodian. Those who deposit these funds electronically will have a little more time.

The DOL justified this new time limit to give participants the benefit of as much interest as possible. Phyllis C. Borzi, assistant secretary of labor for the department’s Employee Benefits Security Administration, said, “We estimate participant accounts could grow by $19 to $44 million as a result of these rules.”

The rules regarding the deposits of matching contributions are more flexible because some plans deposit this amount every pay period and other deposit just once a year. Generally, employer contributions must be made within the tax-filing period for the calendar year in question. So an employer would have until at least April 15 of any given year to make the contribution for the previous year (or possibly longer, if the employer files for an extension).

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Matthew Illian was a Wealth Manager at Marotta Wealth Management from 2007 to 2016. He specialized in small business consulting, college planning, and retirement plans.