The problem with late deferrals

While working as an ERISA attorney with a national practice (cough, cough), it’s clear to me that the biggest compliance issue that my plan sponsors clients have these days is the late deposit of deferrals.

I remember the good old days when the Department of Labor (DOL) was kind of mum on this issue and we all assumed that plan sponsors had the 15th day of the following month to get the deferrals from payroll into the 401(k) plan. Then in its infinite wisdom, the DOL said that really wasn’t the guidance because plan sponsors should be able to deposit of deferrals by the next payroll. When the world is shaped by ACH transfers, this wasn’t surprising. What was surprising is how lazy many plan sponsors really were in depositing deferrals into the plan.

In terms of plan errors, it’s not the end of the world if it’s done quickly, but when it’s a question on the Form 5500 if you made deposits late as a plan sponsor, you know this is something the DOL is quite interested in. Thankfully, the DOL has a voluntary fiduciary compliance program that makes it fairly easy for plan sponsors to com clean about late deferrals and show the DOL how they corrected the error.

I suggest that any plan sponsor that didn’t get the deferrals in by the next payroll (they know who they are), should contact ERISA counsel to fix the error.

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