Timing of Retirement Plan Contributions

Timing of Retirement Plan Contributions

Timing Contributions

The Department of Labor has established requirements about the timing of depositing employee contributions — including employee deferrals, after-tax contributions and payroll-deducted participant loan repayments — into a qualified retirement plan trust. These requirements ensure that funds get invested in the plan quickly rather than remaining in the employer’s general funds.

The DOL regulations apply to plans that are subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA). Most profit sharing, money purchase, 401(k) and 403(b) plans are subject to Title I. Governmental 457(b) plans and church plans that have not elected to be subject to the minimum eligibility and vesting requirement of ERISA and the Internal Revenue Code are exempt from Title I of ERISA.

Employee Contribution Timing

Small retirement plans (plans with fewer than 100 participants* at the beginning of the plan year) must follow DOL regulations that contain a safe harbor period for remitting employee contributions and loan repayments.  Under this safe harbor period, amounts must be deposited to the plan within seven business days after they were received or withheld by the employer.

Large retirement plans (plans with 100 or more participants* at the beginning of the plan year) must transmit employee contributions and loan repayments to retirement plans as soon as they can reasonably be segregated from the employer’s general assets. As a general rule, you should follow the same time frame for remitting employee contributions that you have established for remitting payroll taxes. For most large employers, remittance should occur no later than three business days; however, if you have demonstrated submission of employee contributions within a shorter period of time than three business days, you should remit employee contributions as quickly as you have done in the past. 

Employer Contribution Timing

If you contribute to your employees’ retirement plans, you may remit your contribution by whatever date you determine. However, if your plan makes a safe harbor matching contribution with a match computation period shorter than the plan year, then the IRS safe harbor regulations require that the contribution be made by the end of the quarter following the quarter for which the match is being made.

In some cases you could make an employer contribution after the close of the plan year. If this happens, remember to designate the plan year for which the contribution is being made.

Failure to Comply

If employee contributions and loan repayments are not remitted timely, the employer is treated as having engaged in a prohibited transaction with respect to the late remittances, resulting in an excise tax being owed. The employer also will be responsible for investment losses resulting from the late deposit.

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