Blue Ridge ESOP Associates Industry News

September 2018 - IRS/DOL Corner

Posted by Dolores P. Lawrence, CPA, QKA

Sep 7, 2018 2:00:00 PM

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Late Salary Deferral Deposits

Sponsors of 401(k) plans know the general rules for deposit of salary deferrals – “on the earliest date that they can be reasonably segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the contribution was withheld.”  However, DOL has clearly said the 15th business day is in no way intended to be a safe harbor.  For plans under investigation, DOL will look at a plan sponsor’s deposit history, payroll frequency, and FICA withholding history, among other factors, to determine if there were late deposits.  In some cases, the DOL will find a deposit to be late if made just a few days after the end of a pay period.  

There is a safe harbor rule for plans with fewer than 100 participants.  Under that rule, contributions are considered to have been deposited timely if the deposit is made within 7 business days after they are withheld from pay. 

However, even plan sponsors with the best intentions will occasionally have a late deposit.  Many plan sponsors will informally correct the late deposit violation by making the deposit to the plan together with lost earnings and filing a Form 5330 excise tax return.  If the excise tax is insignificant in amount, this approach is often preferred over its alternative, a filing under the DOL’s Voluntary Fiduciary Correction Program (VFCP).  However, some plan sponsors have received letters from DOL regarding the late deposits and corrections and then wondered if a VFCP filing was required.  The filing is not required, but a response to the letter should be made to clarify that late deposits were made, lost earnings restored to the plan and the applicable excise tax paid.

Lost Participants

Plan sponsors may have noticed a flurry of recent articles on unlocatable participants, and that includes articles that Blue Ridge ESOP Associates has published.  While another article might seem like overkill, it bears mention again, as DOL has made the missing participant issue a 2018 priority.  There are reports that some DOL regional offices have taken an aggressive approach in defining the steps that a plan sponsor should take in searching for missing participants, and the suggested steps have not always been consistent.  Some may suggest checking social media, talking to beneficiaries or to those who previously worked with the missing employee, using search services, checking related plan or company records, etc. 

There is proposed Congressional legislation to address the issue – the Retirement Savings Lost and Found Act.  However, the bill is moving slowly.  In the meantime, we suggest that plan sponsors consider how they would answer the following question from a DOL investigator:  What steps have you taken to locate lost participants?