Company delay in 401k contributions - any recourse?

I would be surprised if you get any of the 5%. However, contacting them would be a great idea. It is good for them to know that someone is watching.

When I started my first job out of college, I worked for a very small company. After I signed up for my 401-K plan and saw money coming out of my check for a while, I tried to check on my balance and such. When I called the 401-K 800 number and spoke with a rep, they said they hadn't received any "deposits" from my company in at least two months.

I immediatly let the owner know, thinking that a mistake had been made by the 401-K folks, but based on the strange response I got, it was obvious that our company was floating the money to keep things going or just really unorganized and lazy about sending in the money.

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A company has seven business days to deposit the funds once they withhold them from your check if they are mailing in the contributions. If they are sending the funds electronically then they want them deposited in three business days.

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I don't think that is correct.

My company makes submissions monthly and I have been told they have 15 days from the end of the month to remit the funds. They make contributions electronically. I have seen the file that is required with the submission and the amount of data that goes in is extensive.

7 days doesn't sound reasonable at all.


ETA: I looked it up.

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For example, if your plan provides for salary reductions from employees’ paychecks for contribution to the plan, then these contributions must be timely deposited. The law states that this must be accomplished as soon as it is reasonably possible to do so, but no later than the 15th business day of the month following the payday. If you can reasonably make the
deposits in a shorter time frame, you need to make the deposits at that time.

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IRS website

There is a difference between the written law and the pratices that the DOL allows. They have have since ruled differently on the operation of plans as the DOL and not the IRS is mostly responsible for "policing" qualified plans. They do give larger employers more time but industry wide everyone looks at 3-7 days as the target.

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In separate DOL investigations completed in 2005, the DOL took the position that plan sponsors had the ability to remit employee contributions to the plan within 7 (small plans) to 14 (large plans) days of the payroll date. The IRS lists late deposits as the first of the top ten 401(k) compliance issues on their website LINK and has indicated the employee contributions can be segregated within a day or two of the date the employee's paycheck is issued. In many cases, amounts can be segregated on the same day. Clearly there is no current support for the 15-day limit. The DOL has taken the position that remittances made to the plan later than these time frames failed to comply with DOL regulations and that these untimely deposits of employee contributions to the plan and the retention thereof violated Employee Retirement Income Security Act (ERISA) guidelines. ERISA requires the DOL to assess a civil penalty against a fiduciary that causes the late deposit of 401(k) elective deferral contributions. The penalty under ERISA is equal to 20% of the "applicable recovery amount", meaning the late deposit plus earnings.

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LINK

Since this 2005 ruling they have also indicated that if you are remitting funds electronically you should be able to send in the funds within three business days (the final rule on this is pending but this is the accepted industry practice). Basically they look at the operational ability of the plan and if you have the ability to submit the funds within a short time period then that is what they are going to require you do.

Here is the same info from the DOL.

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In addition, for some functions, there are specific rules that help guide the fiduciary. For example, the deductions from employees’ paychecks for contribution to the plan must be deposited with the plan as soon as reasonably possible, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you need to make the deposits at that time. For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

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LINK

I depends on the plans rules & vesting rules as well. Was the issue remitting your contribution that was withdrawn from your check or their match?

I used to work for a firm that matched 100% of 6% but only after 6 years of service. They match 33% after 2 years of service; another 33% at 4 years and then the last 34% at year 6. Additionally, they only paid their match for the prior fiscal year on the first Friday of the May of year, so for example they would pay all 2011 employee matches the first Friday in May 2012.

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The law states that this must be accomplished as soon as it is reasonably possible to do so, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you need to make the deposits at that time.

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Because the law states as soon as it is reasonably possible. This leaves the governing agency in charge of deciding what that is. Since the law was written before computers and commonplace electronic transfers they hold to the intent portion of the statement not the absolute date.

Kind of like how the IRS issues private letter rulings on grey areas.

The size of the company matters but again it is what they are going to consider reasonable. If a large company has done it in three days in the past they will be judged on that time span in the future. Has to do with the capability of the company more than anything else.

It's hard to say much without knowing much about the company you work for, but it would raise some red flags with me. That's quite a long time to have "forgotten" to transfer money.

Payroll Fraud, simply put.

They will owe you some additional money on your withheld portion to make up for the lost earnings, but I don't believe that applies to the matching portion. They can wait until the end of the year and pay the match all at once if they choose.