The U.S. Department of Labor (DOL) requires that an employer remit participant contributions to a 401(k) plan “on the earliest date on which such amounts can reasonably be 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 amounts were paid to or withheld by the employer.” Plans with fewer than 100 participants are permitted seven business days to complete the transaction, but large plans with 100 or more participants are held to the “as soon as reasonably possible” standard. The DOL will look at all deposits made for the plan year and, absent unusual circumstances will generally take the position that the quickest remittance is what is required for all remittances. Failing to comply with these requirements may trigger a prohibited transaction and carry significant penalties, including plan disqualification.
To alleviate the challenges that many plan sponsors are facing during the COVID-19 pandemic, the DOL’s Benefits Security Administration (EBSA) issued Disaster Relief Notice 2020-01 (Notice). The Notice includes relief measures in a variety of areas, including late participant remittances. Specifically, “The Department [DOL] recognizes that some employers and service providers may not be able to forward participant payments and withholdings to employee pension benefit plans within prescribed timeframes during the period beginning on March 1, 2020, and ending on the 60th day following the announced end of the National Emergency. In such instances, the Department will not—solely on the basis of a failure attributable to the COVID-19 outbreak—take enforcement action regarding a temporary delay in forwarding such payments or contributions to the plan. Employers and service providers must act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.”
To qualify for disaster relief, the late deposits must be attributed directly to the pandemic. In addition, the plan sponsor must document the cause of the delay, including specific dates and other details. Potential examples of COVID-19 events that might cause untimely deposits include furloughs of the employer’s payroll staff or staff shortages at the payroll provider.
As the work environment continues to change, a best practice is to document each event as it occurs (while still current), rather than waiting and attempting to later document the details when auditors and/or DOL officials ask for the information.
For more information about McKonly & Asbury’s Employee Benefit Plan services, or for questions regarding this article, please contact Stephanie Kramer, Manager with McKonly & Asbury, at firstname.lastname@example.org.