Mistakes in employee benefits and human resources can be quite costly to employers—in the form of extra benefits, complaints, lawsuits, government-assessed fines and penalties, and attorney fees, to name a few. Don’t learn the hard way what these mistakes are.
1. Not timely depositing employee contributions into qualified retirement plans.
Employers sometimes wait too long to deposit salary deferrals into a qualified retirement plan. According to the Department of Labor (DOL), such deposits should be made as soon as the contributions can be reasonably segregated from the employer’s general assets, but no later than the 15th business day of the following month. The 15th business day of the following month is an outside guideline, and deposits must be made sooner if possible. If deposits are not timely made, the DOL and Internal Revenue Service (IRS) may levy fines, penalties and retroactive earnings for late contributions. The deposit rule for salary deferrals applies to all types of employee contributions, including special deferrals (such as catch-up contributions), after-tax contributions and loan repayments.
The DOL has established a safe harbor for employers with small plans (fewer than 100 participants at the beginning of the plan year) to timely deposit such employee contributions. Under the safe harbor, if the employer deposits the withheld amounts in the plan no later than he seventh business day following the date the employees would have received the contributions (payday), the employer automatically satisfies the requirement to timely deposit employee contributions.
Solution: Deposit employee contributions as soon as reasonably possible following issuance of the paycheck from which the contribution was withheld. Employers with small plans should try to take advantage of the safe harbor’s protection by depositing employee contributions within seven business days from the issuance of the paycheck. The DOL’s Voluntary Fiduciary Correction Program (VFCP) offers a method to correct late deposits of employee contributions