Spring 08 - 401(k) Highlight: Late Remittance of Participant Contributions

The Employee Benefits Security Administration (EBSA) continues to focus on the timeliness of
participant contributions in contributory employee benefit plans. Department of Labor (DOL)
regulations require employers who sponsor pension plans to remit employee contributions as soon
as practicable, but in no event more than 15 business days after the month in which the participant
contribution was withheld or received by the employer.

Failure to remit or untimely remittance of participant contributions may constitute a prohibited
transaction, regardless of materiality. Plan sponsors faced with remitting delinquent participant
contributions should consider utilizing the DOL’s Voluntary Fiduciary Correction (VFC) Program.
The program will lead an employer through the steps necessary to pay “lost earnings” on late
deposits and will result in the DOL’s issuance of a “no-action letter” and no imposition of DOL
penalties. In addition, applicants could be eligible for immediate relief from payment of certain
prohibited transaction excise taxes imposed by the Internal Revenue Service (IRS).

The DOL has conducted many investigations involving late remittances, often times triggered by the
reporting of late remittances on the plan’s Form 5500. It is not uncommon for the DOL to find
additional late remittances that were not reported once they begin their investigation. Employers
should be certain they are remitting employee withholdings promptly, certainly within the 15-
business-day threshold and earlier if at all possible.

Information regarding the VFC Program is available on the EBSA’s website at www.dol.gov/dol/ebsa. Plan sponsors can telephone the EBSA regional office in their area with any questions about the application process. These telephone numbers may be found on the EBSA’s website http://askebsa.dol.gov/. Employers not utilizing the VFC Program, are required to remit lost earnings to the plan as well as file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, with the IRS to pay the 15 percent excise tax on the earnings on the late employee contributions and could be assessed additional penalties by the DOL.

 

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Benefit Plan Advisor is produced quarterly by Bober Markey Fedorovich’s Employee
Benefits Plans Services Team. If you would like more information about the services we provide to, please contact James E. Merklin, CPA, CFE, M.Acc. at 330.762.9785 or by email.

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