Spring 2022 – Benefit Insights Newsletter

Timing of Deposits

401(k)/403(b) Deferrals and

Loan Repayments

• Depositing a few pay dates together, later in the month, when you finally have time.
• Depositing late because you were waiting for cash flow to deposit the match at the same time.
• The employee who handles deposits is on vacation and no one else knows the process.
• Starting a deposit submission but getting sidetracked and failing to finish the submission.

• The date when contributions/loan repayments can reasonably be segregated from the employer’s general assets. (Most 401(k) and 403(b) plans will fall into this category.)

• The 15th business day of the next month.

• If your plan has under 100 participants as of the beginning of the plan year, no later than the 7th business day following the paycheck date is considered timely.
• If your plan has 100 or more participants, though, you likely have less time. In this case, contributions must be remitted on the earliest date possible instead of within 7 business days. If you can make the deposit on the 2nd business day after the paycheck date, for example, that is going to be the standard that the DOL feels is timely for your plan.

• Determine which deposits were late.
• Calculate lost earnings to be deposited to affected participants’ accounts.
• Report the late deposit amount on Form 5500 for the year of the failure through the year of correction.
• In addition to the error being an operational failure, it is also considered a prohibited transaction because it is believed to be a loan from the plan to the employer. For 401(k) plans (but not 403(b) plans), this requires payment of a 15% excise tax on the calculated lost earnings using Form 5330.

• Complete the same action steps as SCP above.
• Submit the necessary application to describe the failure and the correction.
• The user fee varies from $1,500 to $3,500, depending on the plan’s asset balance.
• Once the submission is reviewed, the IRS issues a Compliance Statement if the correction methods were approved or if additional steps are required for correction.

• Complete similar steps as above to determine which deposits were late, and deposit lost earnings to applicable participants’ accounts.
• The completion of an application is also required, but no user fee is due.
• Some corrections may qualify for exemption from the payment of the 15% excise tax.

1. 1. Revisit your process. If you don’t really have one, now is the time to create one.
      • Who is responsible for making the deposit?
      • Who is the back-up person if the usual employee is out?
      • How many days after the paycheck do you intend to make the deposit?
      • Who will review the transaction confirmation to be sure it’s completed?

1. Find consistency. If you have payroll on Fridays, for example, and you remit your payroll taxes on the following Tuesday, submit the contributions to the plan on Tuesday as well.
2. Ask a third party for help! Your CPA, TPA, or payroll company may offer contribution remittance services. Reach out to one of them for options and pricing. Maybe the person-by-person details can be remitted to the plan’s investment platform on your behalf, and you will simply need to login to review the data and remit the payment portion.

New Information on Participant Statements: Lifetime Income Illustrations

• Participant-directed accounts which receive quarterly benefit statements: Illustrations must be included on the 6/30/22 quarterly statement (if not already provided on the 3/31/22 statement).
• Non-participant-directed accounts: Illustrations must be included on the statement for the first plan year ending on or after 9/19/21 and must be furnished no later than the filing of the annual return for that year. For calendar year plans, this will be the 12/31/21 statement, furnished no later than 10/15/22.

• A single life annuity (SLA): This will show a fixed monthly amount for the life of the participant, with no surviving benefit to a spouse after their death.
• A qualified joint and 100% survivor annuity (QJSA): This will show a fixed monthly amount for the life of the participant, and the same fixed monthly amount to the surviving spouse after the participant’s death.