Posted on 12-Apr-10 by The Timekeeper

I realize this isn’t strictly in keeping with my usual time-and-attendance / wage-and-hour related topics, but the question came up recently and I had such a hard time tracking down the answer, I decided as a public service to document it here. I figured I can’t be the only person who was wondering about this.

So, the question was: how long does an employer have once they withhold a 401(k) contribution from an employee’s paycheck before they have to deposit those funds in the employee’s 401(k) account?

Time is of the essence

As you probably already knew, the Department of Labor is in charge of regulating employee retirement plans. Turns out, on this particular issue, though, their regulations could be characterized as “fairly vague.”

Used to be, all they said on the matter was that the employer needed to deposit the money as soon as they were sure what the amount of money to be deposited was. Which should have been pretty much within moments of when they processed payroll, one would think. I mean, at that point you’ve already got the gross pay and the withholdings for each individual… seems to me it’s just a matter of simple addition (easy-peasy for a computer) to tell you the total amount needed. Deposit the total, allocate to the individual employee accounts (again, easy-peasy with a computer), et voilá!

Shouldn’t have thought it would be much of a brain strain for anybody. The answer to “how long” is… “right away.”

But “government regulations” and “fairly vague” make uneasy bedfellows, especially where people’s paychecks are concerned, so in due time a clarification was forthcoming.

Nowadays, I’m given to understand, a company can get in trouble if it’s gone later than the 15th business day of the month after the contributions were withheld and the money still hasn’t been deposited.

(Note, this is hardly a draconian requirement. Fifteen business days is at least three calendar weeks, which should allow plenty of time to accomplish a simple addition problem, even without a computer.)

However, in practice, the Department of Labor apparently tends to take a dim view of employers who wait until the last possible moment to deposit those employee contributions. If the DOL auditors get the idea the employer is deliberately dragging its feet on making the deposit in order to “play the float,” the company — and possibly the business owners or senior executives — could still be in trouble even if the company met the 15-business-day deadline.

Now, it’s probably also important to note I believe this only applies to how quickly the money needs to be deposited to the employees’ 401(k) accounts, not how soon the money needs to be allocated to the specific funds, stocks or bonds the employees have designated as their investment choices. Honestly, I’m not sure at this point what the rules are about how soon the money needs to be actually invested, once it’s been deposited to the employee’s 401(k) account.

For more info

If you’re an employer or employee with questions about 401(k) contributions, you can contact the U.S. Department of Labor directly. If you prefer to chat with someone closer to home, they provide a list of the DOL District Office locations, too.

I’ll keep following up on this issue, and if I find out any additional information, I’ll be sure to let y’all know.

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