Expert: Shirley McAllister, CPP, PHR - 8/6/2008

Question
My employer for 2007 had a safe harbor for our profit sharing 401k plan. it is now Aug. 6 and they have not put the funds into our account. Is there a time limit for them to make these contrbutions?

Answer
The safe harbor for small business plans is only for 7 days unless they are under the Katrina disaster relief safe harbor.

The rule is the funds must be deposited as soon as they can reasonably be segregated from the employer's general assessts. Failure to comply is a violation of Erisa's trust requirements , a breach of fiduciary duty, and possibly a prohibited transaction. It also could lead to criminal penalties.  In no event can the deposit occur later than the 15th business day of the mnth followin ghte month in which such amounts otherwise would have been payable to the participant in cash.

If the company has fewer than 100 plan participants they have 7 days to deposit the money from the time the funds would have otherwise been paid to the participant.

Under limited situation, an employer may extend the maximum period beyond the 15th business day. The employer can extend the time 10 days beyond the 15th business day of the following month if he gives employers written notice within five business days after the end of the extended period.
In addition prior to the beginning of the extended period, the employer must obtain a performance bond or irrevocable letter of credit in favor of the plan and in an amount not less than the total amount of participant contributions withheld by the employer in the previous month. .  Within 5 days after the end of the extension period the employer must also provide the DOL with a copy of the notice provided to participants, along with a certificate providing that the employer actually distributed the notice and obtained the requisite performance bon or letter of credit .  An employer may not elect the 10-day extension more than twice a year unless the employer pays to the plan an amount representing interest on the participant contributions affected by the extension.

Shirley

Follow Up:

The only way there can be an annual payment into a 401K is if it is a profit sharing 401K. If it is a profit sharing 401K than once a year after the annual profits for the prior year are figured a profit sharing amount will be put into the 401k equal to the per cent of profit sharing that the company can afford to give the employees. That usually goes into the 401K by March of the following year.

Shirley