Guidelines for Transferring Retirement Contributions

Carolil · May 2012

In our recently completed retirement plan audit our auditors suggested we develop written guidelines on our timeframe for transferring funds from employee paychecks to our retirement vendor. Does anyone have such a document they'd be willing to share, or have language you can suggest? Thanks.

cnghr · June 2012

We don't have separate written guidelines for this, but that is because it is part of our overall payroll process. The funds come out of the employees' paychecks, and on payday they are wire transferred to our 401(k) vendor by the same person who processes the payroll. I know we technically have more time than that to send in the funds, but we've always found it simpler and more efficient to include it as just another step of doing the payroll, and to send it in on the same day. Our auditors have always been satisfied with the fact that we don't have separate written guidelines for it.

NaeNae55 · June 2012

This has come up in our audits and since we always send it when we process payroll we are well withing legal requirements. It might be addressed in our 401k document, but I can't remember for sure. In any case, making a point of addressing it in audits and payroll procedures seems to be enough. Carolil, is it mentioned in your payroll procedures? If so, that might be enough.

Dutch2 · June 2012

Same here - this comes up every year. The auditors will present a spreadsheet with the date of our payroll and the Purchase Date at our TPA for the 401(k) Plan. In 2010 they listed the following:“During the current year audit, we noted delays in the remittance of employee deferrals withheld from payroll checks. Under regulations, amounts withheld from employee’s compensation by the employer for contribution to the Plan are participant contributions that become plan assets as of the earliest date on which such contributions can be reasonably segregated from the employer’s general assets. This is prohibited use of the plan assets and is required to be reported as a prohibited transaction. While the definition of “earliest date of reasonable segregation” may be open to some interpretation, the IRS and Department of Labor (DOL) have been taking strong positions that this period of time is relatively short. The IRS and DOL have indicated they may look at how rapidly and employer remits payroll taxes as an indication of this time frame. Any remittances that are deemed not timely are subject to payment of both excise tax and lost participant earnings.”
“We recommend the Company review its policies and procedures related to transmitting employee withholdings for the Plan. Based on our understanding of the regulation and the IRS/DOL positions, the best method would be to transmit employee withholdings within a reasonable time period after each payroll.”
Our payroll processor responded: " We have committed to you to get these payments made as close to your payroll date as possible. Most of the time, we do this on payday, at the most within 2 to 3 days."
We also had our contract with our payroll processor updated to include very similar language and we have not had any serious problems since.
Good luck.
Dutch

Carolil · June 2012

Thank you all for your thoughtful replies. Our payroll is processed by Finance (using ADP) and the retirement remittance is processed by my Benefits Manager in HR. So the payroll procedures don't make mention of retirement remittance procedure or timeline. I think my best best is to write a procedures memo outlining the process and the timeline. Dutch's example shows me it can be pretty brief and to the point.

Guidelines for Transferring Retirement Contributions

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