When you are serving as a fiduciary for your company’s retirement plan, it is critical to have processes and procedures in place. Having written documentation is critical to ensuring that even the smallest details will not be overlooked. One specific area the Department of Labor (DOL) continues to focus on is payroll processing and timing.
Payroll processing should be a routine job for an individual or a team within your company. They should have written procedures in place which can be easily replicated each pay period. Furthermore, more than one staff member should be trained to process payroll in order to make sure there are no delays and payroll remittances continue to be processed if the person primarily responsible is out of the office unexpectedly or for an extended length of time.
Part of processing the payroll will be submitting contributions to your retirement plan provider. After you submit your contribution file, you should monitor your company bank account to ensure the withdrawals of the amounts submitted have taken place. In addition, you should be receiving monthly statements from your custodian. Your custodial statement should be reviewed to ensure the deposit matches your bank account. Any errors in amounts or missing deposits or withdrawals should be reported immediately to your providers.
If your plan has employee deferrals, i.e. 401(k) deferrals, the amounts withheld from employees’ paychecks must be submitted as soon as administratively feasible to the trust account. Failure to do so is considered a prohibited transaction by the IRS and DOL. Holding on to employees’ funds is considered a loan of their money to the employer.
If your plan is small, under 100 lives, generally the DOL will allow you a safe harbor of 7 business days after your payroll date to complete payroll processing and deposit the contributions. For larger plans, they can hold you to a higher standard. If you typically make those deposits within 4 business days but then fail to do so until 6 or 7 business days, you may be considered in violation. The best practice is to review your timing and be very consistent with your deposits.
If you feel one or more of your company’s payroll processing submissions have been late, there are correction programs in place to correct this type of violation. Most corrections involve calculating earnings on those deposits and depositing them into the participant accounts in the retirement plan. Additional filings may be due to the IRS and DOL as well.
ML&R Wealth Management serves both as an investment advisory fiduciary in the 3(21) or 3(38) capacity and as an administrative fiduciary in the 3(16) capacity for our clients. We will help you to navigate any late employee deferral situations that you may find. Please contact us with any questions about payroll processing for your company’s retirement plan.