Understanding what untimely remittances are and how they impact participants helps explain why the Department of Labor (DOL) places emphasis on this topic. Once a plan sponsor establishes a time frame of what it looks like to separate the deferrals from the employer’s general assets and remit deposits, that is what the DOL is expecting. This is what is considered administratively feasible and is based on the individual employers’ actual operational capabilities and historical remittance practices. Often this timeframe is one to three business days and is supported by the documented processes and internal controls put in place. Another way to think of it is if you were to talk to the DOL, you would need to defend why your remittances take the amount of time they do. This means maintaining the shortest and most consistent remittance time is what the operations of the plan should allow for. If you establish that you can remit deposits the day after the payroll occurs, that is what the DOL will be anticipating you to do going forward. The reason for this is that those amounts withheld from employees are their assets and should be invested and working for their benefit right away. In the same way that employee deferral contributions should be working for participants right away, loan repayments should be treated with the same urgency. Loan repayments are participant assets and should be transmitted promptly into the plan to allow for timely reinvestment. Both are participant funds that should be deposited and working as quickly as administratively feasible.
There is no safe harbor number of days, regarding untimely remittances, for large plans. Anything other than administratively feasible will be considered late. This also goes for if the person who regularly makes the deposit is out on vacation. The DOL does not consider this a valid reason for extending the remittance timeframe and it will need to be covered and there should not be any more of a delay than usual.
If for some reason there are late remittances, there is a correction program through the DOL, called the Voluntary Fiduciary Correction Program (VFCP). This allows you to calculate any lost earnings the participant may have seen while the funds were not in their account and invested. An untimely remittance is considered a prohibited transaction that can incur fees, excise taxes, and penalties along with additional corrective actions. The best practice is to make sure to keep documentation of why there may have been a late remittance as well as the documentation of corrective actions, including the calculation and deposit of lost earnings.
