Is Your Plan in Compliance?
Has your 401(k) plan document been updated within the last 5-6 years to comply with federal tax laws enacted by Congress or issued by the IRS? If not, your plan could potentially lose its tax-qualified status. If your plan uses a prototype plan document, the company that manages or helped you setup your plan should contact you when the plan documents need updating. If your plan is specially designed to fit your entities needs, then it would fall under a specific 5 year cycle for updating. It is ultimately the plan administrators fiduciary responsibility to ensure that the plan is amended and in compliance with applicable tax law changes.
Are employee contribution withholdings being remitted timely? The Department of Labor (“DOL”) regulations under ERISA require that employee contributions (amounts withheld from an employee’s pay) be treated as plan assets as of “the earliest date on which such contributions can reasonably be segregated from the employer’s general assets. Such regulations also provide that in no event shall that date be later than the 15th business day of the month following the month in which the amounts would otherwise have been payable to the employee.” Now, the 15th business day of the month following does not provide a safe harbor for the sponsor if there are other instances where contributions were remitted more timely. The failure to remit such contributions on time may be viewed as a “prohibited transaction”, and may result in significant excise taxes and penalties to the plan sponsor. The plan sponsor may also be liable for making up any lost earnings to the participants. In order to stay in compliance, make sure that you are following up with third-party administrators to ensure that funds are being remitted timely.
