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Employers’ retirement plan responsibilities

Posted on July 26, 2017

It’s easier than you might think to get caught up in employer vs. employee regulations over the timing of a rollover or an elective deferral.

If an employer’s payment of its employees’ contributions to a 401(k), 403(b) or SIMPLE-IRA retirement plan elective deferral is not made within established timeframes, the employer can be assessed costly penalties.

 As a business owner, here’s what to know:

 The Department of Labor (DOL) states: “An employer is required to deposit an employee’s money into his/her retirement account as soon as the employee 401(k) deductions can be reasonably segregated from employer assets, but no later than 15 business days following the month in which the payroll deduction occurred.”

The CPAs at Teipen Selanders Poynter & Ayres have studied DOL plan audits and recommend the following for the businesses we work with:

  • For retirement plans with fewer than 100 participants, there is a “safe harbor” of 7 business days following the payroll deduction date. Deposits of employee 401(k) and 403(b) payroll deduction funds are considered timely if this 7 day “safe harbor” test is met.
  • Since no safe harbor time period exists for plans with 100 or more employee-participants, most CPAs suggest funding the employees’ retirement contributions by the due date of the employer’s Form 941 tax deposit (normally within three business days after the payroll date).
  • To be totally safe/compliant, consider remitting 401(k) funds the same day as “payday”.
  • For SIMPLE IRA plans, the rules are simpler. The DOL requires that employee payroll deductions for an employer’s SIMPLE-IRA retirement plan must be remitted by the 30th day following the month in which the “elective deferrals” were withheld from payroll.

Even though employer-matching contributions are not due until the due date of the company’s business tax returns, our CPAs strongly recommend that employers choose to pay the matching plan contributions on a more frequent basis to avoid large annual payments.

2017 Allowable Employee Plan funding:

This year, an employee can electively defer up to $18,000 of wages to a 401(k), 403(b) or government-sponsored 457 plans. Employees who are at least age 50 by December 31, 2017, can contribute an additional “catch-up” amount of $6,000.

Employees who participate in employer-sponsored SIMPLE-IRA plans can contribute $12,500 via payroll deduction. Those 50 and over by the end of 2017 can add $3,000 more in catch-up funding.

Teipen Selanders Poynter & Ayres can help you assure that your business stays on track, avoiding late payments and fees, and helping your employees meet their retirement plan funding objectives for 2017.