Timing of Deferral and Loan Payments

-By Tobi Cogswell

As we are nearing the end of the year some people are going to go on vacation. Maybe more so even than during the summer. Or maybe yours is a business that closes between Christmas and New Years.

Be sure that you have a written procedure for how deferrals and loan payments are transmitted in case the person with primary responsibility for payroll is one of those going on vacation.

The IRS and DOL have strict guidelines with regard to when payments are “late”. They do not agree. Amounts withheld from an employee’s paycheck must be deposited into the trust as soon as they can be segregated from the employer’s general assets. A deposit is generally late if the deposit occurs later than the normal average elapsed days from the end of the payroll period to the date of deposit. The Department of Labor issued proposed regulations intended to provide small plan sponsors with a clear safe harbor but this applies only to plans with fewer than 100 participants at the beginning of a plan year.

Under the proposed safe harbor regulations, employee contributions will be treated as complying with the regulations if the contributions are deposited no later than the 7th business day following the day on which the amounts would have been payable to the participant in cash.

• Make more than one person responsible for making sure the deposit is made in a timely manner.

• Develop systems and procedures and a timeline for their completion each pay period.

• Document the reason for any deviation.

• Have a wonderful holiday.