Timing on the Deposit of Employee Contributions

The regulations require that participant contributions to a 401k be deposited to the plan on the earliest date that they can be reasonably segregated from the employer's general assets, but in no event later than the 15th business day of the month following the month in which the participant contributions are deducted from their pay. However, this does not mean an employer can routinely wait until the 15th business day to deposit the funds. The 15th business day is not a safe harbor. Rather, the general rule is that the deferrals be deposited as soon as is reasonably possible after payday. If the employer can segregate and deposit the contributions prior to this deadline, they must do so.

Most companies get it transferred within just a few days. Once at the investment company or plan custodian, it can then take a day or so to get invested and reflected in your account.

Here is an article that reviews the requirements: Time for a Refresher - Deposit of Participant Deferrals.

Workers have the right to have the 401k contributions that are withheld from their paychecks invested into their accounts as quickly as possible. In recent years, U.S Department of Labor has moved to crack down on those employers that delay these investments and, instead, use workers' 401k contributions for their own purposes. (Currently, about one-third of 401k investigations involve such delays.) Even if the employer later repays this illegal and unwilling "loan," workers will have lost investment returns while their contributions were diverted. DOL is working to locate and punish wrongdoers on several fronts:

1. Alerting workers to identify and report delinquent contributions;
2. Communicating acceptable practices to employers;
3. Deploying extra enforcement to pursue these abuses; and,
4. Encouraging delinquent employers to self-correct violations and make specified remedies, to avoid enforcement measures and fines.

Here is an excellent article on the subject that will give you greater detail on the process involved in deduction and crediting your contributions: Long Day's Journey Into ... Your 401k.

If you are having problems with getting your payroll deductions deposited into you 401k account in a timely manner, here is one way to handle this issue. Immediately send a certified letter to the company expressing your concern that your payroll deductions are not getting credited to your account in a timely manner. Provide an example. Educate them on what the requirements are by quoting the above regulation. Ask that they provide you a written explanation as to why this is happening and what is being done to correct it. Be tactful, but firm.

If they are not forthcoming with a good explanation and corrective action, then you should contact the Department of Labor. Here is an article that explains just how to do this: What to Do When You Think the Rules Have Been Broken.

This is for educational purposes only. The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.