Timely remittance of participant contributions to employee benefits plans and loan repayments is one of the most important fiduciary responsibilities for plan sponsors. Delays can lead to significant penalties, lost earnings owed to participants , and reputational risk for the organization. Understanding the remittance rules, establishing clear policies, and maintaining compliance are essential steps for every sponsor.
Regulations and Requirements
The Department of Labor (DOL) views late remittances as a serious breach of the plan sponsor’s fiduciary duty. Under the Employee Retirement Income Security Act of 1974 (ERISA), delayed transfers of employee elective deferrals or loan repayments are considered prohibited transactions as impermissible loans from the plan to the employer. Specifically, the DOL views the employer as holding “plan assets” because the deferrals have not been separated from the employer’s general assets. DOL rules require that deferrals be deposited into the plan as soon as reasonably possible, and in no case later than the 15th business day of the following month. For plans with fewer than 100 participants, the DOL provides a safe harbor period of seven business days. Larger plans, however, are expected to remit funds as quickly as operationally feasible.
Late remittances are considered prohibited transactions subject to excise taxes and must be reported on Form 5500, Annual Return/Report of Employee Benefit Plan, and on Form 5330 , Return of Excise Taxes Related to Employee Benefit Plans. Required reporting is done in the initial year of occurrence and in all subsequent years until fully corrected. Additional penalties may apply if not timely corrected, and the longer the delay, the greater the potential cost. Unfortunately, many plan sponsors are unaware of violations until they are uncovered during routine audits. Holidays, staff absences, and operational complexities often contribute to delays that go unnoticed.
Defining a Reasonable Remittance Policy
Although the 15th business day after the end of the month in which the contribution was segregated from the employer’s general assets is the absolute deadline for making a timely remittance, the DOL expects sponsors to act much sooner. The ERISA plan asset rules state that the participants’ contributions become a plan asset as soon as the amounts can be “reasonably” segregated from the employer’s general assets. What constitutes “reasonable” depends on the organization’s structure and processes. For companies with streamlined operations, same-day deposits or even a few business days after payroll processing may be appropriate. For organizations with multiple locations or complex systems, a longer period might be considered reasonable. Documenting the organization’s remittance policy helps establish clear expectations and demonstrate compliance.
Maintaining Compliance Through Monitoring
A proactive approach is the best defense against costly mistakes. Many organizations find it helpful to prepare and review a remittance schedule that tracks and reconciles payroll with plan contributions. Regular reviews allow management to identify delays early and correct them before they escalate. This is critical because delayed deposits mean missed investment opportunities for participants, which increases the cost of making up lost earnings. If a remittance is late, sponsors should document the reason for the delay. This transparency helps auditors and regulators understand the circumstances surrounding the delay.
Correcting Late Contributions
When a late remittance occurs, immediate action is essential. There are two primary correction methods: self-correction and the DOL’s Voluntary Fiduciary Correction Program (VFCP).
Self-correction involves moving the contributions to the plan as soon as possible, calculating and paying lost earnings to participants, and filing IRS Form 5330 along with the excise tax due, which equals 15% of the lost earnings. These costs must be paid by the employer, not from plan assets. Additionally, excise tax relief is not available under self-correction.
The VFCP offers significant protections, including a “no action” letter from the DOL, which shields the sponsor from enforcement actions. In some cases, the IRS may also waive the excise tax. However, VFCP can be time-consuming and expensive, so sponsors must weigh the benefits afforded against the administrative burden.
Why This Matters
Timely remittance of participant contributions is not just a regulatory requirement — it is a fiduciary obligation that directly impacts employees’ retirement savings. By defining a clear policy, monitoring contributions regularly, and acting quickly when issues arise, plan sponsors can minimize risk and maintain compliance. When delays occur, understanding the correction options and choosing the most appropriate path makes participants whole and keeps the plan in good standing.
Navigating remittance requirements can be complex, but you don’t have to do it alone. Our Global Employer Services and Employee Benefit Plan Audit teams are here to help assess your plan, provide actionable guidance, and support your company in meeting compliance obligations while strengthening employee retirement outcomes. To learn more, please contact us today.
BDO’s ERISA Center of Excellence brings together professionals from both tax and assurance, including Global Employer Services and Employee Benefit Plan Audits, to work collaboratively with clients. We provide comprehensive audit and advisory services for qualified retirement plans, help test plan limits, and support plan administration. For more information about our ERISA-related audit, tax, and consulting services, visit BDO’s ERISA Center of Excellence.