DECEMBER 2007 Pension Plan tip of the month...

We would like to remind you once again, that the Department of Labor has strict standards regarding the time frame in which elective deferral contributions and loan payments must be segregated by an employer to a qualified plan.

The IRS/DOL aggressively investigates employee allegations of late deposits. They follow up on every employee complaint of late deposits.

The IRS/DOL has strict guidance regarding the timeframe in which elective deferral contributions must be transferred by an Employer to a qualified plan.  The 15th (30th for SIMPLE IRAs) business day is not a 'safe harbor'; it is the maximum time. In our recent experience assisting clients through IRS audits, agents have deemed employee contributions (including loan repayments) not segregated within 3-6 business days after each payroll as late. Employee contributions not remitted timely require the allocation of lost earnings and excise taxes to be calculated, funded, and reported. Again, we can help you address this issue.

Deposits must be made consistently each time deferrals are withheld and must be made as early as possible every time.  While it is vital to submit deferrals quickly, it is important to note that the IRS and DOL also frown upon the practice of pre-funding deferrals prior to the date on which they would have otherwise been paid to the employee except for some very limited situations.

Since the annual IRS Form 5500 has a question that asks “Did the employer fail to transmit to the plan any participant contributions within the time period described in 29 CFR 2510.3-102?” it is very important that all Plan Sponsors comply with these standards. If not, it is our understanding that it will most likely trigger a DOL audit and potential penalties and excise taxes.

We’d also like to remind you that those plans with year end dates on 12/31/2007 will soon be receiving the annual request for plan data. For most plans, the annual census request will arrive electronically while the questionnaire will be mailed. These data requests can seem cumbersome at first so please call your Paragon Account Executive if you have any questions.