From Fidelity Investments: The importance of timely deposits

Proper handling of participant deferrals is arguably one of the most important duties of a plan sponsor.

While it's easy to understand the need to treat plan assets with the deference required by the Employee Retirement Income Security Act of 1974 ("ERISA"), what may not always be so clear is exactly when amounts deferred by employees through payroll become "plan assets." Since it is so important that participant deferrals and loan payments be made promptly, we thought it would be helpful to highlight the requirements.

The Department of Labor ("DOL") has written strict guidelines on how long an employer can hold elective deferrals before depositing them into the plan. The general rule requires that contributions and loan repayments be deposited into the plan as soon as it is reasonably possible to segregate them from the company's assets, but no later than the 15th business day of the month following the month amounts are withheld from pay. The 15th business day rule is not a safe harbor. The DOL emphasizes that the "real" deadline is the earliest date on which contributions can be segregated, and they may look to prior payrolls to determine what is possible.


An employer has a biweekly payroll and historically has reconciled and forwarded contributions by the 5th business day after payroll. For the current payroll period, it takes the employer 10 days to deposit amounts withheld into the plan. The DOL will likely consider the 10-day period as unreasonable, even though the contribution was made prior to the 15th business day of the next month.

Small Plan Safe Harbor

For plans with fewer than 100 participants on the first day of the plan year, the DOL created a safe harbor standard that states any deposits made within seven business days of a pay date are considered timely. This safe harbor is optional—small plans may use the seven-business-day safe harbor period or the general deadline.

Mistakes May Occur

If it's discovered that certain salary deferral or loan payment deposits have been "late," prompt action will help to minimize the financial impact and exposure to the plan.