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Cheryl

Time Limit From Contribution Deduction To Account Credit

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I started a 457 account this year at my place of employment. There is a significant delay (over a month) from the time the money is deducted from my earnings to the time it is credited to my retirement account. Are there any time limits on when my contributions must be forwarded to the vendor or placed in my account? Where are the funds between the time of deduction and the time they are credited to my account, and who receives the interest?

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The answer depends on whether you work for a governmental employer or for a tax-exempt employer.

 

If you work for a governmental employer and the deposits aren't quick, that's probably ok. If you work at a tax-exempt, there is no deposit deadline!

 

457(b) plans are not covered by ERISA, and therefore the Department of Labor rules do not apply as they would for an ERISA plan like a 401(k) plan.

 

If you work for a governmental employer the deadline for the deposit is found under §1.457-8(a)(2)(ii): "Amounts deferred under an eligible governmental plan must be transferred to a trust within a period that is not longer than is reasonable for the proper administration of the participant accounts ..."

 

That's not much of a deadline, but look at the rules for a tax-exempt employer:

 

If you work for a tax-exempt employer, the deadline for the deposit is not found at all, because there is no deadline. Seems odd, right? Well, a 457(b) plan for a tax-exempt employer is not allowed by law to be funded by a trust. Instead, the employee deferrals and any other "contributions", together called "annual deferrals" must remain as employer assets. So, the company holds the money until it is paid out. This is true even if they put the money into an account that allows participant direction of investments -- here the funds are still employer assets (and thus subject to any potential claims of the employer's creditors if necessary).

 

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Guest Sierra

The answer depends on whether you work for a governmental employer or for a tax-exempt employer.

 

If you work for a governmental employer and the deposits aren't quick, that's probably ok. If you work at a tax-exempt, there is no deposit deadline!

 

457(b) plans are not covered by ERISA, and therefore the Department of Labor rules do not apply as they would for an ERISA plan like a 401(k) plan.

 

If you work for a governmental employer the deadline for the deposit is found under §1.457-8(a)(2)(ii): "Amounts deferred under an eligible governmental plan must be transferred to a trust within a period that is not longer than is reasonable for the proper administration of the participant accounts ..."

 

That's not much of a deadline, but look at the rules for a tax-exempt employer:

 

If you work for a tax-exempt employer, the deadline for the deposit is not found at all, because there is no deadline. Seems odd, right? Well, a 457(b) plan for a tax-exempt employer is not allowed by law to be funded by a trust. Instead, the employee deferrals and any other "contributions", together called "annual deferrals" must remain as employer assets. So, the company holds the money until it is paid out. This is true even if they put the money into an account that allows participant direction of investments -- here the funds are still employer assets (and thus subject to any potential claims of the employer's creditors if necessary).

 

====================================================================

 

You are conflating two issues...the ownership of the investment with the timliness of making the investment. While the investment is owned by the employer rather than a Trust and the money is subject to the legal claims of the employer's creditors, the account is still being funded on a salary reduction basis and, therefore, must be invested under the employee's instructions in a timely manner. That timely manner is within 15 days of the payroll date.

 

 

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Sierra, I guess I need guidance. I have not seen the requirement regarding the 15th day after payroll.

 

Is it exactly 15 calendar days or 15 business days? Please cite the regulation or other regulatory document regarding 457(b) plans that supports your claim, I would greatly appreciate that!

 

Until then, thanks for your efforts!

 

Of course, if Cheryl's employer's 457(b) document has language that requires specific timing to be met, then the terms of that plan document must be met.

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Guest Sierra

 

The answer depends on whether you work for a governmental employer or for a tax-exempt employer.

 

If you work for a governmental employer and the deposits aren't quick, that's probably ok. If you work at a tax-exempt, there is no deposit deadline!

 

457(b) plans are not covered by ERISA, and therefore the Department of Labor rules do not apply as they would for an ERISA plan like a 401(k) plan.

 

If you work for a governmental employer the deadline for the deposit is found under §1.457-8(a)(2)(ii): "Amounts deferred under an eligible governmental plan must be transferred to a trust within a period that is not longer than is reasonable for the proper administration of the participant accounts ..."

 

That's not much of a deadline, but look at the rules for a tax-exempt employer:

 

If you work for a tax-exempt employer, the deadline for the deposit is not found at all, because there is no deadline. Seems odd, right? Well, a 457(b) plan for a tax-exempt employer is not allowed by law to be funded by a trust. Instead, the employee deferrals and any other "contributions", together called "annual deferrals" must remain as employer assets. So, the company holds the money until it is paid out. This is true even if they put the money into an account that allows participant direction of investments -- here the funds are still employer assets (and thus subject to any potential claims of the employer's creditors if necessary).

 

====================================================================

 

You are conflating two issues...the ownership of the investment with the timliness of making the investment. While the investment is owned by the employer rather than a Trust and the money is subject to the legal claims of the employer's creditors, the account is still being funded on a salary reduction basis and, therefore, must be invested under the employee's instructions in a timely manner. That timely manner is within 15 days of the payroll date.

 

 

John,

 

I was wrong to use 15 days. This is a complex issue. I posted the question on the 457 Message Board of benefitslink.com. You may want to take a look. Here is the link: http://benefitslink.com/boards/index.php?s...mp;#entry146272

 

Joel L. Frank

 

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That's ok. I actually saw your question on that site and I was going to place a comment here about you sneaking over there!

 

I agree, for a tax-exempt employer, the regulations won't require anything, but the terms of the plan or some other agreement could dictate the timing. Since the only people covered by the 457(b) of a tax-exempt employer are the select top management employees, it seems likely that they can work out an agreement of the timing among themselves.

 

The tax-exempt 457(b) plan is also required to have a claims procedure. I'm not sure timing of deposits would actually fall under that, but if all else fails it might be worth a try.

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Guest Sierra

That's ok. I actually saw your question on that site and I was going to place a comment here about you sneaking over there!

 

I agree, for a tax-exempt employer, the regulations won't require anything, but the terms of the plan or some other agreement could dictate the timing. Since the only people covered by the 457(b) of a tax-exempt employer are the select top management employees, it seems likely that they can work out an agreement of the timing among themselves.

 

The tax-exempt 457(b) plan is also required to have a claims procedure. I'm not sure timing of deposits would actually fall under that, but if all else fails it might be worth a try.

 

 

Benefitslink.com is an enormous public service. It is just wonderful to know that you receive the same advice/answer that their clients pay for.

 

Peace and Hope,

Joel L. Frank

 

PS Have you read my article about "empowerment" published by benefitslink a few years ago?

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