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Delayed Contributions

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my contributions were withdrawn in January and not credited to my account until the 20th of the following month (feb 20). Question is...can they float our contributions for 20 days, then post it in our account on the 20th of the subsequnt month? This sounds illegal?

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If your employer is a government, the requirement is to deposit the funds no later than the 15th business day of the next month.

 

February 20th is only the 14th business day of February (or maybe it's 13, is there a holiday in there?).

 

If your employer is a non-profit corporation, the money is employer money and no deadline is required under federal law. Your plan document might have a deadline in it, possibly, or state law might impose a deadline, maybe.

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If your employer is a government, the requirement is to deposit the funds no later than the 15th business day of the next month.

 

February 20th is only the 14th business day of February (or maybe it's 13, is there a holiday in there?).

 

If your employer is a non-profit corporation, the money is employer money and no deadline is required under federal law. Your plan document might have a deadline in it, possibly, or state law might impose a deadline, maybe.

 

 

John:

 

Where do the regs require that contributions from a govt 403b be deposited by the 15th business day of the following month?

 

What happens where the employer is required under a state or local law to transmit the funds to a county controller or other offical who will aggregate the contributions with contributions from other SD and foward the contributions to the vendor after a review/audit that could take several weeks?

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From the example of what would be considered a reasonable period of time that is contained in the 2003 final 457 regulations. I guess the 15th business day is technically only an example in the regs, but that's where I get that from: §1.457-8(a)(2)(ii).

 

I'll agree that an employer could technically delay further than that, but they'd really have to prove that it was really necessary and reasonable to do so, IMHO.

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From the example of what would be considered a reasonable period of time that is contained in the 2003 final 457 regulations. I guess the 15th business day is technically only an example in the regs, but that's where I get that from: §1.457-8(a)(2)(ii).

 

I'll agree that an employer could technically delay further than that, but they'd really have to prove that it was really necessary and reasonable to do so, IMHO.

 

 

I thought the regs allows the longer period if it is adminstrative feasible because of the proceduers set up by the plans sponsor or regulatory body that controls the SD plan. For example, in certain CA counties, SD must remit 403b contributions to the county controller who then submits the contributions to the vendors. Many of the procedures for reprting contributions are processed manually which result in delays which have been reported by various posters. Are you saying that these counties will have to implement new procedures and upgrade their systems by the end of the year to remit all contributions by the 15th of the following month?

 

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The regs do not go quite that far, but if that is a reasonable process that truly requires the money to float around that long, then they should have no trouble convincing the IRS that the process is reasonably efficient and thus satisfies the regulation. This is regarding the 457(b) regulations already in place.

 

The 403(b) regulations look similar for employee deferral purposes. This is new for 403(b) plans in 2009. No federal rules existed for a deposit deadlines for 2008 and earlier for 403(b) plans that were not subject to ERISA (gov plans, church plans, and some deferral-only charity plans). The new rule in 2009 is to deposit "within a period that is not longer than is reasonable for the proper administration of the plan." and the regulation example again provided an example where the 15th business day of the following month was used.

 

Just my opinion, if you ask me, the IRS is headed toward a 15th business day requirement. I would advise sponsors to evaluate their procedures and see what can be done to make them more efficient. This would get them ahead of the curve instead of behind the eight ball later when the IRS actually makes it into a requirement. FWIW.

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The regs do not go quite that far, but if that is a reasonable process that truly requires the money to float around that long, then they should have no trouble convincing the IRS that the process is reasonably efficient and thus satisfies the regulation. This is regarding the 457(b) regulations already in place.

 

The 403(b) regulations look similar for employee deferral purposes. This is new for 403(b) plans in 2009. No federal rules existed for a deposit deadlines for 2008 and earlier for 403(b) plans that were not subject to ERISA (gov plans, church plans, and some deferral-only charity plans). The new rule in 2009 is to deposit "within a period that is not longer than is reasonable for the proper administration of the plan." and the regulation example again provided an example where the 15th business day of the following month was used.

 

Just my opinion, if you ask me, the IRS is headed toward a 15th business day requirement. I would advise sponsors to evaluate their procedures and see what can be done to make them more efficient. This would get them ahead of the curve instead of behind the eight ball later when the IRS actually makes it into a requirement. FWIW.

 

 

How will they do that? Most SD start their FY on 7/1/08 so the budget for this yr has been already been locked in and most likely approved.

 

Those SD that operate on a calendar yr cant begin to make any changes until 1/1/09 which means the changes will be will not be in effect on 1/1/09.

 

In any event where do you think that SD/ county controllers are going to come up with the funds to meet a 15th day of the month requirement and should they incure such an expense if the regs do not explicitly require such a change? On what basis would you advise a client to spend money if there is no clear mandate to do so (this isnt universal availability)? If a 15th day requirement is imposed on SD they may decide to terminate the 403b plan instead of expending funds to comply with such a requirement.

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Giving a client the "heads up" is advice. Action taken is up to the sponsor. Giving the advice is based on the example in the regs (as I already explained). Again, my comments are only IMHO and only FWIW.

 

Perhaps advise as follows:

 

  1. The requirement is to deposit the funds "within a period that is not longer than is reasonable for the proper administration of the plan." Certainly explain this is the strict written requirement.
  2. But do not stop there, that would be insufficient advice (IMHO). Explain further that it is clear that the IRS is trying to make 401(k) and 403(b) look more and more alike.
  3. Explain further that the Regulation also states in an example that the deposits are made no later than the 15th business day of the next month. Don't stop there either.
  4. Mention that this example matches up with the requirement for ERISA plans now (that's a lot of plans).
  5. With that in mind, it stands to reason that the IRS may impose the same rule on 457(b) and/or non-ERISA 403(b) plans as well.

How much extra money will be needed to change a procedure? How much money will the revised procedure save by its increased efficiency? - These are good questions for the sponsor to answer.

 

If a 15th business day requirement is so burdensome that a SD decides to terminate a 403(b) plan solely because of that, then that's really a sad statement (IMHO).

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Guest Sierra

 

The regs do not go quite that far, but if that is a reasonable process that truly requires the money to float around that long, then they should have no trouble convincing the IRS that the process is reasonably efficient and thus satisfies the regulation. This is regarding the 457(b) regulations already in place.

 

The 403(b) regulations look similar for employee deferral purposes. This is new for 403(b) plans in 2009. No federal rules existed for a deposit deadlines for 2008 and earlier for 403(b) plans that were not subject to ERISA (gov plans, church plans, and some deferral-only charity plans). The new rule in 2009 is to deposit "within a period that is not longer than is reasonable for the proper administration of the plan." and the regulation example again provided an example where the 15th business day of the following month was used.

 

Just my opinion, if you ask me, the IRS is headed toward a 15th business day requirement. I would advise sponsors to evaluate their procedures and see what can be done to make them more efficient. This would get them ahead of the curve instead of behind the eight ball later when the IRS actually makes it into a requirement. FWIW.

 

 

How will they do that? Most SD start their FY on 7/1/08 so the budget for this yr has been already been locked in and most likely approved.

 

Those SD that operate on a calendar yr cant begin to make any changes until 1/1/09 which means the changes will be will not be in effect on 1/1/09.

 

In any event where do you think that SD/ county controllers are going to come up with the funds to meet a 15th day of the month requirement and should they incure such an expense if the regs do not explicitly require such a change? On what basis would you advise a client to spend money if there is no clear mandate to do so (this isnt universal availability)? If a 15th day requirement is imposed on SD they may decide to terminate the 403b plan instead of expending funds to comply with such a requirement.

 

 

This dialogue reveals the obvious: 403(b)/457/401k plans for local governments should be outlawed in favor of State governments offering these plans to local governmental entities. The same common sense that outlaws the establishment of their own primary/mandatory retirement plan should apply to the voluntary salary reduction plan that public employers are permitted to establish.

 

Joel L. Frank

 

Pension Columnist

The Chief-Civil Service Leader

277 Broadway

New York, NY 10007

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Guest Sierra

Are you saying that local governments just can't do it right for their local employees, but that the bigger government (the state) can?

 

 

Local employers care as much about getting the salary reductions invested asap as they do about de minimis investing.

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