Prepare Form 5330 for Delinquent Contributions:

401(k) Elective Deferral contributions are required to be deposited in a timely manner. The regulations, which also apply to small plans not subject to audit requirements, requires that a plan sponsor deposit the contributions on the earliest date the employer can reasonably segregate the contributions from its general assets, but in no event later than the 15th business day of the month following the month in which the employer withheld the contributions from the employee’s paycheck. This should not be confused and interpreted to mean the DOL permits you to wait until the 15th business day, even if it could have been segregated earlier. If it is administratively feasible and past history has indicated the ability to deposit the contributions sooner, any remittance after that established timeframe will be considered delinquent. If you make late participant contribution deposits, you have failed to execute your fiduciary duty and should take the following corrective actions:

  • Correct the late deposit (s) by filing under the Voluntary Fiduciary Correction Program (VFPC) and comply with the requirements of Prohibited Transaction Exemption 2002-51
  • Pay the excise tax; and
  • Footnote the Schedule H or I of the Form 5500 to indicate to the DOL that the correction has taken place

If an employer corrects the late deposit of employee contributions by filing under the VCP, the employer does not have to pay the 20% excise tax. The employer must correct the late deposit and pay the excise tax using Form 5330. Filing under the VCP and paying the excise tax may give the employer protection against future DOL and IRS actions.