“Because of the timing of the Christmas holiday and our standard policy of shutting down our organization for the week between Christmas and the new year, we will be paying our employees on Thursday the 22nd with our offices closed on the 23rd. We will withhold 403(b) elective deferrals from these paychecks. If we deposit the deferrals on Tuesday the 2nd of January, will these deposits be timely?”
David Levine, Groom Law Group, answers:
The Department of Labor requires the contributions be made as soon as administratively practicable but not later than the 15th day of the month following the month in which they are withheld from an employee’s paycheck.
In recent years, the Department of Labor has been vigorously enforcing this rule and also created a “safe harbor” for small plans (those under 100 participants) under which contributions paid to the plan within seven business days of being withheld are considered timely. As such, if you maintain a small plan, you appear to fit within the safe harbor. If you are larger, it will depend on your facts and circumstances, including how quickly you make contributions during a regular payroll period.
If you wish to be conservative, you may want to see if you can contribute the deferrals before you shut down on the 22nd.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.