Is Your Auditor Right About Late Deferrals?

October 14, 2013 ( – Even the best-intentioned auditors may not be familiar with different rules for 403(b)s and 401(k)s regarding the late deposit of deferrals.

A blog posting by Robert J. Toth Jr., from the Law Office of Robert J. Toth Jr, points out that although late deferrals to an Employee Retirement Income Security Act (ERISA) 403(b) plan need to be reported under the Compliance portion of the Form 5500 Schedule H or Schedule I, Form 5330 cannot be filed. This is because the Tax Code’s prohibited transaction rules, Section 4975, do not apply to 403(b) plans—even if it is an ERISA 403(b) plan. Form 5330 is only for plans to which 4975 applies. 

Toth says plan sponsors should tell their auditors NOT to file the Form 5330, and that no 5330 penalty tax is due.

He also warns plan sponsors to pay attention to dates when being accused of late deposits of 403(b) deferrals. According to Toth, some insurance firms take some time to allocate 403(b) deposits to individual contracts. The problem this causes in an audit is that many auditors pick up the posting date of the contribution to the participant’s contract, and claim that the late posting represents a late deposit, and a prohibited transaction. This is not the rule.

Toth notes the Department of Labor has recognized this issue of there being time between the deposit and the date it is allocated, and said in its preamble to its “deposit” rules under 2510.30-102: “Where, for example, an employer mails a check to the plan, the Department is of the view that the employer has segregated participant contributions from plan assets on the day the check is mailed to the plan, provided that the check clears the bank.”

Toth tells plan sponsors to remind auditors that the test is the date the money is irrevocably sent from the employer’s account (such as by check or wire), NOT the date the vendor allocates the deposit to the contract.

Toth’s blog posting is here.