Shouldn't Fridays be higher than average due to 401k contributions?

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JustinR
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Shouldn't Fridays be higher than average due to 401k contributions?

Post by JustinR » Mon Oct 22, 2018 3:40 pm

Tens of millions of people automatically buy on Fridays. Shouldn't this make Fridays noticeably higher on average than other days? If not, why?
Last edited by JustinR on Mon Oct 22, 2018 3:46 pm, edited 1 time in total.

greenback
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by greenback » Mon Oct 22, 2018 3:44 pm

It's my understanding that the purchase is actually initiated at market close on the chosen date. Meaning that "buying on Friday" one would actually buy on Friday AFTER market close.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by juliewongferra » Mon Oct 22, 2018 3:45 pm

JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by JustinR » Mon Oct 22, 2018 3:47 pm

juliewongferra wrote:
Mon Oct 22, 2018 3:45 pm
JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf
Because payday for almost everyone is universally on Friday.

barnaclebob
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by barnaclebob » Mon Oct 22, 2018 3:49 pm

My megacorp pays on Thursdays.

I'm pretty sure the market doesn't go up from 401k contributions on regular days is the same as why it doesn't go down on paydays. The events are expected, and regular, therefore always priced in.

Rupert
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Rupert » Mon Oct 22, 2018 3:51 pm

JustinR wrote:
Mon Oct 22, 2018 3:47 pm
juliewongferra wrote:
Mon Oct 22, 2018 3:45 pm
JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf
Because payday for almost everyone is universally on Friday.
No, it isn't. Many people get paid once a month or twice a month. And 401k contributions typically aren't deposited with the 401k custodian on the same day they're withheld from payroll.

JFanni
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by JFanni » Mon Oct 22, 2018 3:54 pm

I get paid on Fridays but typically does not hit my 457 till Tuesday or Wednesday

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by ladycat » Mon Oct 22, 2018 3:56 pm

Rupert wrote:
Mon Oct 22, 2018 3:51 pm
JustinR wrote:
Mon Oct 22, 2018 3:47 pm
juliewongferra wrote:
Mon Oct 22, 2018 3:45 pm
JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf
Because payday for almost everyone is universally on Friday.
No, it isn't. Many people get paid once a month or twice a month. And 401k contributions typically aren't deposited with the 401k custodian on the same day they're withheld from payroll.
Speaking for our household, I'm paid monthly (as is my spouse). My Roth contributions are scheduled for the 10th of every month.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by JustinR » Mon Oct 22, 2018 3:59 pm

Rupert wrote:
Mon Oct 22, 2018 3:51 pm
JustinR wrote:
Mon Oct 22, 2018 3:47 pm
juliewongferra wrote:
Mon Oct 22, 2018 3:45 pm
JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf
Because payday for almost everyone is universally on Friday.
No, it isn't. Many people get paid once a month or twice a month.
...on Friday. I didnt say anything about how often people are paid.

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dm200
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by dm200 » Mon Oct 22, 2018 4:01 pm

Over the years, I have been paid on Mondays, Thursdays and Fridays (weekly or biweekly). I have also been paid semi-monthly on the 15th and last day.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by HornedToad » Mon Oct 22, 2018 4:08 pm

JustinR wrote:
Mon Oct 22, 2018 3:59 pm
Rupert wrote:
Mon Oct 22, 2018 3:51 pm
JustinR wrote:
Mon Oct 22, 2018 3:47 pm
juliewongferra wrote:
Mon Oct 22, 2018 3:45 pm
JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf
Because payday for almost everyone is universally on Friday.
No, it isn't. Many people get paid once a month or twice a month.
...on Friday. I didnt say anything about how often people are paid.
People paid every 2 weeks get paid on Friday normally. People paid once or twice a month usually get paid on the 1st and 15th, which have no relation with the day of the week.

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dm200
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by dm200 » Mon Oct 22, 2018 4:09 pm

and employers may fund 401k plans on days different than paydays.

I suspect that net 401k purchases are only a small part of market activity on any given day, date or day of the week.

Rupert
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Rupert » Mon Oct 22, 2018 4:12 pm

JustinR wrote:
Mon Oct 22, 2018 3:59 pm
Rupert wrote:
Mon Oct 22, 2018 3:51 pm
JustinR wrote:
Mon Oct 22, 2018 3:47 pm
juliewongferra wrote:
Mon Oct 22, 2018 3:45 pm
JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf
Because payday for almost everyone is universally on Friday.
No, it isn't. Many people get paid once a month or twice a month.
...on Friday. I didnt say anything about how often people are paid.
Not on Friday. I get paid, for example, on the 15th and the 30th, regardless of the day of the week. And, as I said, that's a moot point anyway since 401k contributions don't reach the custodian (and hence the market) on the same day as payday.

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dm200
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by dm200 » Mon Oct 22, 2018 4:14 pm

Even Federal Government employees - who are paid every two weeks have different may have different days of the week when they get paid.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Spirit Rider » Mon Oct 22, 2018 4:48 pm

Just because people get paid on Thursdays (every company I worked for) or Fridays. Most definitely does not mean the 401k contributions are deposited let alone fund purchases occur on that day.

If fact, the vast majority of plans take from a few to several days from the pay date until funds are purchased in a 401k.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by willthrill81 » Mon Oct 22, 2018 4:50 pm

Rupert wrote:
Mon Oct 22, 2018 3:51 pm
JustinR wrote:
Mon Oct 22, 2018 3:47 pm
juliewongferra wrote:
Mon Oct 22, 2018 3:45 pm
JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf
Because payday for almost everyone is universally on Friday.
No, it isn't. Many people get paid once a month or twice a month. And 401k contributions typically aren't deposited with the 401k custodian on the same day they're withheld from payroll.
Yep. I'm paid on the 10th and 25th of the month. And my 401k, 457, and HSA contributions can take anywhere from 2-4 days to hit.
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by bayview » Mon Oct 22, 2018 4:52 pm

Feds get paid on Thursdays. My TSP contributions (agency was VA) showed Friday mornings with Thursday’s closing prices.
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by SchruteB&B » Mon Oct 22, 2018 4:55 pm

Paid on 15 th and last day of month. Unless those are weekends. Then paid 1 or 2 days earlier.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by dm200 » Mon Oct 22, 2018 4:59 pm

bayview wrote:
Mon Oct 22, 2018 4:52 pm
Feds get paid on Thursdays. My TSP contributions (agency was VA) showed Friday mornings with Thursday’s closing prices.
I know some Feds who get paid on Tuesdays and some on Wednesdays. Some Feds are paid on different alternate weeks.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Jeff Albertson » Mon Oct 22, 2018 5:27 pm

401k's may look to the average joe like a big part of the stock market. In reality about 84% of stocks are owned by the top 10% of households. Or, in other words, the bottom 90% of households own only about 16% of the market. I doubt if 401k's make up much of those in the top 90%.
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by oldcomputerguy » Mon Oct 22, 2018 7:24 pm

JustinR wrote:
Mon Oct 22, 2018 3:47 pm
juliewongferra wrote:
Mon Oct 22, 2018 3:45 pm
JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Does that make Fridays higher on average than other days? If not, why?
Tens of millions of people automatically buy on days that aren't Friday, also! Who says that Friday is a higher purchase day than others?

cheers,
jwf
Because payday for almost everyone is universally on Friday.
Even if payday is on a Friday, that doesn't mean that 401k contributions get credited to one's account on Friday. In fact it has always been my experience that contributions took two or three days after payday to show up.

And just to add confusion to the mix, some government contractors have their own weird schedules. My wife, for instance, who works for a government contractor at a government research facility, gets paid monthly on the 26th day of the month.
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by harvestbook » Mon Oct 22, 2018 7:37 pm

15 million people are self-employed and may or may not be on a regular contribution schedule. We currently do payroll quarterly. Next year we're ditching payroll and doing "pay as you earn it."
I'm not smart enough to know, and I can't afford to guess.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by sailaway » Mon Oct 22, 2018 8:04 pm

Personally, an individual paycheck's 401k accounts for about .1% of total stocks held. If that held across the market, it still wouldn't have much of an effect. However, as others have pointed out, there are many reasons to buy besides receiving a paycheck that may or may not be on Friday.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by z3r0c00l » Mon Oct 22, 2018 8:09 pm

It seems to me most of the daily noise in the stock market is the result of speculation and high frequency or day trading. It is a necessary evil perhaps, however somewhat of a distraction of the business of owning stocks for most of us. Doubt that 401Ks have the volume or regularity to move the needle at all. And anyway, my lovely 401K takes a few days to buy the shares each paycheck. Or at at least it takes them a few days to report the transaction.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by drk » Mon Oct 22, 2018 8:25 pm

My Megacorp pays all of its salaried employees on the last day of the month (or the preceding business day if that falls on a weekend or holiday).

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by rkhusky » Mon Oct 22, 2018 8:41 pm

I used to get paid on Thursdays, but my 401k contribution showed up 3 day before, on Monday.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by tony_roach » Mon Oct 22, 2018 9:04 pm

JFanni wrote:
Mon Oct 22, 2018 3:54 pm
I get paid on Fridays but typically does not hit my 457 till Tuesday or Wednesday
This...while payday is on Friday my megacorp 401K contribution happens on the following Tuesday

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by RickBoglehead » Mon Oct 22, 2018 9:24 pm

So, no...

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Mako » Mon Oct 22, 2018 9:41 pm

dm200 wrote:
Mon Oct 22, 2018 4:59 pm
bayview wrote:
Mon Oct 22, 2018 4:52 pm
Feds get paid on Thursdays. My TSP contributions (agency was VA) showed Friday mornings with Thursday’s closing prices.
I know some Feds who get paid on Tuesdays and some on Wednesdays. Some Feds are paid on different alternate weeks.
Yes, Feds get paid lots of different times. Different agencies are different. For example, my official pay day is every other Thursday. But the TSP contribution actually goes in on Tuesday.

I think:
1) it’s silly to assume Friday is universal, even if it’s universal among those one knows. Many people are on a different schedule.
2) even if Friday is universal, you can’t assume that 401k investments hit on Friday. People have different invest dates than their official pay date.
3) what % of the market are 401ks, even if 1 and 2 did point to Friday?

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by stlutz » Mon Oct 22, 2018 9:43 pm

I once had this theory that the market had short-term peaks on the days that my company's 401K contributions hit (which was on Fridays at the time).

Of course, like everyone else in this thread, I never actually ran the backtest to validate or disprove my suspicion. So as of now we don't really seem to know...

:P

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by TheDDC » Mon Oct 22, 2018 10:22 pm

I get paid on the 15th and 30th monthly (or the Friday before if said date falls on a weekend). Typically my 403(b) will get funded one business day after a pay day. However, some days I have seen it get funded two days after pay if pay day falls on a Monday. I suspect that a various set of anomalies would delay a payday buy for the vast majority of employers out there including those who get paid on a Friday consistently.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by beyou » Mon Oct 22, 2018 10:23 pm

Payday is Thursday for me.
I auto deposit to a bond fund.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by j0e0r7 » Mon Oct 22, 2018 10:36 pm

If there were a bump in the entire market every Friday, everyone would sell their stocks that day and buy them back Monday. Hence no bump. Efficient markets at work.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by jacoavlu » Mon Oct 22, 2018 10:41 pm

“Shouldn't Fridays be higher than average due to 401k contributions?“

but then Thursdays would be higher as the smart money would come in the day before, since they know Friday’s gonna be up...

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by flyingaway » Mon Oct 22, 2018 10:57 pm

I think you buy a fund from your contributions, the fund managers buy stocks on the days they choose to.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by celia » Mon Oct 22, 2018 11:16 pm

Even if you get paid on Friday, that doesn't mean the custodian will get your money that day. When I worked for a government agency, my withholdings had to go through the county before they ended up in a retirement account 3 to 5 days later.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by muddgirl » Mon Oct 22, 2018 11:32 pm

There is very little federal regulation on how long custodians have between withholding 401k contributions and depositing them into the employees 401k account. I looked into this last year because my employer's payroll service/401k custodian took 7 business days from payday to depositing it into my account. This means I was paid Friday morning but my 401k deposits showed up on Wednesdays.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by IowaFarmBoy » Tue Oct 23, 2018 5:29 am

There could also be a little lag between when your money gets to the fund company and they actually invest it. I think this could especially be true with managed funds. Index funds likely would be more automatic but I could still see a few days of lag.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by AlohaJoe » Tue Oct 23, 2018 6:12 am

JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Shouldn't this make Fridays noticeably higher on average than other days? If not, why?
As far as I can tell, annual 401k contributions are around $280 billion a year. Which would be $5 billion every Friday. I think the dollar volume of the S&P 500 is over $100 billion a day. So it would be less than 5% of the volume, which doesn't seem like it would affect much.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Jack FFR1846 » Tue Oct 23, 2018 6:17 am

At my megacorp, clowns who get their pay in a paper check have that cut on Friday. My Credit Union (DCU) advertises that they get direct deposits in your hands earlier. Mine is in my account when I look Thursday morning (12:01am) every other week. The next Tuesday, the 401k gets its deposit. So for me, Friday is a big nothing.
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Minty » Tue Oct 23, 2018 6:36 am

Because money is fungible, some 401k contributions are never actually invested, just like selling a mutual fund does not necessarily trigger sale of underlying securities. Sure, contributions are credited to your individual account when they get to the custodian, but those specific dollars might be used for redemptions or expenses and never make it out of the cash account maintained for such purposes. On the other hand, there is some research suggesting an end of the month effect on stock prices.
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by oldcomputerguy » Tue Oct 23, 2018 7:03 am

JustinR wrote:
Mon Oct 22, 2018 3:40 pm
Tens of millions of people automatically buy on Fridays. Shouldn't this make Fridays noticeably higher on average than other days? If not, why?
Why does it matter? How will the answer to this question impact your investment plan?
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Bacchus01 » Tue Oct 23, 2018 7:29 am

I get paid on Thurs. 401k deposit made us n the following Wed.

But I put more in the market on the first day of Jan than I do all year in my 401k through 529s and IRAs.

Oh, and my HSA funds are deposited on Tuesdays. I think my NQ deferred comp is also Tue.

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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by sjt » Tue Oct 23, 2018 7:50 am

Megacorp pays me on the 26th of each month. It used to be the final working day of each month, but apparently that was too much trouble :). Haven't noticed any weekly Total Market fund trends - if there were I'm sure people would be able to exploit it (as someone mentioned already) - probably why there isn't any noticeable effect...
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Re: Shouldn't Fridays be higher than average due to 401k contributions?

Post by Spirit Rider » Tue Oct 23, 2018 8:22 am

muddgirl wrote:
Mon Oct 22, 2018 11:32 pm
There is very little federal regulation on how long custodians have between withholding 401k contributions and depositing them into the employees 401k account. I looked into this last year because my employer's payroll service/401k custodian took 7 business days from payday to depositing it into my account. This means I was paid Friday morning but my 401k deposits showed up on Wednesdays.
There are very specific regulations addressing the time from when 401k deductions must be transmitted by the employer to the plan. However, there is no regulation governing how long the custodian has from transmittal to allocation to individual participants, deposit in their accounts and purchase securities. If there are delays it is far more likely on the payroll side than the custodian side. The CEO of Paychex once stated they generate more revenue from float than they due from fees.

DOL regulations require that employers are required to transmit employee contributions to retirement plans, such as 401(k)-style defined contribution plans, as soon as they could reasonably be segregated from the general assets of the employer, but no later than the 15th business day of the month following the month in which contributions were received or withheld by the employer.

DOL regulations require that participant contributions and loan repayments to a pension or welfare benefit plan with fewer than 100 participants at the beginning of the plan year will be treated as timely made to the plan if the amounts are deposited with the plan no later than the 7th business day following the date the amount was received by the employer (or, in the case of wages that are withheld, the 7th business day following the date the amount would have been payable to participant in cash).

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