401K Law

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401K Law

Post by White Coat Investor » Tue Mar 01, 2011 2:48 am

How long does the employer have to put my 401K contribution into my account? Isn't it 15 days? Anyone know where to find a reliable citation for this? It's now March 1st and my 401K contribution from January (paydate Feb 4th) still isn't in my account. I'd like to raise a bit of a fuss, but I want to make sure I know what I'm talking about when I do.
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Post by Jacobkg » Tue Mar 01, 2011 2:56 am

My 401k provider has been very irregular. Sometimes I see my contributions posted within a few days and sometimes >15 days. I would also be interested in the answer to the above question.

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Re: 401K Law

Post by renter » Tue Mar 01, 2011 3:12 am

I'm not sure what the law says, but have you checked the terms of the 401k plan? If it says they have to post the contribution within 15 days and they're always later than that, then they're violating their own plan.
EmergDoc wrote:How long does the employer have to put my 401K contribution into my account? Isn't it 15 days? Anyone know where to find a reliable citation for this? It's now March 1st and my 401K contribution from January (paydate Feb 4th) still isn't in my account. I'd like to raise a bit of a fuss, but I want to make sure I know what I'm talking about when I do.

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Post by MossySF » Tue Mar 01, 2011 4:48 am

Your contribution is 15 days. The matching can be any time before the end of their fiscal year.

http://www.irs.gov/retirement/article/0 ... 25,00.html

"For example, if your plan provides for salary reductions from employees’ paychecks for contribution to the plan, then these contributions must be timely deposited. The law states that this must be accomplished as soon as it is reasonably possible to do so, but no later than the 15th business day of the month following the payday."

DOL has proposed a new 7-day requirement for plans with less than 100 participants and 14-days for 100+ but it is not law yet.

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Post by pshonore » Tue Mar 01, 2011 7:28 am

EmergDoc wrote:How long does the employer have to put my 401K contribution into my account? Isn't it 15 days? Anyone know where to find a reliable citation for this? It's now March 1st and my 401K contribution from January (paydate Feb 4th) still isn't in my account. I'd like to raise a bit of a fuss, but I want to make sure I know what I'm talking about when I do.
If you read the reference from MossySF, it would seem he has until March 21 for a Feb 4 paycheck. (15th business day of the following month)

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Re: 401K Law

Post by fcirullo » Tue Mar 01, 2011 7:40 am

EmergDoc wrote:I'd like to raise a bit of a fuss, but I want to make sure I know what I'm talking about when I do.
For starters...you have a link to the IRS Web site, and you've been given some good information. Also, you can confirm the answer to your question with your plan's Third Party Administrator (TPA) or any TPA.
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Post by MossySF » Tue Mar 01, 2011 8:19 am

Some more updated info at:

http://www.dol.gov/ebsa/publications/401kplans.html
For example, the deductions from employees’ paychecks for contribution to the plan must be deposited with the plan as soon as reasonably possible, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you need to make the deposits at that time.

For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.
What this means is it's not "all contributions made within month after+15 biz days are kosher".

Instead, it's "all contributions made after month after+15 biz days are not kosher and you'd better have good operational reasons for everything else" because seriously, in today's "press a button" payroll+deductions, there should be little reason for delays.

An example of a delay that might pass an audit. Contributions are made once a month even though multiple paychecks are issued. So you'd have some deductions processed immediately and some perhaps with a delay of 1 month + 10 days.

An example that might *not* pass an audit. Company makes separate contributions for each paycheck -- sometimes a few day immediately after payroll but other times at maximum month + 15 days. Ahem ... using 401k contributions for operating float?

The new small business plan regulation is a full safe harbor though. Even if an employer could have made their contributions with ease on day 1, waiting until 7 is OK. And you can still go over day 7 if there's a valid event that forces a delay like plan change, bank account change, admin change, etc.

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Post by bottlecap » Tue Mar 01, 2011 8:42 am

Ours typically goes in mid March.

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Post by grberry » Tue Mar 01, 2011 12:26 pm

As MossySF has said, there are two tests that must both be met for the contributions withheld from paychecks to be timely:
1) Never later than the 15th of the following month
2) As soon as administratively feasible given the regular processes of the employer, payroll provider, and plan provider.

Those regular processes include making sure that all contribution changes (enrollment, allocation, stopping) are known and matching on all sides. Typically this gives a few days to allow for information transmittal, queries, and confirmations.

My understanding is that should there be a compliance audit, the auditors will actually look for documentation of the processes and evaluate based on the documented processes what the administratively feasible timeframe is.

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Post by White Coat Investor » Tue Mar 01, 2011 12:32 pm

MossySF wrote:
An example that might *not* pass an audit. Company makes separate contributions for each paycheck -- sometimes a few day immediately after payroll but other times at maximum month + 15 days. Ahem ... using 401k contributions for operating float?
I think this is exactly what's going on. The earning period is Jan1-Jan 31. The paycheck is deposited on Feb 4. The 401K deposit goes in..... ??? Mid-March? That's a lot of float.

But if they get 6 weeks to do it, I guess I can't complain yet. I was just used to the TSP which had January's money in by the first week of February.
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Post by serbeer » Tue Mar 01, 2011 12:56 pm

My company posts both my contribution and match about a week later (so when I calculate YTD ROR, as a result, I have to move last paycheck's 401K' contribution to the next year incoming pool btw).
My wife's company posts on the pay day.

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Post by sommerfeld » Tue Mar 01, 2011 7:02 pm

Over the past year, my employer was acquired, and then I changed jobs. So, 3 different 401(k) plans.

employer #1: pay every 2 weeks, on 2nd to last day of pay period, 401(k) contributions show up a couple days after payday. company match "true up" contributions happened in mid-march.

employer #2: pay twice a month on last day of pay period, 401(k) contributions show up a day or two after payday.

employer #3: pay every 2 weeks, 8 days after last day of pay period, 401(k) contributions show up the day after pay day as having been credited on pay day. company match "true-up" contributions happened on the 2nd pay period in 2011.


If the delay at your employer is measured in weeks, I'd start complaining.

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Post by White Coat Investor » Tue Mar 22, 2011 4:25 pm

I thought my finance guys were idiots, but perhaps they're brilliant. They absolutely maximized the float they were legally allowed to use my 401K contributions for. It hit yesterday, 15 business days into the month after the month I received my paycheck in. Kind of frustrating that I'll have a 7 week delay in investing 401K monies for the rest of my career.
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Post by ofcmetz » Tue Mar 22, 2011 4:42 pm

Doc, have you asked other employees if it's always that late? Also, if it were me I'd ask my payroll or finance department what the deal is.

Does your share cost reflect your payroll date or the date the money showed up? Possible cause for the delay was you are a new employee or new enrollee and they had to receive/ enter your enrollment info.

I think a consistent delay like that would be unacceptable.
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Post by dm200 » Tue Mar 22, 2011 5:47 pm

EmergDoc wrote:I thought my finance guys were idiots, but perhaps they're brilliant. They absolutely maximized the float they were legally allowed to use my 401K contributions for. It hit yesterday, 15 business days into the month after the month I received my paycheck in. Kind of frustrating that I'll have a 7 week delay in investing 401K monies for the rest of my career.
This kind of a delay in the age of electronic transfers is absurd, although entirely within the "rules". Your employer has this down to a science.

The "rules" seem to assume that it is an administrative burden on employers to send money any more frequently than monthly and that it takes up to 15 business days to do the calculations, processing, etc.

I'll bet you a dollar that they would not be happy with such a delay if the money were going in the opposite direction.

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Post by Rodc » Tue Mar 22, 2011 6:07 pm

Wow. I'm spoiled. I get paid last working day of the month and it shows up in my account the next work day without fail.

Paychecks in any more or less modern company are just computer to computer. There is no good reason I know of why this should take more than a day or two.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Post by fcirullo » Tue Mar 22, 2011 6:28 pm

EmergDoc wrote:It hit yesterday, 15 business days into the month after the month I received my paycheck in. Kind of frustrating that I'll have a 7 week delay in investing 401K monies for the rest of my career.
You got your paycheck on February 4th, 2011, and your contribution to the plan was deposited on March 21, 2011.

Obviously, your employer is not treating you the way he or she would like to be treated.

Is there anything that you can do about it? Well, you can say something like this to your employer: "What's going on...why the long delay? Can you think of any reason why my contributions to the plan can't be made on the day after I get my check? These days, I'm sure that you can make that happen so that I can earn more money--right?"

If you decide to talk with your employer about this, let us know what he or she says. Okay?
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If you decide to complain....

Post by anthau » Tue Mar 22, 2011 6:39 pm

If you decide to complain, learn from my hard experience, and don't complain internally first.

I worked at a firm and noticed that although my pay stubs indicated that 401k deductions had been made, 60-90 days later, no money whatsoever had hit my account. Several employees subordinate to me had noticed the same and were grumbling. I went to management and asked what was happening. Shortly thereafter, I was terminated (for "performance" reasons). Only then did I learn that to qualify for whistle-blower protection, one has to have already filed a complaint with the Department of Labor.

Stock disclaimer: This is not legal advice and should not be relied upon.
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Post by White Coat Investor » Tue Mar 22, 2011 6:54 pm

ofcmetz wrote:Doc, have you asked other employees if it's always that late? Also, if it were me I'd ask my payroll or finance department what the deal is.

Does your share cost reflect your payroll date or the date the money showed up? Possible cause for the delay was you are a new employee or new enrollee and they had to receive/ enter your enrollment info.

I think a consistent delay like that would be unacceptable.
Good advice. Yea, I got today's price. I am new, so we'll see if this is a consistent problem soon. But the March 4 deduction isn't there yet....
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Re: If you decide to complain....

Post by White Coat Investor » Tue Mar 22, 2011 6:56 pm

anthau wrote:If you decide to complain, learn from my hard experience, and don't complain internally first.

I worked at a firm and noticed that although my pay stubs indicated that 401k deductions had been made, 60-90 days later, no money whatsoever had hit my account. Several employees subordinate to me had noticed the same and were grumbling. I went to management and asked what was happening. Shortly thereafter, I was terminated (for "performance" reasons). Only then did I learn that to qualify for whistle-blower protection, one has to have already filed a complaint with the Department of Labor.

Stock disclaimer: This is not legal advice and should not be relied upon.
Wow. That sucks. I don't care about this enough to lose my job over it.
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Re: If you decide to complain....

Post by fcirullo » Wed Mar 23, 2011 10:48 am

EmergDoc wrote:Wow. That sucks. I don't care about this enough to lose my job over it.
I understand, no one wants to lose their job. And your employer may not be on the wrong side of the laws, rules, and regulations.

However, you may be interested in the following: The Department of Labor (DOL) developed the elaws Advisors to help employees and employers understand their rights and responsibilities under numerous federal employment laws.

e-laws - ERISA Fiduciary Advisor: http://www.dol.gov/elaws/ERISAFiduciary.htm

Who is a fiduciary? Fiduciaries are those individuals and/or entities who manage an employee benefit plan and its assets. Employers often hire outside professionals, sometimes called third-party service providers, or use an internal administrative committee or human resources department to manage some or all of a plan’s day-to-day operations. Employers who have hired outside professionals or who use internal committees/resources still have fiduciary responsibilities.
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Post by agnielson » Wed Mar 23, 2011 11:04 am

I actually called the DOL's Employee Benefits Security Administration about this very issue and talked to a nice gentleman with the coolest last name ever (Stonebreaker). In his words, if an employer frequently took more than about 10 to 15 business days following payday to deposit employee 401(k) contributions, then they (EBSA) would wonder why that was and would be very interested in contacting the employer about it. I got the impression that the EBSA pursues these situations aggressively. He did mention that the employer would need to be covered by ERISA, and you could generally tell this if the employer has to file IRS Form 5500.

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Post by Kulak » Wed Mar 23, 2011 11:20 am

I'd complain even if it's within the lawful limit. That's ridiculous. I've had two jobs with 401(k) plans, and in both cases the contributions posted next business day like clockwork.

If they intentionally delay to earn interest on the float, that's a form of stealing in my opinion.

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Post by fcirullo » Wed Mar 23, 2011 11:26 am

agnielson wrote:I actually called the DOL's Employee Benefits Security Administration about this very issue and talked to a nice gentleman with the coolest last name ever (Stonebreaker). In his words, if an employer frequently took more than about 10 to 15 business days following payday to deposit employee 401(k) contributions, then they (EBSA) would wonder why that was and would be very interested in contacting the employer about it. I got the impression that the EBSA pursues these situations aggressively. He did mention that the employer would need to be covered by ERISA, and you could generally tell this if the employer has to file IRS Form 5500.
Good for you! Thank you for calling. Now we need the DOL to define what they mean by the word "frequently." How many tiimes can the employer take more than 10 to 15 business days to deposit the employees money in three months? in six months? in one year?

Okay, so this employer has chalk from the sidelines all over his cleats. Let's hope that it will show up in an audit if the plan is required to have an audit.
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Post by agnielson » Wed Mar 23, 2011 11:40 am

fcirullo wrote:Now we need the DOL to define what they mean by the word "frequently." How many tiimes can the employer take more than 10 to 15 business days to deposit the employees money in three months? in six months? in one year?
I got the impression it was a judgment call, not a hard-and-fast number. Once or twice makes for an anomaly, but three or four times starts looking like a pattern - seven or eight times is a slam dunk. It probably also depends on the investigator's temperament, their current workload, the number of other complaints for that employer, etc.

The OP might want to ask around and get other employees to talk to the payroll department as well. That wake-up call might be enough to get the clerk to think twice before delaying contributions again.

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Re: 401K Law

Post by Bob Sawyer » Wed Mar 23, 2011 11:57 am

EmergDoc wrote:How long does the employer have to put my 401K contribution into my account? Isn't it 15 days? Anyone know where to find a reliable citation for this? It's now March 1st and my 401K contribution from January (paydate Feb 4th) still isn't in my account. I'd like to raise a bit of a fuss, but I want to make sure I know what I'm talking about when I do.
I would wonder whether the employer (or the third party administrator?) is having cash flow problems.

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Post by camden » Wed Mar 23, 2011 5:53 pm

My employers' "match" for 2010 hasn't been credited to date-----supposedly, it will be in April..........

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Post by etm » Wed Mar 23, 2011 9:26 pm

Believe it or not, electronic payroll systems (like ADP and PayChex and maybe some large in house custom systems) are not integrated with your 401k provider. Payroll and HR people also aren't accountants, but they do tend to process payroll and handle the 401k. It's not a very safe combination. In some cases a lot of time may be needed to query the payroll system, apply the matching percentage, submit the disbursement request to the accounting department, etc. I know it shouldn't be that difficult, but it can be.

I once worked for a (formerly) publicly traded company where the HR executive (charged with reviewing all HR bills) didn't delete terminated employees from our medical plan. We were still being billed for someone who had died over a year ago, and we had about 90k of charges on our bill for ex-employees. If that's the care they give bills, imagine what they think of your 401k.

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Post by firewynd » Wed Mar 23, 2011 9:51 pm

I asked this exact question some months ago.

I actually spoke to our payroll manager about why it hadn't deposited yet and she told me that they had till the 15th business day of the following month to deposit it.

For around 4 paychecks they rode it to the hilt.

I asked her why it was taking so long and she told me that the last few months had been rough business wise and so they were having to wait that long before depositing the money. So basically open admission to using it as float.

I didn't say anything else after that. But they are regularly several weeks late. It is very annoying. Especially since two paychecks of contributions will go in on the exact same day - which kind of screws with the whole DCA concept :-(

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Post by Ed 2 » Wed Mar 23, 2011 10:22 pm

Jacobkg wrote:My 401k provider has been very irregular. Sometimes I see my contributions posted within a few days and sometimes >15 days. I would also be interested in the answer to the above question.
no more than 6 days by low. My employer broke my trust and I stopped my 401K contributions long time ago.
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Post by agnielson » Wed Mar 23, 2011 11:02 pm

Ah, that reminds me. The rep from the DOL also mentioned that for employees experiencing a pattern of late contributions, they should contact in writing the TPA, alerting them to the late contributions. By law, the TPA has a fiduciary duty to the plan beneficiaries and should address the issue with employer. Failing that, contact the DOL's EBSA about your concerns. If the employer has established a pattern of being consistently late, they will be interested in investigating.

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Post by gsmith » Thu Mar 24, 2011 4:02 pm

Having worked for a company having cash flow issues, I would argue that the aggravation of bounced checks, health ins terminated but still deducted, and the ever bizarre extremes to get cash that it neither normal nor worth it to "stick around".

Signs:

- Accounts Receivable Factoring (Business equivalent of a payday loan)
- Direct Deposit is discontinued, and paper checks issued on Friday after 5.
- Health insurer is paid by company and does not care if it it was deducted.
- Paychecks returning NSF, or being told to wait until $Customer's check clears. (According to coworkers, Currency Exchange still took them)
- People from the currency exchange looking around office
Using 401k as float is something that should make the list.

Regardless of the economy, there are many companies that don't play fast and lose with important things like employee benefits and EIRSA law.

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Post by letsgobobby » Thu Mar 24, 2011 8:10 pm

i've thought about this often but I can see I have nothing to complain about. It takes about 4-10 days for both my contribution and my employer match to hit my account.

Here's a recent thread on the same topic, not sure if it has already been linked:

http://www.bogleheads.org/forum/viewtopic.php?p=857095

and in particular:

From 401kHelpCenter.com:
“The Department of Labor DEMANDS that if the employer can segregate and deposit the contributions into the plan prior to this [15th bus. day of flwg. month] deadline, IT MUST DO SO or face a fine. The DOL's position on plan assets has been made clear: funds must be deposited as soon as they can reasonably be segregated. The preamble to the DOL regulations specifically states that the 15th day of the following month is not a safe harbor, and thus ‘for many plans, participant contributions will become plan assets well in advance of the applicable maximum period.’”
http://www.401khelpcenter.com/....tions.html

One interpretation (by a company auditor) has been that if any employee payroll funds are being segregated and transmitted for any other purpose (e.g. insurance premiums, 529 plan contributions, etc.), then retirement plan contributions must be handled equally promptly.

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Re: If you decide to complain....

Post by fcirullo » Tue Apr 19, 2011 10:50 am

EmergDoc wrote:Wow. That sucks. I don't care about this enough to lose my job over it.
Before you give up, you may want to read about some recent court cases that are posted on The U.S. Department of labor's Web site at http://www.dol.gov/dol/media/ If you decide to talk to the DOL or EBSA about your company's plan, you'll find some toll free phone numbers, below.

Below, are some examples of the language that was used in press releases regarding various legal actions that were brought by The United States Department of Labor (DOL) and Employee Benefits Security Administration (EBSA):

“Failing to forward voluntary employee salary contributions to employee retirement plans is a violation of trust,” said Paul Baumann, EBSA’s regional director in Cincinnati. “The Labor Department will continue to fight for workers when fiduciaries fail in their responsibilities to properly administer employee benefits.”

"The judgment resolves a Labor Department lawsuit alleging that Owen failed to remit employee contributions to the plan, remitted certain employee contributions late without interest and failed to segregate the plan’s assets from the general assets of the company."

"The department’s legal action resulted from an investigation by EBSA’s Philadelphia Regional Office. The case was litigated by the department’s regional solicitor in Philadelphia. Employers and workers can contact EBSA’s Philadelphia office at 215-861-5300 or toll-free at 866-444-3272 for help with problems relating to private sector pension and health plans."

"EBSA protects the security of the retirement, health and other workplace-related benefits of America’s workers, retirees and their families. The agency oversees approximately 708,000 private sector retirement plans, 2.8 million health plans and a similar number of other workplace-related benefit plans that provide benefits to more than 150 million Americans. Collectively, these plans hold more than $6 trillion in assets."

"Employers and workers can reach EBSA’s Cincinnati Regional Office at 859-578-4680 or toll-free at 866-444-3272 for help with problems related to private sector retirement and health plans."
Frank R. Cirullo | | "It isn't what we don't know that gives us trouble, it's what we know that ain't so." -- | Will Rogers

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Re: 401K Law

Post by zeugmite » Thu Apr 23, 2015 9:37 am

Digging up the old thread because I ran into this issue recently. The law has been changed to be 7 business days for plans under 100 participants.
http://www.dol.gov/ebsa/newsroom/fsecp.html

And what do you know, the funds show up exactly on the 7th day (i.e. somebody was holding it as float for the longest possible time).

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Re: 401K Law

Post by Spirit Rider » Thu Apr 23, 2015 10:20 am

A few points. This is not a change in law, but rather a change in DOL regulations. Also, this is not that new, it has been in effect for several years. Finally, the 7 business days is for a safe harbor.

A business could still go beyond the safe harbor if it could demonstrate that its deposits were done as soon as the funds could reasonably have been segregated from the employer's general assets. Of course the DOL has held that if you were able to separate any other deductions (taxes, benefit payments, etc...) then that demonstrates the funds could reasonably have been segregated for retirement plan contributions.

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Re: 401K Law

Post by jhfenton » Thu Apr 23, 2015 11:54 am

To be frank, this would drive me batty. We're paid every other Friday. They run payroll on Thursday, so that ACH deposits clear no later than Friday, usually by Thursday afternoon. That includes 401(k) contributions, which are often invested by Fidelity on Thursday and always by Friday.

I actually get annoyed at my wife's employer, because they usually run the 401(k) job on Monday after their last-Friday-of-the-month payday. And that's only a two-business-day delay (with the resulting Tuesday deposit).

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Re: 401K Law

Post by Spirit Rider » Thu Apr 23, 2015 12:25 pm

Keep in mind, these DOL regulations apply to the employer. If the employer is directly using a custodian as their provider, the time delay into individual accounts can be short. However, if the 401k plan in using an independent advisor or Third Party Administrator (TPA), there can be another delay after the employer sends the funds.

Several years ago I worked for a company that used Paychex for both the payroll processing and 401k. The company submitted the all funds and metrics for payroll processing on Tuesday for a Friday payroll. The 401k funds showed up on Monday or Tuesday not the next week, but the following week. So essentially Paychex had the funds for almost two weeks. No wonder Paychex's annual report showed they made more money on payroll float than the did on the actual service fees.

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Re:

Post by fourwedge » Thu Apr 23, 2015 12:43 pm

EmergDoc wrote:I thought my finance guys were idiots, but perhaps they're brilliant. They absolutely maximized the float they were legally allowed to use my 401K contributions for. It hit yesterday, 15 business days into the month after the month I received my paycheck in. Kind of frustrating that I'll have a 7 week delay in investing 401K monies for the rest of my career.
I used to be frustrated about the delay also. Now I just grin and bear it, and try to remember the match they are adding to it.
Last edited by fourwedge on Thu Apr 23, 2015 3:28 pm, edited 1 time in total.
Max out your tax sheltered retirement accounts with inexpensive, well diversified, index funds and you will beat 90% of all investors.

letsgobobby
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Re: 401K Law

Post by letsgobobby » Thu Apr 23, 2015 1:02 pm

My situation has improved a little. My money now routinely shows up on the Wednesday after Friday pay day, and recently it even showed up on a Tuesday. My wife's is same day, so she still has me beat.

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