How Long Does an Employer Have to Deposit 401k Contributions?

A 401(k) plan is a foundational component of retirement planning, allowing employees to save earnings, often with employer contributions. Understanding deposit obligations is important for employers to ensure plan compliance and protect employee retirement savings.

Regulatory Framework for Contributions

Federal agencies oversee 401(k) plan administration, especially timely contribution deposits. The Department of Labor (DOL) and the Internal Revenue Service (IRS) are the primary bodies establishing and enforcing these rules, with authority stemming from the Employee Retirement Income Security Act of 1974 (ERISA).

ERISA sets standards to protect retirement plan participants and their beneficiaries. A core principle is that contributions must be deposited into the plan’s trust in a timely manner. This safeguards plan assets, preventing misuse or commingling with employer funds. Employers, as fiduciaries, must manage these assets in the best interest of plan participants.

Employee Contribution Deposit Timelines

Employee salary deferrals are plan assets as soon as they can be segregated from employer funds. The Department of Labor mandates these contributions be deposited into the plan’s trust “as soon as administratively feasible.” This means deposits should occur as quickly as the employer’s payroll and accounting systems allow. The DOL generally expects deposits within three to five business days after the payroll date.

The absolute maximum deadline for depositing employee contributions is the 15th business day of the month following the month in which the contributions were withheld or received by the employer. This 15-business-day rule is an outer limit, not a safe harbor for routine delays. The DOL’s focus remains on the “as soon as administratively feasible” standard, which often translates to a much shorter timeframe.

For plans with fewer than 100 participants, the DOL provides a specific safe harbor: deposits made within seven business days of the pay date are considered timely. For larger plans (100+ participants), there is no explicit safe harbor; they are held to a stricter interpretation of “as soon as administratively feasible,” with expectations typically within three to five business days.

Employee contributions must be segregated from company assets each payroll period. Employers cannot hold all employee contributions and make a single deposit at month-end if their payroll cycle is more frequent. Funds withheld for 401(k) contributions are no longer employer property and must be promptly transferred to the plan’s trust.

Employer Contribution Deposit Timelines

Employer contributions (e.g., matching, profit-sharing, safe harbor) have more flexible deposit timelines than employee deferrals. These contributions are not subject to the “as soon as administratively feasible” rule or the 15-business-day maximum deadline. The primary deadline for employer contributions relates to their deductibility for tax purposes.

To be deductible for a given tax year, employer contributions must be deposited by the due date of the employer’s federal income tax return for that year, including any extensions. For example, a calendar-year corporation filing its tax return on April 15 could extend its filing and deposit deadline to October 15. Similarly, S corporations and partnerships with a March 15 tax return due date can extend this deadline to September 15.

Specific rules apply to safe harbor contributions, which help plans meet nondiscrimination testing. These contributions must be deposited no later than the last day of the plan year following the plan year to which they relate. If an employer matches contributions on a per-payroll basis without a year-end true-up, these matching contributions must be deposited by the end of the quarter following the quarter in which the match was earned. For purposes of annual addition limits under Internal Revenue Code Section 415, employer contributions can be treated as an annual addition for the prior year if deposited within 30 days after the employer’s extended tax filing due date.

Consequences of Untimely Deposits

Untimely 401(k) contribution deposits can lead to serious repercussions for employers. These are considered a “prohibited transaction” under ERISA and the Internal Revenue Code. This classification arises because delaying the deposit of employee contributions is viewed as the employer effectively using employee funds for its own purposes.

The IRS imposes an excise tax on the “amount involved” in a prohibited transaction, typically the lost earnings that would have accrued had contributions been deposited on time. This initial excise tax is 15% of the lost earnings for each year the transaction remains uncorrected. If not corrected promptly, an additional tax of 100% of the amount involved can be imposed.

Employers must also restore any lost earnings to plan participants’ accounts due to the delay. The calculation of lost earnings considers the late contribution amount, its due date, the actual deposit date, and the investment performance the funds would have achieved. Late deposits must be reported on the plan’s annual Form 5500, indicating non-compliance. Associated excise taxes are reported and paid using IRS Form 5330.

The Department of Labor may initiate enforcement actions, including investigations and penalties, for untimely deposits. To encourage voluntary compliance, the DOL offers the Voluntary Fiduciary Correction Program (VFCP), allowing employers to correct errors like late deposits and potentially avoid civil penalties and excise taxes. However, correction costs (fees, principal, lost earnings, excise taxes) cannot be paid from the plan’s assets. In rare and severe cases of egregious or repeated violations, employers could face civil penalties of 20% of the amount recovered or even criminal charges.