What to Do If Your Employer Is Not Depositing SIMPLE IRA Contributions

Saving for retirement through a SIMPLE IRA depends on timely employee contributions and employer matching or non-elective contributions. Delayed deposits can disrupt financial planning and violate federal regulations. If you suspect missing or late contributions, act quickly. Employers must adhere to strict funding rules, and non-compliance can lead to penalties. Understanding the causes of delays and how to address them can help protect your savings.

Timing Standards for SIMPLE IRA Deposits

Employers must deposit employee salary deferrals into a SIMPLE IRA as soon as possible after they are separated from company assets. The absolute deadline is the 30th day after the end of the month in which the money was withheld. For example, a contribution deducted on March 15 must be deposited by April 30.

Employer contributions, whether matching or non-elective, follow a different timeline. These must be deposited by the employer’s tax filing deadline, including extensions. If a business files its tax return on April 15 but requests an extension until October 15, it has until that extended deadline to make the required contributions.

The Department of Labor (DOL) enforces these rules to ensure timely deposits. Repeated delays may be considered a prohibited transaction under the Employee Retirement Income Security Act (ERISA), requiring corrective action. The IRS also monitors compliance, particularly for employer contributions, as late deposits can result in tax penalties and additional reporting requirements.

Common Administrative Oversights

Mistakes in handling SIMPLE IRA contributions often stem from administrative errors rather than intentional misconduct. Payroll processing issues, miscommunication with financial institutions, or misunderstandings of regulatory requirements can all lead to delays. Identifying the problem can help employees address it effectively.

Delayed Funding

A common issue is the late transfer of employee contributions. Some businesses fail to process them promptly due to cash flow shortages, payroll system errors, or weak internal controls.

For example, if a company processes payroll on the 15th of each month but does not transfer the withheld contributions until the following month, it risks non-compliance. Employers should establish a structured process, such as automated payroll deductions linked directly to the financial institution managing the SIMPLE IRA.

Employees should monitor their pay stubs and account statements to verify timely deposits. If delays persist, they should document the issue and escalate it to HR or payroll.

Incorrect Payroll Deduction

Errors in payroll processing can result in incorrect contribution amounts. These mistakes may occur if payroll software is not updated to reflect employee elections, if percentage-based contributions are miscalculated, or if contribution limits are applied incorrectly.

For 2024, the maximum employee contribution to a SIMPLE IRA is $16,000, with an additional $3,500 catch-up contribution for those aged 50 and older. If an employee elects to contribute 5% of their salary but payroll mistakenly deducts only 3%, they may lose out on retirement savings and employer matching contributions. Over-contributions can also create tax complications, as excess amounts may need to be refunded and reported on IRS Form 1099-R.

Employees should regularly review their pay stubs and SIMPLE IRA statements to confirm the correct amounts are being deducted and deposited. If discrepancies arise, they should notify their employer and request a correction. Employers can prevent these issues by conducting payroll audits and ensuring payroll systems reflect employee elections and IRS contribution limits.

Miscommunication with Plan Providers

Employers are responsible for ensuring contributions reach the correct accounts, but administrative errors can lead to misallocated, delayed, or lost funds.

For instance, if an employer switches payroll providers or financial institutions but fails to update account details, contributions may be sent to an incorrect or inactive account. Similarly, incomplete or incorrect paperwork can result in rejected deposits.

Employers should maintain clear records of all transactions and confirm receipt of contributions with the plan provider. Employees can check their account balances regularly and request confirmation from their financial institution. If an issue arises, they should work with both their employer and the plan provider to resolve it.

Possible Penalties for Non-Compliance

Failing to deposit SIMPLE IRA contributions on time can lead to financial and legal consequences. The DOL and IRS enforce compliance through penalties and corrective actions, which can be costly for employers. Repeated violations may also harm a company’s reputation, making it harder to attract and retain employees.

One immediate risk is employer liability for lost investment earnings on late contributions. If employee deferrals are not deposited on time, the employer may have to restore any financial losses based on what the funds would have earned had they been deposited properly. The Department of Labor’s Voluntary Fiduciary Correction Program (VFCP) provides a methodology for calculating these losses.

Late deposits can also trigger excise taxes. Under IRS regulations, delayed contributions may be considered a misuse of employee funds, potentially resulting in a 15% excise tax on the amount involved. If not corrected promptly, additional penalties may apply, including further excise taxes or even disqualification of the SIMPLE IRA plan. Plan disqualification is a severe consequence, as it could make all contributions immediately taxable to employees, creating unexpected tax liabilities.

In cases of willful non-compliance, civil and even criminal penalties may be imposed. ERISA allows the DOL to take legal action against employers who knowingly withhold or misuse retirement contributions. In extreme cases, this can result in fines or imprisonment for responsible parties.

Tax Implications for Contributions

The tax treatment of SIMPLE IRA contributions affects both employees and employers. Employee salary deferrals are made on a pre-tax basis, reducing taxable income for the year they are contributed. However, these contributions are still subject to FICA taxes—Social Security and Medicare—so employees continue to pay payroll taxes on the amounts withheld.

For employers, matching or non-elective contributions are fully deductible as a business expense, reducing taxable income. This deduction applies to businesses structured as sole proprietorships, partnerships, corporations, or LLCs. Employers must ensure contributions are properly accounted for in tax filings to avoid misstatements or potential audits.