Plan sponsors have a fiduciary responsibility to make sure employees elective 401(k) deferral contributions are submitted to the Plan as soon as possible. The Department of Labor (DOL) has been placing greater pressure on plan sponsors to comply with the deposit requirements of segregating the contributions from its general assets as soon as reasonably possible (but no later than the 15th business day of the month following). Many plan sponsors mistakenly interpret the Department of Labor regulation to permit them to wait until the 15th business day of the following month to deposit 401(k) elective deferral contributions, even if they can segregate the funds earlier. For example, if the pan sponsor has demonstrated that they can segregate the funds in 2 days, then any remittances in excess of 2 days would be deemed late.
Small plans that are not required to have an annual audit must comply with the deposit requirements as well; however, there is a 7 business day safe harbor rule for plans with fewer than 100 participants. No such rule currently exists for plans with greater than 100 participants.
When participant contributions are not transmitted on a timely basis to the Plan, the employer/plan sponsor is deemed to have used the plan assets for their own business purposes and this is considered a prohibited transaction. The penalty on a prohibited transaction can be at least 15% of the amount involved for each year with possible additional penalties at the DOL level. If the prohibited transaction is not corrected, the penalty may be 100% of the amount involved.
So what should you do if you have deposited participant contributions late? There are a number of actions that need to be taken so you will want to research your options in correcting the problem. You can either self-correct the situation or you can correct by going through the Voluntary Fiduciary Correction Program which was created by the DOL. For more information on how to correct late participant contributions visit http://www.irs.gov/Retirement-Plans/401(k)-Plan-Fix-It-Guide—You-have-not-timely-deposited-employee-elective-deferrals.
The penalties, the administrative costs and time consuming process of correcting late remittances is burdensome, so it is prudent to consistently make the 401(k) contributions on a timely basis.
Nicole Ferraro, CPA
Principal – Packer Thomas
Feel free to contact Nicole with your questions: firstname.lastname@example.org
Tax related identity theft is a growing problem which affected more than 450,000 people in 2012 alone. Tax related and government benefit identity theft is now more common than identity theft involving financial assets, such as credit cards and bank accounts. It used to be that the “fraudsters” would obtain social security numbers (SSN’s) and other personal information via “dumpster diving” or by stealing the information from an individual’s mailbox. No doubt this still happens. However, the new and improved method of obtaining personal information now involves stealing SSN’s by the thousands via records obtained from hospitals, universities, nursing homes, and other similar organizations who collect this information from the individuals they serve. Typically, tax return identity theft is perpetrated in one of two ways. The first way involves filing a fraudulent tax return with false income & tax withholding information using the SSN of another individual in an effort to obtain an illegitimate tax return refund. The second way is for an illegal alien to use the SSN of another individual to gain employment. At the end of the year, the employer issues the illegal alien a Form W-2 reporting income under the stolen SSN. The illegal alien then files a tax return using this SSN. Regardless of the method of perpetration, tax return identity theft delays legitimate taxpayer refunds because the legitimate taxpayers return, if filed after the fraudsters return, appears to be a duplicate return. A whole host of actions then need to be taken to prove the legitimate taxpayers identity. It can sometimes take upwards of a year to accomplish this.
So, how do you protect yourself from identity theft? The most important step is to protect your social security number. Only give it out when absolutely necessary and consider not giving it out at all. Although many medical service providers request a social security number, many can and will provide services without it. This holds true of other organizations requiring a social security number as well. Another useful tool to protect yourself is to monitor your credit report and consider subscribing to a reputable credit monitoring organization such as LifeLock. There are many other steps you can take to ensure the security of your personal information as well. For more suggestions and instructions on what steps to take if you encounter identity theft, visit http://www.irs.gov/uac/Newsroom/Tips-for-Taxpayers,-Victims-about-Identity-Theft-and-Tax-Returns-2014 .
Kimberly Murphy, CPA
Manager, Packer Thomas
Feel free to contact Kim with your questions: email@example.com