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Greetings, Masterwjm, and welcome. You asked:

I recently started working for a new employer and began investing in their 401K as soon as I started. My contribution is deducted from every paycheck (every 2 weeks), but it is not automatically deposited in the 401K account. In fact it is not deposited, according to the HR guy, until 15 days after, the month after, it is deducted (usually 45 days). Is this legal? Is there anything I can do about this?

As I said in this week's column, "Timely 401(k) Deposits" at :


The Department of Labor (DOL), through the Pension and Welfare Benefits Administration (PWBA), protects the integrity of pensions, health plans, and other employee benefits. Included within that mandate is oversight of 401(k) plan administration. Currently, DOL regulations require that sums withheld from an employee's paycheck for the purpose of making a contribution to a 401(k) plan must be deposited in the participant's account "as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets." That date may not be later than the 15th business day of the month following the month in which the payroll deduction occurred.

To clarify what that gobbledygook means, consider a plan participant who was paid on every Friday during the month of June 2001. That person had five paydays, meaning a 401(k) contribution was deducted five times in that month, the last on June 29. Legally, the employer has until the 15th business day of July -- or until Friday, July 20 -- to get those payroll deductions into the participant's 401(k) account. In theory, then, the payroll deduction that occurred on June 1, 2001, doesn't have to reach the participant's account until seven weeks have passed, or 49 days after the money was first taken from the employee's paycheck.

Note, however, that this deadline is an extreme. It is not intended to be the rule. In reality, the DOL says the money must be transferred to the plan trustee as soon as it's administratively feasible. In fact, if that doesn't happen, then a DOL audit of the plan could result in a heavy fine to the employer. That fine may be quite expensive, too. For an example of how seriously the DOL takes this issue, just review the PWBA press release that covers one such settlement.


If you think this proviso is being violated, see the column for actions you may take to rectify the situation.


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