Penalty Exposure to Untimely Deposit of Pension Withholdings - June 2003

FURTHER DEVELOPMENTS

We recently issued an alert advising employers of the importance of immediately depositing withholdings from employee participants in an employer’s pension plan. As noted in that alert, we pointed out the common misconception that there is a safe harbor deposit period of 15 days following the month in which the withholdings occurred. The DOL disagrees with any such 15-day safe harbor period and has, on audit, assessed penalties in cases where deposits were made beyond the 3rd day after withholding. 

As further evidence of the DOL’s interpretation of the timely deposit requirements, a significant, albeit subtle, modification has been made to Form 5500. Specifically, question 4a in earlier versions of Schedules H and I inquired whether the employer failed to make the deposit within the "maximum" time period permitted under the regulations. This reference to the "maximum" time period suggested to some employers that a deposit by the 15th business day of the month following the month of withholding was a safe-harbor in that it constituted the "maximum" time period under the regulations. 

However, question 4a was changed in the 2002 version of Form 5500 by removing the word "maximum" forcing employers to confront the question whether such deposits were made as soon as reasonably possible. This is a further signal that the DOL disagrees with the 15-day safe-harbor interpretation. With this change to question 4a, an employer will have more pressure to answer question 4a "yes" if it could have deposited the elective deferral earlier than the 15th business day in the following month and it did not (i.e., by answering "yes" to question 4a, the employer is stating that it failed to make the deposit as soon as reasonably possible). 

Accordingly, as we strongly advised in our last alert, deposits should be made immediately upon withholding. If you are not making deposits immediately upon withholding, you may contact a Feeley & Driscoll audit or tax partner for further advise at info@fdcpa.com or (617) 742.7788. 

To contact Feeley & Driscoll, please click here or call us at 1 (888) 875-9770.