Employer retains 401k contributions for a month

[jgombos]

What is the name of your state? NY

Is there anything to stop an employer from distributing employees 401k contributions once a month? My weekly paycheck has a pre-tax deduction. I was disturbed to discover that the employer sits on this money until the end of the month. So contributions pulled from the paycheck at the beginning of the month are not vested for 4 weeks. Also, this monthly schedule is not published, and no advance notice of this lag is given to employees. I had to chase my money to find out where it was going until I spoke to someone who told me this policy verbally.

Is there any rule on this?

If not, I'm also curious about the extreme. Suppose an employer were to hold on to employees 401k contributions for a year or more to reap some of that interest before letting go of the money.

 

[anteater]

The law says that the employer must remit the contributions as soon as it is reasonably possible for the employer to segregate the contributions from the rest of the company's general accounts. The maximum is within the 15th business day of the month following the month in which the contributions were made.

Therefore, your employer is in a grey area. They aren't in obvious non-compliance. Do they remit the contributions as soon as reasonably possible? That would be fact-specific, dependent on your employer's payroll and accounting systems.

I do not recollect any requirement that the remittance policies be disclosed, but perhaps one might exist.

 

[jgombos]

The law says that the employer must remit the contributions as soon as it is reasonably possible for the employer to segregate the contributions from the rest of the company's general accounts. The maximum is within the 15th business day of the month following the month in which the contributions were made.

If that's the case, it seems the employer is on the safe side of the gray area (in terms of the absolute maximum). 15 business days is 3 weeks, so if they pay me on March 1st, for example, they could hold on to the money until April 21st. In reality they would remit my contribution no later than April 31st in that case.

Therefore, your employer is in a grey area. They aren't in obvious non-compliance. Do they remit the contributions as soon as reasonably possible? That would be fact-specific, dependent on your employer's payroll and accounting systems.

I know they made the conscience decision to do a monthly remittance at the end of the month - probably because that's easiest for them. I don't have a clue about the legal definition of "as soon as reasonably possible", but as a practical matter, I'm sure they are not satisfying that criteria. They pay me weekly, and I recall that it didn't take more than a week to get my first paycheck; so their accounting doesn't seem to lag behind more than a week.

My approach has been to only contribute to the 401k from the last paycheck of the month - which means I have to get on the 401k website one week and six days before the end of the month, and change my contribution amount, then do the same a week later. It's a real nuissance, because my timing must be precise, and sometimes I miss the magic day to do this (a day that isn't real clear to me). When that happens, I either fail to contribute at all for the month, or I end up having to wait another month for the money to move out of the employers acct. I wish I could blow a whistle on this crap.

 

[Beth3]

My approach has been to only contribute to the 401k from the last paycheck of the month - which means I have to get on the 401k website one week and six days before the end of the month, and change my contribution amount, then do the same a week later. It's a real nuissance,

That is a nuisance. Why don't you change your payroll deduction to an automatic deduction every pay period?

 

[cbg]

There's a little more to administering a 401k plan than most people realize, particularly if the plan allows for loans. I agree that a decision to submit the contributions on a monthly basis probably exceeds the "as soon as administratively possible" regulation, but there have been occasions when it's taken me more than the recommended 15 days just to reconcile the loan activity.

 

[jgombos]

That is a nuisance. Why don't you change your payroll deduction to an automatic deduction every pay period?

I started out doing that - until I discovered that the weekly deductions were not vesting until the end of the month anyway. I was losing access to the money being deducted, yet I wasn't getting the benefit of the investment gain. Most likely my employer cashes in on interest from my earnings. In this case, it only makes sense to contribute all of or part of the last paycheck of the month, so the lag is minimal.