Contributions and participant data are the two plan-specific areas where the DOL's 2015 audit quality study (2011 filings) recorded its largest finding counts. The most frequent contribution finding was failure to test timely remittance of employee contributions (53 occurrences), and the most frequent participant data finding was failure to test allocations to participant accounts (89). This guide sets out the rule for deposit timing, the reporting consequences of a late deposit, the correction path, and a testing plan for both areas. Background is in the 401(k) audit requirements guide and the findings summary.
When a deferral becomes a plan asset
Under 29 CFR 2510.3-102, amounts a participant pays to an employer or has withheld from wages for plan contributions or loan repayments become plan assets on the earliest date they can reasonably be segregated from the employer's general assets. The regulation sets outer limits:
- Pension plans: no later than the 15th business day of the month following the month in which the employer receives the amounts or in which they would otherwise have been payable to the participant in cash.
- SIMPLE IRA plans: no later than the 30th calendar day after the month in which the amounts are received or would have been payable.
- Welfare plans: no later than 90 days after receipt or after the date they would have been payable in cash.
A business day is any day other than a Saturday, Sunday, or federal holiday.
The 15th-business-day limit is an outer limit, not a safe harbor. A plan whose payroll and deposit systems can segregate deferrals in two days has a plan-asset date two days after payday, even though the outer limit is weeks away.
The seven-business-day safe harbor
For a plan with fewer than 100 participants at the beginning of the plan year, a deposit made no later than the 7th business day after the employer receives the amount, or after it would otherwise have been payable to the participant in cash, is deemed contributed on the earliest segregation date. The safe harbor is optional and is not the only way to meet the general rule. The Form 5500 instructions repeat the same seven-business-day language for line 4a.
Plans with 100 or more participants have no safe harbor. For them, the test compares each deposit to the earliest date the employer could reasonably have segregated it. The employer's own deposit history is the evidence for that date.
What a late deposit is
An employer holding participant contributions commingled with its general assets after the earliest segregation date has engaged in a prohibited use of plan assets under ERISA section 406, according to the Form 5500 instructions. Where a nonexempt prohibited transaction occurred with a disqualified person, the employer files IRS Form 5330 to pay any applicable excise tax. The IRS describes Form 5330 as the form to report and pay the excise tax related to employee benefit plans.
Reporting a late deposit on the Form 5500
The Schedule H instructions for line 4a state the following. Schedule I line 4a and Form 5500-SF line 10a carry the same item:
- The total amount of late contributions for the year is entered.
- The amount is reported for the year in which the contributions were delinquent and carried forward on each later year until the year after the violation has been fully corrected by payment of the late contributions and reimbursement of the plan for lost earnings or profits.
- Late contributions are reported at least for the year in which they were delinquent, even if corrected by year end.
- Late participant loan repayments are reported either with the delinquent contributions on line 4a or on line 4d, and the same supplemental schedule and audit disclosure requirements apply when they are included.
The instructions' own example: a contribution first delinquent in 2022 and fully corrected in 2023 appears on the 2022 and 2023 returns, and not on the 2024 return.
For a plan with an IQPA report, a Schedule of Delinquent Participant Contributions is attached to the return. The instructions state that the independent accountant's report covers the delinquent contributions as part of the schedules required under ERISA section 103(a)(3)(A). If the schedule is incomplete, inaccurate, or inconsistent with the financial statements, the report makes the appropriate disclosures in accordance with GAAS. The plan also has an obligation to include delinquent contributions in its financial statements and supplemental schedules.
Correction: VFCP and the Form 5330 relief
The DOL's Voluntary Fiduciary Correction Program (VFCP), first adopted in 2002, was last updated in January 2025, with the changes effective March 17, 2025. The program's Self-Correction Component, an online tool, covers two transaction types: delinquent participant contributions and loan repayments, and eligible inadvertent participant loan failures. The steps are:
- Identify the violation and check that it is a covered transaction.
- Correct it under the process for that violation type.
- Calculate and restore lost earnings or profits, with interest where applicable, and distribute any supplemental benefits.
- File an application with EBSA with documentation of the correction.
The Form 5500 instructions state the tax consequence. Late contributions for which the VFCP requirements and the conditions of Prohibited Transaction Exemption 2002-51 are satisfied do not need to be treated as nonexempt party-in-interest transactions. Applicants who satisfy both the VFCP and PTE 2002-51 are eligible for immediate relief from certain prohibited transaction excise taxes for the corrected transactions, and are relieved from filing Form 5330 for them. The 2025 instructions cite 90 Fed. Reg. 4192 and 90 Fed. Reg. 3667 (both January 15, 2025) for the program and exemption changes.
A correction outside VFCP keeps the Form 5330 filing for any applicable excise tax, and the late amounts stay reportable until the plan is made whole with lost earnings. The audit file shows which route the sponsor took.
Testing plan: contributions
- Population. Obtain payroll registers for every pay cycle and the recordkeeper's contribution activity. Agree total deferrals per payroll to the amount remitted.
- Timing. For each sampled pay date, compare the payroll date to the date funds were received by the trust. Compute business days using the regulation's definition. For plans under 100 participants, compare to seven business days. For larger plans, compare to the sponsor's demonstrated pattern.
- Completeness of the schedule. For every deposit that failed, check that it is on the Schedule of Delinquent Participant Contributions with lost earnings computed.
- Compensation definition. Recalculate deferrals and match against the plan document's definition of compensation.
- Forfeitures and receivables. Test how forfeitures were used against the plan document and recompute year-end contributions receivable.
- Rollovers. Test material rollovers into the plan for compliance with the plan document.
Testing plan: participant data
- Reconcile total individual participant accounts to total plan assets and to the trustee statement.
- Test allocations of contributions, earnings, and forfeitures to the sampled participant accounts.
- Test payroll data feeding the recordkeeper: hours, compensation, and deferral elections for the sample.
- Test eligibility, terminations, and forfeitures against the plan document.
- Test investment options elected by participants against the recordkeeper's records.
- Evaluate the service organization. If the file relies on a SOC 1 report for the recordkeeper, identify and test the complementary user entity controls at the sponsor. The 2015 study recorded ten participant-data findings for inappropriate SOC 1 reliance.
Client request list before fieldwork
- Payroll registers by pay date and the deposit confirmations from the trustee.
- The plan document, amendments, and adoption agreement.
- The census at the first day of the plan year and the year-end participant listing.
- Lists of terminated, rehired, and forfeited balances.
- The prior year's delinquent contribution schedule and any VFCP or Form 5330 filings.
CORAA prepares the deposit-timing schedule from the client's payroll and bank records, with lost-earnings drafts and tick-mark support, so the exceptions list reaches you ready to review. You decide what is reportable and you sign.
Sources
- 29 CFR 2510.3-102, eCFR: https://www.ecfr.gov/current/title-29/section-2510.3-102
- DOL EBSA, 2025 Instructions for Form 5500 and Schedule H (line 4a delinquent participant contributions): https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500
- DOL EBSA, Voluntary Fiduciary Correction Program: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp
- IRS, About Form 5330: https://www.irs.gov/forms-pubs/about-form-5330
- DOL EBSA Office of the Chief Accountant, Assessing the Quality of Employee Benefit Plan Audits (May 2015): https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/dol-report-assessing-quality-of-employee-benefit-plan-audits-2015.pdf
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