Strengthening 401(k) Remittance Controls

Recurring 401(k) errors: How strong are your remittance controls?

For many HR professionals, overseeing a 401(k) plan is complex. Contributions, eligibility tracking, participant communications, and compliance testing all demand careful coordination. While most teams focus on timely payroll deposits and accurate data feeds, an often-overlooked area is verifying that contributions truly reach the correct participant accounts in the right amounts.

We recently encountered a plan sponsor whose contribution verification process appeared reasonable on the surface. Each pay period, the HR team compared payroll registers to payment confirmations from the trustee and assumed completion without further review. While this approach is common among many plan sponsors, it left significant gaps in practice.

What was happening behind the scenes:

• Some contributions were redirected to unallocated suspense accounts at the trustee due to mismatches in participant data, which went unnoticed.
• Missed remittances were sometimes not identified until the annual audit.
• Contributions were frequently submitted after Department of Labor (DOL) deadlines. For large plans, the DOL expects contributions to be remitted “as soon as administratively feasible” and may scrutinize any remittance later than three business days after payday. Contributions later than 15 business days after payday month are considered unrebuttably late and require correction as prohibited transactions under the Voluntary Fiduciary Correction Program (VFCP). Recent updates to VFCP procedures provide clearer paths for plan sponsors to self-correct certain errors, though timely action and proper documentation remain critical. For more guidance on timing and remittance expectations, see Timely Deposits for Defined Contribution Plans.
• Historical errors remained uncorrected, while some items were inadvertently corrected multiple times due to incomplete reconciliation records.
• Misclassified contribution sources, such as employer contribution types or participant Roth versus traditional, caused downstream errors in vesting schedules or incorrect tax treatment.
• Forfeitures sat unused for years instead of reducing employer contributions as required, and propriety of some forfeitures were uncertain due to misclassified contribution sources.

Underlying problem:

The HR team focused only on the current payroll register and its payment confirmation, never reconciling cumulative month-, quarter-, or year-to-date payroll contributions to trust statement allocations. This narrow review meant that errors occurring after contributions were processed – missed allocations, duplicates, misclassifications, or missed remittances – went undetected.

Accounting processes play a role as well. Prompt recording and review of year-to-date payroll contributions and plan sponsor 401(k) liabilities could have caught some missed contributions earlier. Even so, accounting records alone cannot detect errors that occur after contributions are submitted to the trustee.

Timely remittance of contributions is a fiduciary responsibility, and plan management must monitor contributions, maintain proper documentation, and reconcile contributions to the trust statement – not just payroll confirmations – to identify errors early.

Points of risk:

1. Before contributions are remitted to the trustee: Errors or omissions in payroll or accounting can create unnoticed liabilities if records are not monitored and reconciled promptly. Failure to correct these promptly may result in prohibited transactions and require reporting as late remittances on Form 5500, Schedule H, and related supplemental schedules.
2. After contributions are remitted to the trustee: Operational errors in the remittance process, allocation errors, or trustee processing issues can prevent contributions from reaching participant accounts correctly, even when payroll and accounting records appear accurate.

Mitigating risk through integration:

To reduce the likelihood of these errors, consider integrating your payroll systems with your plan’s recordkeeping platform. This integration can automate contribution tracking and classification, helping to catch discrepancies early. However, even with automation, ongoing monitoring and oversight remain essential to ensure contributions are processed accurately and timely.

The takeaway:

Recurring errors often indicate gaps in your plan’s contribution reconciliation processes. HR and accounting teams can strengthen controls by:

• Focusing on end-to-end verification of periodic cumulative plan-year payroll contributions against trust allocations, including monitoring that contributions are remitted to the trustee on a timely basis.
• Tracking suspense accounts and historical corrections until resolution.
• Maintaining detailed documentation of any unavoidable delays in remitting employee deferrals.

While certain fiduciary or administrative functions can be outsourced to help strengthen oversight and error detection, the priority is ensuring that your internal processes – including payroll integration where feasible – address both pre- and post-submission risks before they become systemic.

How Keiter can help:

Remittance and allocation errors often come to light only during the annual audit. Keiter’s Employee Benefit Plan Audit team works with plan sponsors to evaluate their internal processes and strengthen audit readiness before issues become systemic. Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000.

Resources and further reading

• DOL Regulation 29 C.F.R. § 2510.3-102 – Definition of plan assets and timely segregation of employee contributions
• AICPA EBPAQC Primer: Timely Remittance of Employee Contributions
• DOL Voluntary Fiduciary Correction Program (VFCP)
• IRS 401(k) Plan Fix-It Guide