I have a problem with my 401K and I was wondering what some might think is the cause.
I don’t think many people at my job use the 401 k option, so it is probably a small amount of participants (I say this in case this comes into play). Lately, instead of contributing my deduction on the day it occurs, it now sometimes happens a week later. Occasionally I’ll get two contributions in a week as a sort of catch-up (I’m guessing). However, one contribution seems to be skipped entirely from mid-August. I had one skipped before, then wrote to the administrator about it; never got an answer, but eventually it was contributed. This last time I actually called instead of doing it over email, and was told the fault lies with my employer…that does make sense to me.
I am going to contact HR certainly, but I was just wondering - any reason something like this would happen, i.e., a new schedule of contributing, skipped contributions? Would the company be trying to earn interest on the money, for obvious contemporary reasons? Is it trying to cut costs by sending the contributions over less frequently (not sure how that would cut costs, but perhaps it does, maybe because of a smaller pool of participants)? From what I’ve read, there is a lot of leeway for companies to create a schedule of releasing deductions to the administrator, but at some point there is a limit, too.
I just feel I want quicker exposure to the volatility in the markets…I’d rather it be on a set schedule, preferably the investment on the day of deduction like before…
Just like there are laws about how much time may elapse between withholding various taxes and remitting those amounts to the relevant authority, there are probably laws about how much time may elapse between withholding 401k contributions and depositing them into the 401k account. Paging @aj485, our local expert about anything tax-related.
Story: Many years ago, more than 2 decades ago, a friend joined a company and rolled over their former 401k (or IRA?) into the new 401k account. An incompetent HR/payroll person (it was a startup, so one person did this stuff at the time) received the envelope containing the rollover check, and they put it into their desk drawer unopened. It remained there for many months, unopened, uncashed, undeposited, for close to 7 months as I recall. As a result, I believe it lapsed the required period of time to be considered a rollover, and all sorts of bad things related to taxes occurred. In the end, due to the incompetence, the HR/payroll person was [eventually] removed, and the company made my friend whole in various costly ways that took that tax year, and the next tax year to rectify, at least to rectify as best as possible.
Sorry to say - the likely causes are likely to be along the lines of incompetence, either by the plan administrator or your employer, cash flow issues at your employer, or purposeful bad acts by someone at your employer or the plan administrator.
That would be a purposeful bad act, since the money does not belong to the employer - it is your money and is supposed to be held separately from your employer’s money.
Employers are supposed to deposit contributions that have been withheld from an employee’s check as soon as possible. Since they were previously able to deposit it on the same day, it seems that holding it past that point would be a purposeful bad act, unless they have made a recent change in administrator. Even then, I would say that in this day and age, changing administrators to one that is unable to make prompt deposits borders on being a purposeful bad act, since electronic transfers of funds are generally able to be accomplished in no more than 2 - 3 days.
If you get no answer, an unsatisfactory answer, or if things do not improve, I would strongly suggest contacting the Department of Labor, since that’s the organization that regulates 401(k)s. Here’s a link to their webpage that has a link to submit a complaint Ask EBSA | U.S. Department of Labor (dol.gov)
Thanks Mark and Aj for your replies. Mark, that is quite a story…what a nightmare for your friend. Sorry that happened.
Aj, that info is great, and honestly, I think per what you say, there were some bad acts going on here. And I cannot interest anyone in sharing with me whether they had delays. I have no idea why. It’s really strange - no one seems to care about their 401ks.
Here’s what happened : after contacting HR, the contributions were finally made, and my latest check saw no delay. I received a very careful email that actually went out of its way to state nothing was going on except for a glitch…which makes me more suspicious. I’m really curious - where was the money when it was in limbo?
Thanks for that DOL link…I am keeping it handy in case this happens again. (There are other things too happening at my workplace, more safety issues mostly, and it’s starting to make me think; I know they are definitely in cost-cutting mode and monitoring cash flow)
I would guess that it was still in your employer’s bank account. I would definitely keep any correspondence you’ve received about the delays, and documentation on when the deposits are actually made. The explanation that it was a glitch does seem suspicious, especially when considering that this is not the first time the deposits have been delayed.
That does make me wonder if your employer is trying to conserve cash going out of their bank account by delaying 401(k) contributions. The thing about it is - if you hadn’t signed up to make 401(k) contributions, they would have had to pay you the money in your paycheck, so it’s definitely not their money to keep for any reason.
Employers are supposed to deposit contributions that have been withheld from an employee’s check as soon as possible. Since they were previously able to deposit it on the same day, it seems that holding it past that point would be a purposeful bad act, unless they have made a recent change in administrator.
Yes to this. I am recently retired, and part of my job consisted of administering our 403b plan, which basically falls under the same rules as 401k’s.
Our plan was large enough to require being audited every year (more than 100 people with “account balances”), and what I was told by our auditor and by our ERISA attorney was that contributions deducted from employee paychecks must be remitted into the Plan “as soon as administratively feasible”. In this day and age of electronic remittances, that’s pretty much the day of payroll, and as AJ says, if they’ve done it on the day of payroll even once before, they’ve shown that that is “administratively feasible”.
If your Plan is large enough to require being audited, this should stick out like a sore thumb and be caught by the auditors, particularly if it’s happened repeatedly. They could require that the employer make up for lost earnings during the time period where the money was held onto. There is an IRS formula for doing so.
I don’t want to pass too much judgement without knowing what is going on, but this doesn’t sound good at all. If there was a change of payroll service, that can cause a surprising amount of problems that can be surprisingly hard to rectify (I went through that a couple years ago). But once the employer knows there’s a problem, they should be able to keep it from happening repeatedly, even if it’s a pain in the rear (which it was for me!).
S*t happens, so an occasional late deposit can happen due to software issues, payroll person being on vacation or out sick, new personnel, etc., but it shouldn’t happen on a regular basis.