Under federal 401(k) deposit rules for employers, money withheld from an employee’s paycheck for a 401(k) deferral or loan repayment becomes a plan asset the moment it is withheld, and the employer must move it into the plan’s trust as soon as it can reasonably be separated from company funds.1eCFR. 29 CFR 2510.3-102 – Definition of Plan Assets — Participant Contributions Employer matching and profit-sharing contributions follow a different clock tied to the company’s tax return. Missing either deadline on employee money is both a fiduciary breach and a prohibited transaction, and it costs the employer, not the plan.
When Employee Deferrals and Loan Repayments Must Be Deposited
Employee elective deferrals, Roth contributions, and plan loan repayments all share one deadline. The Department of Labor calls it the “as soon as administratively feasible” standard, meaning the deposit must happen on the earliest date the employer’s payroll process actually allows. For most companies, that is a few business days after the paycheck date.2U.S. Department of Labor. FAQs About Retirement Plans and ERISA
There is a hard outer boundary behind that flexible standard: the deposit can never be later than the 15th business day of the month after the payroll date. Money withheld from January paychecks must reach the trust by the 15th business day of February at the absolute latest.1eCFR. 29 CFR 2510.3-102 – Definition of Plan Assets — Participant Contributions Treat the 15th-business-day mark as a ceiling. An employer whose payroll system normally funds the trust in two days but suddenly takes ten is late, even though it beat the cap. The DOL measures timeliness against what the employer’s own systems can accomplish.
The Seven-Business-Day Safe Harbor for Small Plans
If the plan had fewer than 100 participants at the start of the plan year, the employer can rely on a safe harbor. Deposit employee deferrals and loan repayments within seven business days of the withholding date and the deposit is automatically treated as timely.1eCFR. 29 CFR 2510.3-102 – Definition of Plan Assets — Participant Contributions The safe harbor is optional. A small plan employer who can fund faster is still bound by the general “as soon as feasible” standard, but hitting the seven-day mark removes any argument about whether the deposit could have been made sooner.
Plans With 100 or More Participants
Larger plans do not get the seven-day cushion. Each employer is judged against its own operational reality: payroll systems, internal processes, and prior deposit history. A company that has consistently funded in two or three days cannot start taking a week without explanation.3SHRM. DOL Rule Gives Small Plans 7-Day Safe Harbor to Deposit Employee Contributions Large plan sponsors should document their timelines and treat the fastest achievable turnaround as the benchmark.
When Employer Match and Profit-Sharing Contributions Must Be Deposited
Employer contributions follow the tax code, not the fiduciary rule. Matching and non-elective profit-sharing amounts never belonged to the employee’s paycheck, so the “as soon as feasible” standard does not apply. Instead, the deadline comes from the deduction rules: employer contributions are deductible for a given tax year if they are deposited by the due date of the employer’s federal income tax return, including extensions.4Internal Revenue Service. Issue Snapshot – Deductibility of Employer Contributions to a 401(k) Plan Made After the End of the Tax Year
For a calendar-year C corporation, that means April 15, or October 15 with an extension. Pass-through entities filing Form 1065 or 1120-S run on March 15, with an extension to September 15. Sole proprietors use the Form 1040 schedule. The employer must deposit the contribution and treat it as allocated to the prior tax year to claim the deduction on that year’s return.5Office of the Law Revision Counsel. 26 USC 404 – Deduction for Contributions of an Employer to an Employees Trust or Annuity Plan and Compensation Under a Deferred-Payment Plan
Check the plan document before relying on the tax deadline. If the plan says matching contributions must be deposited each pay period, that language controls regardless of what the IRS allows for the deduction.4Internal Revenue Service. Issue Snapshot – Deductibility of Employer Contributions to a 401(k) Plan Made After the End of the Tax Year Ignoring the plan’s own terms creates an operational failure that can jeopardize the plan’s tax-qualified status.
What a Late Deposit Costs
A late deposit of employee money is a fiduciary breach under ERISA and a prohibited transaction under the Internal Revenue Code at the same time. Three obligations follow.
First, lost earnings. The employer must make the plan whole by contributing what participants would have earned had the money been deposited on time. The DOL’s online calculator computes the amount using the IRS underpayment interest rate under IRC Section 6621(a)(2), compounded daily.6U.S. Department of Labor. Voluntary Fiduciary Correction Program (VFCP) Online Calculator For a deposit that is a day late, that figure may be trivial. For deposits weeks or months late, it adds up, and it comes from the employer rather than from plan assets.
Second, excise tax. The IRS imposes a 15% excise tax on the “amount involved” for each year or part of a year the prohibited transaction remains uncorrected. For late deposits, the IRS treats the amount involved as the interest on the late deferrals rather than the full contribution.7Internal Revenue Service. Instructions for Form 5330 (Rev. December 2025) The employer reports and pays it on Form 5330.8Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions
Third, a DOL civil penalty. If the Department of Labor investigates and secures a recovery by settlement or court order, it can assess an additional civil penalty of 20% of the amount recovered. That penalty is reduced by any excise tax already paid to the IRS for the same transaction, so the employer is not hit twice for the full amount.9eCFR. 29 CFR Part 2570 Subpart D – Procedure for the Assessment of Civil Penalties Under ERISA Section 502(l)
How to Fix a Late Deposit
Two federal programs let employers correct the problem voluntarily. Using them before the government opens an investigation reduces the financial and legal fallout significantly.
DOL Voluntary Fiduciary Correction Program
The VFCP is the primary path for late employee deferrals. The employer calculates lost earnings using the DOL calculator, deposits those earnings into the plan, and files a correction application. Once the DOL accepts the correction and issues a no-action letter, the employer also qualifies for a prohibited transaction exemption under PTE 2002-51, which can eliminate the Section 4975 excise tax entirely.6U.S. Department of Labor. Voluntary Fiduciary Correction Program (VFCP) Online Calculator One limit matters here: the exemption only applies when the late contributions were deposited within 180 calendar days of the withholding date.10Federal Register. Prohibited Transaction Exemption (PTE) 2002-51 Contributions that sat in the company account longer do not qualify for the excise tax exemption even if the VFCP correction is otherwise accepted.
IRS Self-Correction Under EPCRS
The IRS Employee Plans Compliance Resolution System lets employers self-correct certain operational failures with no filing and no fee. To use self-correction, the employer must have had reasonable practices and procedures in place to promote compliance, meaning the late deposit was a genuine mistake rather than a systemic failure.11Internal Revenue Service. Steps to Self-Correct Retirement Plan Errors The employer fixes the problem, restores any lost amounts, and keeps thorough documentation. For significant failures, correction must be completed by the end of the third plan year after the year the failure occurred.12Internal Revenue Service. Employee Plans Compliance Resolution System (EPCRS) – Revenue Procedure 2021-30
The two programs address different sides of the same problem. VFCP handles the DOL fiduciary piece and can wipe out the excise tax. EPCRS handles the IRS qualification piece and protects the plan’s tax-favored status. Employers with late deposits often need both.
Reporting Late Deposits on Form 5500
Late deposits also surface on the plan’s annual Form 5500. Plan administrators must report delinquent participant contributions on Line 4a of Schedule H for large plans or Schedule I for small plans. Every late deposit for the plan year has to be listed, even if the employer already corrected it through the VFCP. Plans subject to an annual audit must include an attachment titled “Line 4a — Schedule of Delinquent Participant Contributions” with the details.13U.S. Department of Labor. FAQs About Reporting Delinquent Participant Contributions on the Form 5500
Checking “yes” on Line 4a is one of the quickest ways to draw DOL attention, which is why employers who find a late deposit problem usually try to clean it up through the VFCP before the Form 5500 is filed. The filing itself does not resolve the breach, but it does show that the plan administrator knows about the problem and has disclosed it.