ERISA Deposit Timing Safe Harbor for Small Plans: 7-Day Count

If you sponsor a retirement plan with fewer than 100 participants, the ERISA deposit timing safe harbor for small plans gives you a clean deadline: deposit employee contributions into the plan trust within seven business days of the payroll date, and the Department of Labor will treat the deposit as timely without second-guessing whether you could have moved the money faster.¹ Miss that window and the deposit becomes a prohibited transaction, with lost earnings, excise tax, and a Form 5500 disclosure attached.

Which Plans Qualify as Small

The safe harbor is available only to plans with fewer than 100 participants at the beginning of the plan year.¹ That count is taken once, on the first day of the plan year, and it governs the entire year. A plan that starts the year at 85 participants and grows to 110 by September keeps the safe harbor through year-end.

Plans sitting near the threshold get some breathing room from the DOL’s 80-to-120 participant rule. If a plan had between 80 and 120 participants at the start of the plan year and filed as a small plan the year before, the administrator can continue filing and operating as a small plan.² Once the plan crosses 120 at the start of a plan year, or the sponsor elects to file as a large plan, that flexibility is gone and large-plan standards apply.

How the Seven-Business-Day Count Works

Under 29 CFR 2510.3-102(a)(2)(i), employee contributions deposited within seven business days of the payroll date are automatically deemed to have been segregated from company assets as early as reasonably possible.¹ Weekends and federal holidays don’t count. Day one is the first business day after the payroll date, so a Friday payday puts day one on Monday (assuming Monday isn’t a holiday) and day seven on the following Tuesday. Miscounting by a single day can turn a compliant deposit into a prohibited transaction, so the arithmetic matters.

What the rule covers is money withheld from employee paychecks: pre-tax salary deferrals, Roth contributions, and participant loan repayments. Employer-funded contributions like matching and profit-sharing dollars are not participant contributions and follow their own timeline tied to the sponsor’s tax return, not the seven-day window.³ Payroll systems often withhold the deferral and the match in the same run, which is where small employers get confused. The deferral has to be in the trust within seven business days; the match does not.

One boundary worth flagging: the safe harbor also reaches small welfare benefit plans, and the outer deadline for a welfare plan that misses the safe harbor is 90 calendar days rather than the 15-business-day cap that applies to pension plans.⁴ Plans with 100 or more participants get no safe harbor at all; the DOL evaluates their deposit timing based on their actual administrative capabilities, and past deposit patterns set the practical deadline.⁵

Participant Loan Repayments Follow the Same Rule

Loan repayments withheld through payroll are participant contributions for deposit-timing purposes. They become plan assets on the withholding date and must reach the trust within the same seven business days.¹

Late loan deposits carry a second layer of risk. If a scheduled repayment doesn’t post on time, the loan can go into default. Most plans allow a cure period, but it only runs through the end of the calendar quarter following the quarter in which the payment was originally due.⁶ Miss the cure period and the IRS treats the outstanding balance as a deemed distribution, with income tax and a possible 10% early withdrawal penalty for participants under 59½. An administrative slip on the employer’s side can turn into a tax bill for the employee.

What Happens When a Deposit Is Late

A late deposit, even by one day, is a prohibited transaction under both ERISA and Section 4975 of the Internal Revenue Code. Several obligations follow.

Lost earnings. The employer has to calculate what the delayed money would have earned if it had been invested on time and deposit that amount into each affected participant’s account. The DOL provides an online calculator at askebsa.dol.gov.
Excise tax. The initial tax is 15% of the amount involved for each year or partial year the violation persists during the taxable period. If the employer fails to correct the transaction by the end of the taxable period, an additional 100% tax on the amount involved applies. Neither tax is deductible.⁷
Form 5330. The employer files IRS Form 5330 to report and pay the excise tax. The filing is due by the last day of the seventh month after the end of the employer’s tax year, with a six-month extension available on Form 8868.⁸
Form 5500 disclosure. Late deposits are reported on the plan’s annual Form 5500, which flags the violation for EBSA and raises audit risk.

The amount involved is generally the contribution itself for the period it sat in the employer’s account rather than the plan trust. Even a small dollar amount can produce outsized compliance costs once you add up the lost-earnings calculation, the excise tax filing, and the time to document the correction.

Fixing a Late Deposit

The Voluntary Fiduciary Correction Program (VFCP) gives employers a structured way to fix late deposits and avoid a DOL enforcement action. A full VFCP filing requires depositing the delinquent contributions plus lost earnings, submitting supporting documentation to the appropriate EBSA regional office, and signing a penalty-of-perjury statement.⁹ If EBSA accepts the application, it issues a no-action letter confirming it won’t pursue civil enforcement over the corrected transaction.

The program isn’t available if the plan or the applicant is already under investigation by EBSA, the IRS Employee Plans division, the PBGC, or a state attorney general in connection with the transaction being corrected.¹⁰ The window to use the VFCP is before regulators show up.

Excise Tax Relief Under PTE 2002-51

The bigger reason to file through the VFCP rather than quietly fixing the deposit is excise tax relief. Prohibited Transaction Exemption 2002-51 can eliminate the Section 4975 excise tax on corrected delinquent deposits, but only if specific conditions are met. For standard VFCP applicants, the contributions must have reached the plan within 180 calendar days of the withholding date, and the applicant must provide written notice to affected participants within 60 days of submitting the application.¹¹ If the total excise tax at stake is $100 or less, the participant notice requirement is waived.

Self-Correction for Smaller Violations

An early-2025 update added a Self-Correction Component to the VFCP for delinquent participant contributions. To qualify, lost earnings on the late deposits must be $1,000 or less, and the contributions must have been remitted to the plan within 180 calendar days of the withholding date.¹² Self-correctors don’t receive a no-action letter. Instead, they file an electronic notice through EBSA’s online tool, pay the lost earnings and the excise tax equivalent into the plan, and retain documentation for the plan’s records. The self-correction option is open to plans of any size, not just small plans.

For the typical small-plan mistake, a deposit that’s a few days late involving a modest dollar amount, self-correction is often the practical choice. It keeps the violation out of the enforcement pipeline and limits the financial impact to lost earnings plus the excise-tax-equivalent payment made into participant accounts.

1
eCFR. 29 CFR 2510.3-102 – Definition of Plan Assets Participant Contributions
2
U.S. Department of Labor. Frequently Asked Questions On The Small Pension Plan Audit Waiver Regulation
3
U.S. Department of Labor. FAQs about Retirement Plans and ERISA
4
eCFR. 29 CFR 2510.3-102 – Definition of Plan Assets Participant Contributions
5
U.S. Department of Labor. ERISA Fiduciary Advisor
6
Internal Revenue Service. Plan Loan Cure Period
7
Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions
8
Internal Revenue Service. Instructions for Form 5330
9
U.S. Department of Labor. Fact Sheet: Voluntary Fiduciary Correction Program
10
U.S. Department of Labor. Enforcement Manual – Voluntary Fiduciary Correction Program
11
Federal Register. Prohibited Transaction Exemption (PTE) 2002-51
12
Federal Register. Voluntary Fiduciary Correction Program