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401(k) plan deferrals are not deposited to the trust in a timely manner

A plan sponsor’s failure to deposit funds in a timely manner may constitute a prohibited transaction under ERISA, for which the IRS may assess excise tax.

In this event, the plan sponsor should do the following to remedy the situation.

  • Immediately deposit the funds, adjusted for any “missed” earnings, to the plan participants’ accounts.
  • Determine the amount of the excise tax. An explanation regarding the excise tax is provided here.
  • Complete IRS Form 5330, reporting the prohibited transaction and related excise tax, and file the form with a check for payment of the tax.
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