Dr. Janet has a 401(k) plan. She has 3 employees, none of whom have access to payroll. Every other week on payday, Dr. Janet transfers the employees’ 401(k) contributions to the plan’s recordkeeper.
In June, Dr. Janet decides to take 3 weeks off and take a cruise in Europe. She is going to keep the office open to take calls and handle emergencies, but her backup will handle any patient crises that may arise. Since the office will be open, there will be at least one payroll that occurs while she is overseas.
Dr. Janet doesn’t want to give payroll access to any of the employees. But, the 401(k) deferrals need to be submitted. She decides that she’ll simply hold off and transmit the deferrals when she gets back. She ends up transmitting the 401(k) deferrals after 9 business days, 2 days too late for the safe harbor.
How did they fix it?
Her service provider team determines that she owes interest for 2 days on the amount of the late deferrals, a staggering $0.07. She also owes an excise tax of 15% of the interest or $0.01.
How did they avoid it in the future?
Dr. Janet likes to travel. She realized that it was likely she’d miss timely depositing 401(k) deferrals in the future due to her travels. Despite the small amount of penalty involved. Dr. Janet was concerned that late deposits reported year after year on the plan’s 5500 filing might increase her changes of IRS or DOL audits in the future. After giving the issue some thought. Dr. Janet decided to outsource the transmission of her 401(k) deposits to Fiduciary Outsourcing.