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SIMPLE IRA Plan Fix-It Guide - You didn’t deposit employee elective deferrals timely

Mistake

Find the Mistake

Fix the Mistake

Avoid the Mistake


7) You didn’t deposit employee elective deferrals timely.
(Video)

Compare the dates on which you withheld the elective deferral contributions and the dates on which you contributed them to the employees’ SIMPLE IRAs.

Make corrective contributions for each employee equal to the missed earnings for the period the deposits were late.

Establish procedures to ensure that the employees’ elective deferrals are made per the employees’ elections and are timely deposited.

IRS rules require you to make the elective deferral contributions no later than 30 days following the month in which you withheld the deferrals from the employee’s salary.

Generally, plans that benefit employees other than an owner-employee (and spouse) are subject to the Department of Labor rules, which require you to transfer your employees’ elective deferral contributions to their SIMPLE IRAs at the earliest date on which the employer can reasonably segregate the contributions from the employer’s general assets. There is a 7-day safe harbor to deposit elective deferrals for which most SIMPLE IRA plans qualify.

How to find the mistake:

Review your records to determine if you deposited the contributions by the required dates. For each pay period, review the date you withheld elective deferral contributions from the employees’ salaries (typically the same date that you paid employees) and compare it with the date the contributions were deposited to the employees’ SIMPLE IRAs. If the deposits weren’t made by the earliest deadline, you have a plan error.

How to fix the mistake:

Corrective action:

If you didn’t deposit employee elective deferrals timely, make an additional contribution of the earnings that the contributions would’ve accrued if they were timely contributed.

If it’s not feasible to determine what the actual investment results would’ve been, you may use a reasonable rate of interest, such as the interest rate used by the Department of Labor’s Voluntary Fiduciary Correction Program Online Calculator.

Correction programs available:

Self-Correction Program:
If you fail to pay contributions to the IRAs on time, but meet the other eligibility requirements of SCP, you might be able to use SCP to correct the mistake. You’d have to determine whether:

  • Appropriate practices and procedures were originally in place to facilitate compliance with requirements for calculating and depositing the elective deferrals.
  • The failure is insignificant.

Voluntary Correction Program:
Under VCP, correction is described under “Corrective action,” above. If the plan isn’t under audit, you may make a VCP submission using the model documents in Appendix C, including Form 14568-D, Schedule 4 – SIMPLE IRAs. You must include Forms 8950 and 8951.The fee for the VCP submission is $250.

Audit Closing Agreement Program:
If this mistake is discovered on audit, you may correct it under Audit CAP. Correction under Audit CAP should be very similar to correction under SCP. The sanction under Audit CAP is a percentage of the maximum payment amount.

If you paid elective deferral contributions late, you should also correct this mistake under the DOL’s Voluntary Fiduciary Correction Program.

How to avoid the mistake:

The SIMPLE IRA plan administrators should be familiar with the plan document terms. The administrators should make sure that plan procedures follow the plan terms for depositing elective deferrals. Examples of administrative procedures include using checklists, software and manuals outlining the steps for depositing employee elective deferrals.

Establish plan administrative procedures to ensure that you’ve made employees’ salary deferral contributions to the employees’ SIMPLE IRAs shortly after you withheld the amounts from their paychecks. (Note: The DOL timeframe for timely deposit is shorter than the IRS timeframe. Therefore, if your plan is subject to the DOL rules, you should use the DOL timeframe for designing administrative procedures.)

SIMPLE IRA Plan Fix-It Guide
SIMPLE IRA Plan Overview
EPCRS Overview
SIMPLE IRA Plan Fix-It Guide (pdf)
SIMPLE IRA Plan Checklist (pdf)
IRA-Based Plans Additional Resources

IRS.gov / Retirement Plans / Correcting Plan Errors / Fix-It Guides / SIMPLE IRA Plan Fix-It Guide / Potential Mistake

Page Last Reviewed or Updated: 10-Jun-2016