I remember back in 1991 when I was the accounting manager for a community hospital, complete with a nursing home, home health agency and related health care companies. The hospital itself was under great pressure to fill its beds, reduce costs, and put in a $3 million computerized hospital management system (and this was in 1991). Needless to say, it wasn’t going well. Medicare was very slow to pay, and as a result, if you didn’t actually hold your delivery hostage at the loading dock, I wasn’t going to send out a check for past due invoices. Under pressure from senior management, I may also have been doing this to our 403(b) provider with employee contributions. Kind of like a free credit line, since I had already maxed out our $2 million revolving bank line.
Well, as luck would have it, I was ratted out. With a powerful 800-strong nurses union, Gaynel and Francine in my accounts payable department resorted to peer pressure and spilled their guts. Well, dealing with the local donut vendor paled in comparison to a cranked-up bunch of grumpy night nurses (I worked 7p-7a for 5 years as a city 911 paramedic, so believe me) banging on the accounting area hallway windows. Suffice it to say, I should have realized that embedded in the late checks was MY 403(b) contribution as well. That practice was stopped immediately.
Hold on. Are you in the clear if you unfailingly remit the contributions by that 15th of the subsequent month date. As in life, there’s always a catch. The DOL does not recognize this as an absolute “safe harbor”. The catch may allow the DOL to:
- assess penalties and excise taxes on those contributions remitted by the “safe harbor” and
- the employer may also be required to make the employee “whole” by compensating the employee for plan earnings lost for the time period when the funds were still sitting in the employer checking account rather than in the employee’s 401(k) account.
And you may have a “Gaynel” or “Francine” in your veterinary practice that may just pick up the telephone and call the Department of Labor to report an employer’s habitual tardiness with contributions, as that number is easily found on the internet. Your normal payment policy should be 2 to 3 days after each employee payday, unless that remittance day falls on holidays or weekends. If under examination it is discovered that you generally abided by the 2 or 3 day rule, penalties probably won’t be assessed.
If your practice or personal financial situation is in some financial distress though, and your line of credit happens to be employee 401(k) plan contributions, these transactions will most likely be highly scrutinized by the DOL. If payments are not made in a timely fashion consistently, the DOL has a Voluntary Fiduciary Correction Program (VFCP) where employers can calculate “lost” earnings and remit those on behalf of the employee to the 401(k) provider while avoiding penalties and excise taxes. But you actually have to register and do what is asked for.
Before veterinary practice owners force employees to unionize just to get timely remittance of 401(k) plan contributions, as a former member of IAEP Paramedics Union Local 95, I will tell you from personal experience that there is generally a less expensive and cumbersome alternative-just doing the right thing.