We are all learning together to navigate uncharted waters as COVID-19 travels around the world.  We must all be vigilant and exercise caution and preventative measures in order to slow the spread of the virus to something manageable.  All of us are dealing with financial unknowns as we begin to adapt to a new environment of social distancing for the short-term future.

Many of you have questions regarding the ability to fund contributions in your 401k Plan.  The 401(k) funding requirements differ depending on the contribution.

Please note that any reference to a tax filing due date below includes extensions, if one is or has been filed.

When do 401(k) (or 403(b)) elective deferrals need to be deposited?

For small business (less than 100 employees), your 401k contributions are considered timely if you deposit them to the 401k Plan within seven business days of the pay date.  Large companies may need to deposit them even sooner as they are held to an “as soon as administratively feasible” standard.

These are the most important contributions to fund to your 401k Plan since this is money that would have otherwise been paid to the employees.

Participants have the right to stop their 401k or 403b deferrals at any time. 

When do “safe harbor” contributions need to be deposited?

Because the safe harbor contribution is an employer contribution, generally, it does not need to be deposited until the due of the plan sponsor’s tax return.  This is true for both safe harbor “non-elective” and “match” contributions that are determined on an annual basis.   Certain safe harbor match contributions may need to be deposited sooner, but there is flexibility in how soon the contributions must be deposited.

If you are unsure whether or not you have a safe harbor plan and your plan document is supported by us, please review Section C, question 1.a.

If you are unsure of how your matching contribution is determined and your plan document is supported by us, please review Section C, question 11.a 

If your plan is a safe harbor “non-elective” plan, you are not required to deposit your contributions until the due date of your tax deadline, including extensions.  You are not required to fund during the year.  If you are making contributions now, you can stop and fund additional contributions later. We can help you determine the annual amount and what needs to be funded later after the plan year has ended.

If you have a safe harbor match contribution that is determined annually, you are not required to fund contributions throughout the year.  We can help you determine the annual amount and what needs to be funded later after the plan year has ended.

If you have a safe harbor match contribution that is required to be funded throughout the plan year, there is some flexibility in the timing of the contributions.  The contributions will need to be calculated each pay period but they do not have to be contributed to the plan until the end of the quarter following the quarter in which the pay date occurred.   This would already provide relief for any safe harbor contributions that apply for pay dates that occur between January 1, 2020 and March 31, 2020.  Safe harbor match contributions that were determined for pay dates in the first quarter do not need to be deposited until June 30, 2020.   Any safe harbor contributions that are calculated on pay dates that occur within the second quarter of 2020 have until the end of the third quarter of 2020 to be funded.

If this is not enough relief, there is one other option that is currently  available.  Even if contributions are not deposited timely by the end of the following quarter, you could delay funding as late as the due date of your company’s tax return but only if you do what is known as an “annual true up” to perform the calculations on an annual basis and fund any amounts owed as part of the annual calculation.  We will help determine the amounts due after the 2020 plan year has ended.

The IRS has not provided any relief on these requirements but we all must remember this is uncharted territory and best practices and procedures should apply.  If you are unable to fund your contributions like you normally would, you should first notify the employees so they can make informed decisions on whether or not they are able to continue to contribute their own 401k contributions to the plan.

Do Profit Sharing Contributions still need to be made?

Most often, no.  Profit sharing contributions are generally written in as discretionary.  If your plan document is supported by us, you can identify the discretionary contribution under Section D, question 17.a.

What if the temporary relief is not enough and I cannot afford to fund any contributions?

Please see our post about suspending or changing a Safe Harbor Plan.