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Your Contributions: Long Day's Journey Into ... Your 401k

Meticulous money mavens know the cold, hard truth: the time frame for depositing your 401k contributions into the funds of your choice is hardly the same as, say, making a deposit in your checking account.


In fact, it can take days or weeks after your contribution is withheld from your paycheck before your employer actually transfers the money to the 401k account.

This is sometimes a source of concern for participants who fear they are missing out on interest, or worse yet, that their employer is doing something fishy with their money.

But in most cases there is no need to worry. The normally short delay in getting your money into the funds is due to administrative constraints. The Department of Labor has enforceable regulations governing when your employer has to deposit your money. And when push comes to shove, you are getting tax-deferred benefits from your 401k that you wouldn't get from a taxable account.

For those of you who like to know where your money is at all times (and rightfully so!), here's a rundown of your contribution's long day's journey into your 401k plan.


The first step is for your employer's payroll department to withhold your contribution from your paycheck. This amount plus any employer matching contribution has to be verified by your payroll office - not just for you, but for every employee who contributes to the plan! This can take a while, especially if your payroll department is small and/or your company is big.


While those tasks are being done, your money usually remains part of your employer's assets. Many companies deposit the money into a short-term income fund (STIF) while they are verifying the calculations. Yes, these accounts usually earn some interest, and no, you most likely won't get it, because STIFs usually belong to the employer.

Before you complain that your employer is "STIFing" you, you should remember that these accounts don't earn much interest, and what they do earn is often used by the employer to offset plan expenses (perhaps enabling your plan to have more features). What's more, there is a limit to how long your employer can hold the funds before facing possible fines and administrative hassles by the Department of Labor (DOL), the nation's 401k watchdog.

Remember, too, that in the long run you are likely earning more by putting your money in a tax-deferred plan than you would by investing it after taxes.

Says Ted Benna, noted benefits expert, "Get real, folks. Your company incurs a heck of a lot of expense just by having the plan." And for retirement savings, there's no better deal than a 401k.

If your employer does seem to be holding your funds for too long, and your reasoned appeals for speeding up the process fall on deaf ears, you can contact the Employee Benefits Security Agency of the DOL at www.dol.gov or (202) 219-8776.

Outer Limits

Your employer has to send the 401k plan assets to the plan trustee no later than 15 business days after the end of the month in which the money is deducted. This may seem like a long time, especially if your paycheck comes at the beginning of the month, but you should keep in mind that this is not a "deadline" per se, but an outer limit. The Department of Labor (DOL) regulations that govern 401k plans actually require your employer to put assets destined for the plan into the plan as soon as possible.

If you get paid on the 10th of each month, for example, and your employer only sends your money to the trustee 15 business days after the end of the month, your employer may be fined if audited by the DOL, says Mr. Benna. He always advises his plan sponsor clients to make the transfer before the end of the month.

Originally, the DOL regulations imposed a 90-day outer limit, but this was shortened in 1997 because some employers were found to be abusing the system.

The DOL has made another change for retirement plans with fewer than 100 participants. In such plans, contributions must now be deposited with the 401k no later than the seventh business day following the day on which such amount was deducted from the employee's paycheck.

Your employer can request an extension of 10 business days beyond the 15 allowed, but most don't because it involves time-consuming administrative procedures and the embarrassment of notifying employees of the delay.

In Trustees We Trust

The next step is for your employer to send the plan money to your plan's trustee. The trustee is generally a bank, insurance company, investment company or other legal entity responsible for making sure nothing untoward happens to your money.

The plan trustee then wires your money to the investment manager (the company managing the funds for your plan) usually within 24 hours of receiving it from your employer.

Voilà! Your money should now be invested according to your instructions. What happens to it now depends on the investment choices you make.

See the following additional information and articles:

Timing on the Deposit of Employee Contributions

Contribution Timing and Collection Responsibility, a Q&A

This is for educational purposes only. The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

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