Academic journal article Journal of Accountancy

401(k)s Are Now Money in the Bank

Academic journal article Journal of Accountancy

401(k)s Are Now Money in the Bank

Article excerpt

The Department of Labor drastically shortened the period employers may hold employees' 401 (k) contributions before investing them. Currently employers have 90 days, but the new rule, which takes effect February 3, 1997, will require deposit within 15 business days after the end of the month. The DOL believes the current time period tempts companies with cash-flow problems to "borrow" employees' contributions as interest-free loans.

The new rule is in line with comments sent to the DOL by the American Institute of CPAs employee benefits taxation committee, according to Robert J. Dema, the committee's chairman. An earlier DOL proposal had called for aligning the 401 (k) deposit rules with each company's payroll depository system, which in most cases would have made plan contributions due within 1 to 3 days. This could have forced some companies with multiple locations and payroll systems to make deposits many times throughout the month, according to Dema. The vast majority of the approximately 600 comment letters the DOL received on this issue protested this short time period. Even the current version has received considerable criticism from business. …

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