FLASH IN THE PLAN – DOL ENFORCEMENT TARGET:LATE DEPOSIT OF DEFERRALS/LOAN REPAYMENTS

By: Alison J. Cohen, Esq.

In April 2026, the U.S. Department of Labor (“DOL”) issued Field Assistance Bulletin 2026-01 (“FAB”) regarding their priorities for investigating plans and issuing new regulations. What should be of important interest to Plan Sponsors and Plan Administrators, and what we are already seeing in the field, is that DOL investigators are targeting plans that have acknowledged the late deposit of employee deferrals and loan repayments on their Forms 5500.

On Line 10a of Form 5500-SF and Schedule H/I Line 4a of Form 5500, a plan sponsor is required to report all late deposits of participant contributions. Late deposits include those that are paid from the company to the plan later than time period outlined in the DOL’s regulations, which is described below (“Deposit Timing”). Once a late deposit is reported on Form 5500/5500-SF, the DOL can easily identify the plans with problems by culling the electronic filings with an algorithm. We have already seen an increased number of emails from the DOL to Plan Administrators who have reported late deposits. The content of the first DOL email sent to the Plan Administrators on this issue usually contains a gentle reminder that the DOL offers a program called the Voluntary Fiduciary Correction Program (“VFCP”) for correcting this failure. (As an aside:  don’t consider failing to report properly on Form 5500 or 5500-SF to avoid DOL scrutiny. You file that Form under penalty of perjury.)

Why are Late Deposits so Important?

Employee deferrals (both pre-tax and Roth), as well as participant loan repayments, are employee funds, not employer funds. As such, if an employer holds these funds beyond the Deposit Timing, it is treated by the DOL and the Internal Revenue Service (“IRS”) as a loan from the plan to the employer, which is a prohibited transaction. The reason for this treatment is that the employer is holding onto employee funds in its own accounts, thereby essentially ”borrowing” those amounts from the employees. This prohibited transaction violates both the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Internal Revenue Code (the “Code”). If the DOL considers a Plan Sponsor’s behavior in failing to deposit deferrals to be egregious (usually involving a complete failure to deposit deferrals), it can treat this as embezzlement. (Not a great word and a federal crime.)

What Are the Deposit Timing Rules – Or, In Other Words, When Must Employee Funds be Deposited?

The Deposit Timing rules require that small employers (100 or fewer employees shown as participants on Form 5500) deposit funds within seven business days of withholding. That’s easy to track. For example, if the payroll date was August 14, 2026, the funds would need to be in the trust by August 25, 2026. Note, however, that the Deposit Timing rules require that the funds be actually segregated (i.e., removed) from the employer’s general accounts. Mailing an employer check on August 24, 2026, isn’t sufficient under our example, because the U.S. Mail will take several days and then the deposit has to clear the bank. That means that the funds will show up in the employees’ plan accounts perhaps as much as a week or more later. The DOL is looking for the money to be actually paid out of the employer’s account.

For large employers (100+ participants per Form 5500), the Deposit Timing gets trickier. Deposit Timing requires that the employees’ funds get deposited into the plan “as soon as they can reasonably be segregated” from the employer’s general assets. This vague phrase is interpreted by the DOL to require the contribution to be moved to the plan as of the date on which the employer can deposit its tax withholding or other remittances. For most employers, that means no more than two or three business days after the payroll date. Note that if the employer has a written procedure that states that all deposits are to happen on the same day as payroll and a mistake happens whereby a given deposit gets sent to the plan in two days, the DOL could consider that deposit to be late as it violates the standard employer protocol.

Some people focus on a section in the DOL regulations, which indicates that deposits must be made no later than the 15^th business day of the month following the month in which the employee funds were received by the employer. They think that this outlines the due date for deposits. This is NOT the rule that the DOL applies. This is merely the outer limit, should something truly catastrophic occur (think natural disaster). It is never an acceptable standard deposit schedule.

What Should You Do if You Get an Email from the DOL?

The email is not a hoax. It will come from someone in the local DOL office, informing the Plan Administrator of the availability of VFCP.  VFCP is a voluntary program that allows employers to correct several types of prohibited transactions, and was updated in 2025 to provide for a so-called Self-Correction Component for late deposits of deferrals (see our Flashpoint on this new part of the program, available here). Under VFCP, you are required to submit an application to the DOL, along with proof of the correction of each late deposit (payroll, bank account, and trust).

While VFCP does not have a user fee, it is not easy to use, and can be incredibly unforgiving. The DOL also makes no promise that use of the program won’t trigger a full-blown investigation.  Therefore, Plan Sponsors and Plan Administrators should discuss with their Third-Party Administrators (“TPAs”) whether it is a good idea for them to correct their late deposits through VFCP.  There is often a cheaper and equally effective way in which to correct a late deposit.

But DO NOT ignore the email, whether you want to use VFCP or another correction method for a late deposit. That only makes the DOL annoyed and more curious. Contact your TPA or legal counsel to assist you with the assessment of the situation and how to appropriately respond.

How Do You Correct Late Deposits?

First and foremost, ALWAYS remit the late deposits, if they haven’t already been put into the plan. Earnings on the late deposits are also required to be calculated and paid into the plan. If a Plan Administrator chooses to go through the VFCP, it is permitted to use an online earnings calculator made available by the DOL. If the Plan Administrator prefers to self-correct the late deposit, it should be using the earnings method outlined in the IRS’s correction program, the Employee Plans Compliance Resolution System (“EPCRS”). In no event may the Plan Administrator use an interest rate that results in a negative/loss amount (think 2022, when everything was a loss). Feel free to peruse our Solution in a Flash on earnings calculations, available here.

Conclusion

The immediate next step for a Plan Sponsor and Plan Administrator is to take the FAB seriously and make sure that there is a standard routine procedure for depositing employee deferrals and loan repayments. A good procedure should be written down so that someone covering for the usual individual making deposits can follow it easily. If you are uncertain if you are a potential DOL examination target, check your Form 5500 and see what has been reported. Lastly, if you have received an email or physical letter from the DOL, you need to contact your TPA or legal counsel as soon as possible.

And if you decide to file through VFCP and need assistance, let us know.  After all, we are always your ERISA solution!

Talk to Your TPA:

2026 has been the start of the mandatory Roth Catch-up Contributions for highly paid individuals (HPI) as discussed in our November 2025 issue. It is important that the Plan Administrator has adopted procedures in the event that a correction is required should an HPI accidentally fund catch-up contributions on a pre-tax basis.  If you don’t yet have this written procedure, talk to your TPA.  Even if you have adopted the procedure document, because this is the first year implementing this new procedure, likely there will be some corrections needed.  It is, therefore, recommended that you submit your annual census as early as possible in January, for calendar year plans, to ensure any corrections needed can be completed by March 15.

Key Dates:

9/15/26

Deadline to fund pension plan contributions (8.5 months after plan year end)

10/01/26

Deadline to implement deferrals for new 401(k) safe harbor plans for a 2026 short plan year (10/01-12/31)

10/15/26

Extended deadline to file 2025 Form 5500 for calendar year plans

11/30/26

Deadline for existing plans to adopt 3% safe harbor for 01/01/25 plan year (after that date, the 2025 safe harbor increases to 4%)

12/01/26

Deadline to distribute annual notices for 01/01/2027 plan year