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Compliance and auditsWhat happens if 401(k) contributions weren't deposited on time?
If employee 401(k) deferrals were withheld from pay but didn't reach the plan correctly or on time, the first step is to find out exactly what happened. That means reconciling each payroll's withheld deferrals against what actually reached the recordkeeper, identifying every gap, working out what needs to be restored, including lost earnings, and involving the plan's TPA or ERISA counsel on the formal correction path.
Answered by Steve Taylor, founder of Thinq HR & Insurance Services. 15 years across benefits, HR, payroll, PEOs and insurance.
What usually triggers the audit
- A departing employee compares pay stubs with their account balance.
- A payroll provider switch: the deduction moves over, but the connection that funds the recordkeeper doesn't.
- The person who approved deposits leaves.
- The plan's annual compliance review.
The audit, step by step
Set the period
From the last deposit you know was clean to today.
Pull payroll journals, per employee, per pay date
From every payroll platform used in the period. Payroll is the source of truth for what was withheld, because companies rarely forget to pay people.
Pull the recordkeeper's contribution history
Per participant, per payroll date, with the date the money actually posted.
Build one workbook
One tab per source and one comparison tab. Match each payroll's deferrals to a deposit by amount and date.
Name every gap
Missing deposits, late deposits and amount mismatches are three different findings with different fixes.
Work out the correction
What needs to be deposited, lost earnings on it, and how it's documented and reported. Your TPA or ERISA counsel confirms the formal path.
Fix the process
A recurring reconciliation so it doesn't happen again.
The timing rules, in plain terms
Employee deferrals are expected to be deposited as soon as they can reasonably be separated from company money. For smaller plans, the Department of Labor provides a safe harbor of seven business days after the payroll date. Late deposits can carry reporting requirements and correction programs, and the right path depends on the facts.
What a discrepancy looks like
Illustrative example, not a specific client
A company moved to a new payroll platform mid-year. The 401(k) deduction was set up; the recordkeeper connection wasn't. For several pay periods, deferrals came out of paychecks and never reached the plan. The reconciliation showed each missed payroll, the amounts per employee, and the lost earnings to restore. A monthly check against the recordkeeper was added to payroll close.
Common questions
How do I audit a 401(k) for late deposits?
Reconcile every payroll's withheld deferrals, per employee, against the recordkeeper's deposit history for the same period, using payroll as the source of truth. Any pay date without a matching, timely deposit is a finding.
Who is responsible when the payroll company missed the deposit?
The employer generally owns the correction as plan sponsor, even when a provider caused the problem. Your TPA or ERISA counsel can confirm how that applies to your plan.
Does switching payroll providers cause 401(k) problems?
It's a common failure point, because the deduction can migrate while the funding connection doesn't. Reconcile the first few pay cycles on any new platform against the recordkeeper.
Can Thinq run this audit for us?
Yes. It's a defined engagement with a fixed scope: the reconciliation, the findings and the correction amounts, coordinated with your TPA or counsel.
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