Companies Delaying 401(k) Deposits, Costing U.S. Workers Millions
According to MarketWatch, depositing 401(k) deposits can take as long as seven weeks, enough time for employers to earn short-term interest on the period between the deduction and deposit.
The 1997 law is expected to be updated with deadlines of “a couple of weeks or so,” said Ann Combs, assistant secretary for the Employee Benefits Security Administration, the Labor Department unit that oversees 401(k) plans. The department also noted that it is penalizing employers for delaying the deposits, with the number of civil violations numbering 1,269 in fiscal year 2004 versus only 34 in 1995, the first year the agency started targeting 401(k) violations.
When it comes to long-term retirement savings, the delays are not insignificant. Even a one-week deposit delay after every bi-weekly payroll equals $55 million in short-term interest taken away from U.S. workers each year, according to research firm Ibbotson Associates. Americans are increasingly reliant upon their 401(k) plans as their primary method of savings for retirement.
"There's nothing a participant can do about it—it's going to happen when it happens," Ted Benna, an employee-benefits expert who created the first 401(k) plan, told MarketWatch. "The technology exists today that my contribution could be deposited just the way paychecks get direct deposited. Clearly employers could do it every pay period; it's not that big of a job."
The Labor Department warns employees that when employers fail to make timely retirement plan deposits it could be a warning sign that pension deposits are being misused. Most experts say it's most often a case of lax administration.
"Not a lot of money gets invested in the administrative end of a 401(k) because it generally doesn't produce any income," said Ed Slott, a retirement plan adviser who runs the IRAhelp.com Web site. "There's no effect on the bottom line, except if employees start griping."
Slott said complaints can bring quick results.
"Too many employees, even in the post-Enron era, have blind faith that their companies are doing the right thing," he said. "The law of the land is not the law of the plan. There's a set of federal guidelines, but you don't really know. The only way to know is to check your monthly statement. If it's too slow, then say something."