Handling Late and Missed 401(k) Deposits and Excess Contributions
Employee 401(k) deferrals have a deposit deadline and annual limits. When either is missed, the fix usually means moving money, restoring earnings, and documenting the correction. This FAQ gives owners and CFOs answers on deposit timing, late and missed deposits, and excess contributions as of October 2026. It is general information, not legal or tax advice. Confirm your facts with your plan’s recordkeeper, third-party administrator, or counsel experienced with the Employee Retirement Income Security Act (ERISA).
By when must an employer deposit employee deferrals into the plan?
As of October 2026, employers must deposit employee deferrals as soon as they can reasonably be segregated from the employer’s general assets, and in no case later than the 15th business day of the month following the month in which the contribution is withheld, per the Department of Labor (DOL) Employee Contributions Fact Sheet and 29 CFR 2510.3-102. The 15th business day is an outer limit, not a target. For a plan with fewer than 100 participants at the beginning of the plan year, a deposit made within seven business days of withholding is deemed timely under an optional DOL safe harbor.
What makes a deposit late, and why does it matter?
A deposit is late when deferrals reach the plan after the earliest date they could reasonably have been separated from the employer’s general assets, or after the 15th business day limit, whichever comes first, unless the small-plan safe harbor applies. The DOL’s Form 5500 reporting guidance states that failing to forward deferrals within those time frames is a prohibited use of plan assets under ERISA Section 406(a)(1)(D). Late deposits also keep employees’ money out of the plan’s investments.
What should an employer do after finding a late or missed deposit?
Deposit the money, restore lost earnings, and document everything. The Form 5500-SF instructions describe full correction as paying the late contributions and reimbursing the plan for lost earnings or profits.
* Deposit the late or missed deferrals into the plan.
* Pay the plan lost earnings, calculated from the date each deferral could reasonably have been segregated, using the DOL online calculator.
* Record the pay dates, withholding dates, deposit dates, amounts, and the correction.
* Review the correction program and reporting points below with your third-party administrator or ERISA counsel.
What is the DOL’s Voluntary Fiduciary Correction Program?
The Voluntary Fiduciary Correction Program (VFCP) lets employers and plan officials voluntarily correct certain ERISA violations, and delinquent participant contributions are an eligible transaction, according to the DOL. Under a program application, correction means paying the plan any unpaid amount plus the greater of lost earnings or restoration of profits. Applicants who meet the program’s criteria receive a no-action letter from the DOL. Since March 17, 2025, a self-correction component also applies when lost earnings are $1,000 or less and the money reached the plan within 180 calendar days of the date it would otherwise have been payable to employees in cash, according to the Federal Register notice.
Do late deposits affect Form 5500 and Form 5330 reporting?
Yes. Plans report late participant contributions on line 10a of Form 5500-SF or line 4a of Schedule H or I, and the amount is reported again each year until the year after it is fully corrected, according to the Form 5500-SF instructions. The Internal Revenue Service (IRS) Instructions for Form 5330 (Rev. December 2025), the excise tax return for employee benefit plans, set the initial tax on a prohibited transaction at 15% of the amount involved for each year or part of a year in the taxable period. For a failure to transmit participant contributions, the amount involved is based on interest on the elective deferrals. The DOL says its class exemption, PTE 2002-51, gives conditional relief from certain excise taxes for violations corrected through the VFCP.
What if a contribution is not showing up in an employee’s account?
Treat it as a possible late or missed deposit. Check the payroll register to confirm the deferral was withheld, then ask the recordkeeper for the deposit date and amount. If the money arrived late or never arrived, follow the steps above.
What is an excess deferral, and how is it corrected?
An excess deferral is the amount an employee defers above the annual limit under Internal Revenue Code Section 402(g), generally counting deferrals to all plans in which the employee participates, according to IRS deferral limit guidance. As of October 2026, the IRS 401(k) Plan Fix-It Guide says the excess plus allocable earnings must be distributed to the participant by April 15 of the year following the year of deferral. A missed date can still be corrected through IRS programs, but the excess is taxed twice.
When an employee’s deferrals span plans at two employers, the employee must notify the plan by April 15, or an earlier date set in the plan, of the excess amount to be paid from each plan, according to IRS Publication 560. Refunds from failed nondiscrimination tests are a different problem with a different fix.
What about excess employer contributions?
Employer contributions can hit two limits. The first is the annual additions limit under Internal Revenue Code Section 415(c), which caps total employer contributions, employee contributions, and forfeitures allocated to a participant at the lesser of 100% of compensation or a yearly dollar amount. For a participant with both deferrals and employer contributions, the IRS correction method distributes deferrals and forfeits employer contributions in a set order until annual additions fit under the limit.
The second is the deduction limit. The Instructions for Form 5330 state that Section 4972 imposes an excise tax equal to 10% of the nondeductible contributions in the plan as of the end of the employer’s tax year. A third-party administrator or ERISA counsel can confirm which limit applies.
How do Asure 401(k) Plans work with payroll?
Asure 401(k) Plans are payroll-integrated retirement plans with automatic contributions through payroll, plan monitoring, and required filings, sold as an add-on to AsureCentral or AsureWorks. AsureCentral is a unified payroll and HR platform with one login, personalized dashboards, and role-based access. Automatic payroll contributions do not change who answers for these rules. The employer remains responsible for its fiduciary duties and corrections, so review your deposit process with the plan’s recordkeeper or third-party administrator. If you are adding or modernizing a retirement plan, talk with Asure about Asure 401(k) Plans. To go further, read How to Offer a 401(k) Plan to Employees.
