Author Topic: 401k poor contribution timelines  (Read 8376 times)

COEE

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401k poor contribution timelines
« on: February 16, 2017, 06:31:40 PM »
I'm discovering that I am having very poor contribution timelines.  I am furious and I want to see if anyone else has had a similar experience and how and if they have corrected the problem.  I also want to make sure I'm not going crazy and should just take a chill pill.

I am employed by a small company we have about 50 employees.  We are contracted through ADP for payroll and benefits and such - we are in a 'Multiple Employer Plan (MEP)'.  My 401k is managed by Voya.  I get no company match.  I get paid on the 15th and the last day of the month except when either of those days falls on a weekend or a holiday - in which case I get paid on the first business day prior - slightly early.

So here is the deal - there is a huge discrepancy between when I get paid and when my 401k shows the transaction.  Sometimes as many as 7 days go by between when I get my paycheck and when my contribution to my 401k posts to my account.  Occasionally it has posted 1 or 2 days before I get my paycheck.  In total I had 75 'lost days' last year in my 401k.  That's 75 days that someone else held my money before it posted to my account.  75 days that I did not earn interest on my money last year.  (I would love to know a way to calculate just how much money I lost from this last year).  On average last year, every one of my retirement contributions have taken 3.125 days to post to my retirement plan.

So I called ADP.  They said that when my company sends payroll, they audit all the payroll from some absurd number of companies the following Friday, send it to finance to balance the books on Monday, and send the money to Voya on Wednesday.  Voya posts the transaction on Wed or Thursday (I suspect this is depending on the time of day that the funds are wired).  Occasionally my company has posted payroll extremely early (12/20/16, for example), I have been paid on 12/30, but have actually had my contributions post a day early on 12/29.  ADP told me that they have 10 days to post my money to my retirement account.

In my mind this is a huge f-in problem!  I feel like ADP is stealing from me.  They are making money on my money while it sits in their accounts waiting to post to my retirement plan.  This is convenient for them - and is a HUGE hidden expense ratio on my money that isn't accounted for anywhere.

Am I going overboard?  This delay was not the case at my previous employer - my contributions to my retirement typically posted the same day that I was paid.  But they were a fortune 500 company and had many more resources.  I'm considering my options and how to approach getting this resolved.  I certainly need my account adminstrator take the lead on this... mostly because my emotions are high.

I can't believe in the 100 employees or so that we've had over the years - I'm shocked that I'm the first person to notice this problem.

2Birds1Stone

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Re: 401k poor contribution timelines
« Reply #1 on: February 16, 2017, 06:36:37 PM »

COEE

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Re: 401k poor contribution timelines
« Reply #2 on: February 16, 2017, 06:41:11 PM »

2Birds1Stone

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Re: 401k poor contribution timelines
« Reply #3 on: February 16, 2017, 06:45:12 PM »
A 1-2 week lag in your money being withheld vs. being tossed into a retirement plan is negligible in terms of returns. My SO is in the very same boat. As long as those contributions are being deposited regularly you are essentially losing a ~week of compounding over an indefinite period of time. 

COEE

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Re: 401k poor contribution timelines
« Reply #4 on: February 16, 2017, 07:04:50 PM »
Yes, but if this happens consistently over a period of years - you lose significant money.  The market averages up over the long term.  Dollar cost averaging helps smooth out the transitions, but if the money works longer for you - and it will if it's all in as fast as possible then it is working harder for you.

I lost 75 days of investment time last year.  75 days!  That's a lot of investment time for my maxed out 401k - 20% of the year a portion of my money was waiting to be deposited into my accounts.

Hargrove

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Re: 401k poor contribution timelines
« Reply #5 on: February 16, 2017, 07:22:34 PM »
You do not lose significant money.

1,500 assuming max 401k contribution*10% stock growth*23% for the days uninvested in a year, using your longer guess (you first said 7-10 days, then you said 75 last year, which is just 6 days a month).

You are getting $34.50 "lost" every year in your pay. This, when adding compounding, certainly adds up to... no, still not very much.

It's not as if your 401k balance is going uninvested. Yes, ADP makes a fortune off your money sitting there multiplied by all the people they process payroll for. No, that's not swell for you, but it's not really a catastrophe either.
« Last Edit: February 16, 2017, 07:24:49 PM by Hargrove »

COEE

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Re: 401k poor contribution timelines
« Reply #6 on: February 16, 2017, 07:48:27 PM »
Hargrove... I was just doing the same calculation. - my numbers were slightly different - but similar.

They typically have $750 of my money for 20% of the year.  Assuming 7% growth, that comes out to $10.50.  Even less than your calculation.  Sure it's not much, but it is something and an expense that I'm not keen on just giving away.  Especially since it's not reported anywhere.

I'm considering moving my money to invest in my IRA's first.  It will get processed more timely and have lower expense ratios at Vanguard.  The problem is that my MAGI is high enough that I can't contribute entirely to traditional IRA for the tax advantage.  So putting the money in Vanguard would probably hurt me in the long run because I'd have to pay taxes on some of it.

Hargrove

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Re: 401k poor contribution timelines
« Reply #7 on: February 16, 2017, 07:57:33 PM »
I guess I would never sweat a $10.50 annual expense that didn't have an easy fix anyway. You could have reduced some part of your budget by $10.50 in less time than we spent in this thread. Remember, your time has value!

And you aren't maxing your 401k, either, if you used $750. Also, I used 10% growth to ignore inflation adjustments. All for your benefit. I'm a giver.

Heckler

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Re: 401k poor contribution timelines
« Reply #8 on: February 16, 2017, 08:20:58 PM »
You gain when the market goes down. 

I have similar lead/lag: +/- 3 days from payday (or so).  I don't sweat it, nor will I realizing the issue.

COEE

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Re: 401k poor contribution timelines
« Reply #9 on: February 16, 2017, 08:57:55 PM »
So I did the math.  If ADP holds my money for 3.125 days (which was the average last year)... and I'm paid monthly and I max out my retirement ($1.5k/mo).  The following is what I would have "lost" assuming 7% returns.

1 year - $12.11
2 year - $24.12
3 year - $37.01
5 year - $65.65
10 year - $157.46
20 year - $472.30
30 year - $1105.18
40 year - $2377.98

Not the end of the world for me personally - but I could take a pretty nice vacation after 40 years on what they are stealing from me.  And if they are doing this to the other 31M people that they pay according to this adp website https://www.adp.com/~/media/E9272B330E9B4683A4A2C71BFEBBC5CB.ashx - that totals - 73.7T dollars they've ripped off from people in the next 40 years.  Without any fee disclosure.  This doesn't include what my company already pays them to manage their payroll.

If they were to hold it for the entire 10 days - which is all they say they are required to do - that would be ~$7500 after 40 years.  Not chump change.

With This Herring

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Re: 401k poor contribution timelines
« Reply #10 on: February 16, 2017, 09:00:34 PM »
Yes, it stinks that ADP is holding your money for a time after payday.  However, it looks like they are within the legal timeline.  An employer being illegally late in remitting 401(k) withholdings was recently discussed in Mother Fussbudget's thread.

COEE

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Re: 401k poor contribution timelines
« Reply #11 on: February 16, 2017, 09:06:03 PM »
Come to think about it - if people don't care about this - I might just open a payroll business.  I can manage 4-5M in payroll all of the time and save up my cool $1.5M I need to FIRE in short order.  Hell, that's only 2-3 tech companies with 50 people or so.  I won't charge them a dime to manage their payroll.  They just have to pay me 3 days before the money goes out. 

I'll live on the interest in the accounts and save up to boot.

Hargrove

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Re: 401k poor contribution timelines
« Reply #12 on: February 17, 2017, 04:23:13 AM »
You're going to run a payroll business with no fees for 50k a year and retire from that?

Because interest would be impressive at just 1% for a liquid account. I guess you have no employees or computer equipment or filing requirements?

Or are you going to pay the commissions to invest it at your broker and assume you'll still wind up ahead, and that the stock market will never dip, sending you out of business?

This is getting really silly.

matchewed

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Re: 401k poor contribution timelines
« Reply #13 on: February 17, 2017, 05:15:41 AM »
So I did the math.  If ADP holds my money for 3.125 days (which was the average last year)... and I'm paid monthly and I max out my retirement ($1.5k/mo).  The following is what I would have "lost" assuming 7% returns.

1 year - $12.11
2 year - $24.12
3 year - $37.01
5 year - $65.65
10 year - $157.46
20 year - $472.30
30 year - $1105.18
40 year - $2377.98

Not the end of the world for me personally - but I could take a pretty nice vacation after 40 years on what they are stealing from me.  And if they are doing this to the other 31M people that they pay according to this adp website https://www.adp.com/~/media/E9272B330E9B4683A4A2C71BFEBBC5CB.ashx - that totals - 73.7T dollars they've ripped off from people in the next 40 years.  Without any fee disclosure.  This doesn't include what my company already pays them to manage their payroll.

If they were to hold it for the entire 10 days - which is all they say they are required to do - that would be ~$7500 after 40 years.  Not chump change.

You plan on working there for 40 years?

Seriously worry less about things outside of your control and worry more about things within your control.

COEE

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Re: 401k poor contribution timelines
« Reply #14 on: February 17, 2017, 06:30:18 AM »
Honestly, I'm disappointed that people here - where people do care about money - don't give a shit about this.  We live in the 21st century.  Money is no more than a bunch of 1's and 0's sent around in electronic format.  This should be immediate.  As soon as my company pays me, my funds should be invested.  Period.  Calculating xx% of my salary and contributing it to my retirement plan as fast as possible isn't rocket science.  ADP has figured out how to pay me on time every time it's time for me to be paid.

Sure I'm not going to change it myself, but the more people realize the issue and complain to their payroll departments the greater the odds of changing the status quo.

Is it a small percentage?  Sure, but someone is getting rich off of it.  It's like the guy from Office Space that took $0.005 from every transaction... sure nobody will probably notice... and it's a small percentage from every transaction, but he's getting rich off of it.

It doesn't take much time to learn the issue and call your HR rep and say, "Hey Linda - did you know about this?"  Then spend the next 5 minutes going over the numbers and the concept.  Then say - "Linda, do you think you can call ADP and put some pressure on them to do a bit better in the 21st century?"  Then talk for another 5 minutes about what her kids are doing in college while sipping your morning coffee.  In 10 minutes maybe you've earned another $2500 in the next 40 years... I'd say a rate of $15k/hr isn't too bad.  And if their average time to your retirement fund only improves by 1 day, you've made $760.95 over the next 40 years that you didn't have before - still $4.5k/hr.

RWD

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Re: 401k poor contribution timelines
« Reply #15 on: February 17, 2017, 07:39:07 AM »
My wife's work pays her on the 15th and last day of the month. Her retirement contributions are then made only once per month at the beginning of the next month. So maybe an average of a week and a half of time that the money is not invested. It's annoying, but I'm not too worried about it.
« Last Edit: August 17, 2017, 07:49:14 AM by RWD »

matchewed

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Re: 401k poor contribution timelines
« Reply #16 on: February 17, 2017, 11:21:52 AM »
Honestly, I'm disappointed that people here - where people do care about money - don't give a shit about this.  We live in the 21st century.  Money is no more than a bunch of 1's and 0's sent around in electronic format.  This should be immediate.  As soon as my company pays me, my funds should be invested.  Period.  Calculating xx% of my salary and contributing it to my retirement plan as fast as possible isn't rocket science.  ADP has figured out how to pay me on time every time it's time for me to be paid.

Sure I'm not going to change it myself, but the more people realize the issue and complain to their payroll departments the greater the odds of changing the status quo.

Is it a small percentage?  Sure, but someone is getting rich off of it.  It's like the guy from Office Space that took $0.005 from every transaction... sure nobody will probably notice... and it's a small percentage from every transaction, but he's getting rich off of it.

It doesn't take much time to learn the issue and call your HR rep and say, "Hey Linda - did you know about this?"  Then spend the next 5 minutes going over the numbers and the concept.  Then say - "Linda, do you think you can call ADP and put some pressure on them to do a bit better in the 21st century?"  Then talk for another 5 minutes about what her kids are doing in college while sipping your morning coffee.  In 10 minutes maybe you've earned another $2500 in the next 40 years... I'd say a rate of $15k/hr isn't too bad.  And if their average time to your retirement fund only improves by 1 day, you've made $760.95 over the next 40 years that you didn't have before - still $4.5k/hr.

I just think there are bigger fish to fry in regards to the monetary savings department.

trashmanz

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Re: 401k poor contribution timelines
« Reply #17 on: February 17, 2017, 11:28:46 AM »
Just think about all the time/money you spent thinking about this.  If you have a clean solution just do it and move on. 

erutio

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Re: 401k poor contribution timelines
« Reply #18 on: February 17, 2017, 12:07:32 PM »
Are you getting a per paycheck match? 

If NOT, front load your 401k contributions at the beginning of the year, and then you'd come out ahead compared to your current situation.

Of course, you would also be losing 7 days of gains with your frontloaded contributions, but compared to equal contributions from each paycheck, you'd come out way ahead.

Proud Foot

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Re: 401k poor contribution timelines
« Reply #19 on: February 17, 2017, 01:03:58 PM »
Are you getting a per paycheck match? 

If NOT, front load your 401k contributions at the beginning of the year, and then you'd come out ahead compared to your current situation.

Of course, you would also be losing 7 days of gains with your frontloaded contributions, but compared to equal contributions from each paycheck, you'd come out way ahead.

I would second this.  Front load as much as you can without losing out on the full match.  As long as the contributions are being contributed within the DOL guidelines then there isn't much you can do. That is also one of the downfalls of a MEP, your company might be on top of things and be ready to go, but you have to wait on other companies who may not have their shit together and not have a clean payroll.

TheStachery

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Re: 401k poor contribution timelines
« Reply #20 on: February 17, 2017, 01:42:59 PM »
can you calculate the times the holding period has actually helped you?  Say the market takes a 1% dip between payday (when you want it invested) to actual investment date?  I think chasing this is probably more trouble than it's worth.  Like the poster above, if it's a big issue for you then front load it.

ChpBstrd

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Re: 401k poor contribution timelines
« Reply #21 on: February 17, 2017, 03:44:36 PM »
How exactly is ADP supposed to be making money off their administrative delay? Does anyone actually think they put it in the stock market, essentially day trading for 3 days each pay period? Are they refinancing their corporate debt in 3 day windows? That would seem to make audits difficult, wouldn't it?

Here's a radically simpler explanation: Your employer and/or payroll vendors are using free ACH transfers instead of money wires. Why wouldn't they do that if they can consistently hit the deadlines in doing so? Saves at least $25 per payroll. Somebody in accounting probably figured that out and is proud of saving the company $650/yr.

crentist

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Re: 401k poor contribution timelines
« Reply #22 on: February 17, 2017, 03:47:53 PM »
Frontload!! Get 18k in there as fast as possible!

Greenstache

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Re: 401k poor contribution timelines
« Reply #23 on: February 17, 2017, 05:13:15 PM »
Experienced auditor here, with ample 401(k) audit experience.  Guess what - the DOL agrees that your employer shouldn't delay the process, OP...but seven business days is okay (although slow).  In fact, timely remittances of employee withholding has long been a major focus for them.  It's interesting as an auditor to see how often participant contributions are unreasonably delayed - and in some cases never make it to the individual accounts - and the participants don't even notice.  Astonishes me.

The DOL's bright-line rule is here - https://www.dol.gov/opa/media/press/ebsa/EBSA20100056.htm.  As you can see, the safe harbor rule for small plans is seven business days.  This means that as long as your contributions make it within that period, your employer is safe.  (For large plans, there is no safe harbor provision.)

The DOL has consistently said that the "as soon as they can reasonably be segregated from the general assets of the employer" clause means that if the employer can, and usually does, remit amounts to the 401(k) provider within a certain time period (typically 3 -5 days), and then there is a pay period which is remitted outside the already-established pattern of what is reasonably possible (for example, the payroll clerk is on vacation and it takes the funds 12 business days to make it to the participant accounts), they can take enforcement action against that employer. 

Tl;dr Although the reasonable period of time is somewhat less stringent for small plans, due to the safe harbor provision, if it takes more than seven business days for the remittances to appear in your account, the DOL says you have a legitimate complaint.
« Last Edit: February 17, 2017, 05:15:15 PM by Greenstache »

With This Herring

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Re: 401k poor contribution timelines
« Reply #24 on: February 18, 2017, 11:01:37 AM »
How exactly is ADP supposed to be making money off their administrative delay? Does anyone actually think they put it in the stock market, essentially day trading for 3 days each pay period? Are they refinancing their corporate debt in 3 day windows? That would seem to make audits difficult, wouldn't it?
*snip*

Actually, the big payroll firms do make money off the gap between receiving funds from the employer and issuing paychecks to the employees.  Both an ADP rep and a Paychex rep mentioned this at presentations to OldFirm.  However, they use this expected float income as a way to compete with each other on payroll fees.  See this ADP form 10-Q, pages 3 and 11 of the PDF.  Note that the float income appears to be mostly from bonds and other stable securities.  Because they have so very many clients, all with different payroll dates, I would assume that a large portion of these securities actually stays in place and is not bought and sold on a regular basis.

Greenstache's post is excellent.

COEE

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Re: 401k poor contribution timelines
« Reply #25 on: February 19, 2017, 01:00:00 PM »
Experienced auditor here, with ample 401(k) audit experience.  Guess what - the DOL agrees that your employer shouldn't delay the process, OP...but seven business days is okay (although slow).  In fact, timely remittances of employee withholding has long been a major focus for them.  It's interesting as an auditor to see how often participant contributions are unreasonably delayed - and in some cases never make it to the individual accounts - and the participants don't even notice.  Astonishes me.

The DOL's bright-line rule is here - https://www.dol.gov/opa/media/press/ebsa/EBSA20100056.htm.  As you can see, the safe harbor rule for small plans is seven business days.  This means that as long as your contributions make it within that period, your employer is safe.  (For large plans, there is no safe harbor provision.)

The DOL has consistently said that the "as soon as they can reasonably be segregated from the general assets of the employer" clause means that if the employer can, and usually does, remit amounts to the 401(k) provider within a certain time period (typically 3 -5 days), and then there is a pay period which is remitted outside the already-established pattern of what is reasonably possible (for example, the payroll clerk is on vacation and it takes the funds 12 business days to make it to the participant accounts), they can take enforcement action against that employer. 

Tl;dr Although the reasonable period of time is somewhat less stringent for small plans, due to the safe harbor provision, if it takes more than seven business days for the remittances to appear in your account, the DOL says you have a legitimate complaint.

This is a great post!  Thanks for the information from experience!  However, How can 7 days be reasonable if I get paid on time every pay period?  And since my company is part of a 'multi-employer plan' doesn't that constitute it being a part of a bigger plan?

I did think that front-loading may be a option... then I looked at the numbers.  Turns out if I front-load for 5 months of the year... ADP will make slightly more off of me and the numbers barely change - although I end up with slightly more in my retirement plan at the end of the 40 years of investment growth.  Is there some sort of benefit to front-load?  If so, I can't find it on a quick google search.

Greenstache

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Re: 401k poor contribution timelines
« Reply #26 on: February 19, 2017, 06:08:38 PM »
Overlooked the multi-employer aspect before, sorry!

The DOL has specifically not included those in the small employer safe harbor provisions, although they received requests for such treatment.  There is a separate field bulletin on these -Field Assistance Bulletin 2003-2, and when petitioned to include multi-employer plans in the safe harbor in 2010, the DOL referred back to the 2003 bulletin and indicated it should continue to be followed.  (Here's a link to that bulletin - https://www.dol.gov/ebsa/regs/fab_2003-2.html)

The conclusion of that bulletin says -
In determining when participant contributions can reasonably be segregated from the general assets of any given contributing employer to a multiemployer defined contribution plan, it is the view of this Office that the time frames established in collective bargaining, employer participation and similar agreements must be taken into account to the extent such agreements represent the considered judgment of the plan’s trustees that such time frames reflect the appropriate balancing of the costs of transmitting, receiving and processing such contributions relative to the protections provided to participants and beneficiaries, provided that any such time frames do not extend beyond the maximum period prescribed in § 2510.3-102(b). As with other fiduciary duties, plan trustees must make such determinations prudently and solely in the interest of plans’ participants and beneficiaries.

Here's a link to the discussion on whether multiemployer plans should qualify as small employer plans - http://webapps.dol.gov/FederalRegister/HtmlDisplay.aspx?DocId=23466&AgencyId=8&DocumentType=2

Do you know if there is a collective bargaining agreement in place for your plan that is setting the terms of the remittances?



COEE

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Re: 401k poor contribution timelines
« Reply #27 on: February 19, 2017, 07:14:48 PM »
Overlooked the multi-employer aspect before, sorry!

The DOL has specifically not included those in the small employer safe harbor provisions, although they received requests for such treatment.  There is a separate field bulletin on these -Field Assistance Bulletin 2003-2, and when petitioned to include multi-employer plans in the safe harbor in 2010, the DOL referred back to the 2003 bulletin and indicated it should continue to be followed.  (Here's a link to that bulletin - https://www.dol.gov/ebsa/regs/fab_2003-2.html)

The conclusion of that bulletin says -
In determining when participant contributions can reasonably be segregated from the general assets of any given contributing employer to a multiemployer defined contribution plan, it is the view of this Office that the time frames established in collective bargaining, employer participation and similar agreements must be taken into account to the extent such agreements represent the considered judgment of the plan’s trustees that such time frames reflect the appropriate balancing of the costs of transmitting, receiving and processing such contributions relative to the protections provided to participants and beneficiaries, provided that any such time frames do not extend beyond the maximum period prescribed in § 2510.3-102(b). As with other fiduciary duties, plan trustees must make such determinations prudently and solely in the interest of plans’ participants and beneficiaries.

Here's a link to the discussion on whether multiemployer plans should qualify as small employer plans - http://webapps.dol.gov/FederalRegister/HtmlDisplay.aspx?DocId=23466&AgencyId=8&DocumentType=2

Do you know if there is a collective bargaining agreement in place for your plan that is setting the terms of the remittances?

Thanks for another good post. 

I know that my company has some sort of agreement and contract with ADP - I'm not sure of the specifics - or if there is a collective bargaining agreement.  When I contacted ADP they told me they have up to 10 days to deposit my funds into my account.  I'm not clear if that is business or calendar days.  So maybe that is part of the CBA?

So if I understand this correctly - for companies less than 100 employees they have 7 business days to get your money into your retirement fund.  If the company is larger, then they get to make their own rules based on them acting as a fiduciary and a good balance of cost to performance in getting them into the plan (i.e. if it costs them exponentially more to have a one day better turn around, then they are not required to process the funds one days sooner.).   And from a MEP perspective - it all falls under the collective bargaining agreement or the 15th business day of the month after the employee would have been paid.

How often are these things looked at?  2010 was quite some time ago.  Shouldn't the rules continue to get more tight as technology advances?  The last 7 years has seen a lot of increased technology.  It seems to me if they can issue my direct deposit on the same day as my payday - that I should see my retirement contributions post the same day as well.

Are these guidelines set forth by the DOL or are they laws?

Pizzabrewer

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Re: 401k poor contribution timelines
« Reply #28 on: December 03, 2018, 05:29:01 PM »
My company is worse. I'm paid every Friday and it's rare that the 401k contribution posts the following week. Sometimes nothing for 2 weeks then 2 or 3 will post the same day.

I also once had a payment $300 short. That took a month and many emails for HR to correct the error.

I chalk it up to a sloppy payroll department and you better believe I  track it religiously.

desk_jockey

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Re: 401k poor contribution timelines
« Reply #29 on: December 03, 2018, 06:48:14 PM »
ADP's making money on the float has been mentioned above, but it is a key part of the business model.  They're not only holding onto 401K deposits, but they're also getting the salary deposits a few days before the 15th and 30th, and are probably holding the employment tax withholdings and other fees a few days too. 

"At any moment, the company is holding $20 billion to $25 billion worth of its customers’ payroll funds before disbursing them to the clients’ employees."  And the numbers have probably increased since 2013:  http://ww2.cfo.com/people/2013/04/how-adp-turns-payroll-into-cash/ 

However, How can 7 days be reasonable if I get paid on time every pay period?  And since my company is part of a 'multi-employer plan' doesn't that constitute it being a part of a bigger plan?

My guess is it takes 7 days because people complain too much if it takes 10 days. 

COEE

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Re: 401k poor contribution timelines
« Reply #30 on: December 03, 2018, 07:32:13 PM »
@freedom forusall Congratulations, you have practiced the arcane art of necromancy, the revival of a long dead thread!  I posted this almost two years ago.  Little did I know then that I wouldn't work there 2 months later and spend the next 6 months unemployed.

I have since found job with a good company - 401k posts the same day I get paid.  :D