401K plan

I recently talked to the coordinator of my 401K plan, because it seemed like my balance was significantly lower than the amount that had been diverted from my salary. She informed me that all money diverted from my paycheck for a month is not invested for me until the 15th of the following month. So if I got paid on November 4, and $500 was deducted for my 401K, it actually doesn’t get put into mutual funds, or whatever, until December 15. That means a two to six week lag time when my employer has the use of what should be my money! The 401K woman claimed that this is normal, but I’ve never noticed it before. My questions are:

  1. Is this normal?
  2. Is it even legal?

It happens to me too. I never thought it would be worth trying to fight, though, so I just stopped caring. There is probably a good class action lawsuit in there somewhere…

I have more of an argument about the Social Security tax.

I think I could do a better job of investing that money, but we’re not allowed of opting out of that.

Yeah but would you give it away to a bunch of old people (no offense Phaedrus)?

He##, NO.

It’s like a sign I saw in a “Longhorn Steakhouse” restaurant:

“We don’t give discounts to Seniors. It’s your own damn fault you didn’t plan for your retirement.”

Your employer must deposit the 401k money within 15 days after it’s deducted from your paycheck. They are breaking the law otherwise. This info is from the book The New Rules of Money, by Ric Edelman, page 275.


No sh!%? My employer does that too. What if they deposit it with the moronic fund company and they don’t actually process it until the next month?


This stuff is right up my alley. There’s a Department of Labor regulation on this: 29 CFR §2510.3-102 Definition of “plan assets” - participant contributions.

Paragraph (a) says that participant contributions are considered ‘plan assets’ “on the earliest date on which such contributions can reasonably be segregated from the employer’s general assets.” In practical terms, that means that the money had better be contributed to the 401(k) trust by this point, or else the plan sponsor is breaking the law.

Paragraph (b) goes on to set a maximum time for getting the participant contributione into the trust, which is by the 15th business day of the month following the contribution, in the case of payroll deduction.

However, (b) doesn’t override (a); (a) still applies. And the earliest date the employer can segregate those contributions is way before the 15th of the following month.

In all likelihood, your employer is acting based on poor advice, and they are not deliberately check kiting with employees’ money.

I would suggest you read your Summary Plan Description & find the part about benefit claims. Follow that procedure to suggest to the plan sponsor that their current procedure is not in compliance with the regulation cited above.