Deposit of Deferrals: Can You Justify Monthly Deposits? (Posted September 30, 2001) Technical Tip 21: The following question and answer are from the DOL Q&A Session at the 2000 ASPPA Annual Conference: If a 401(k) recordkeeper charges additional fees for processing more than 12 contributions per year, could this be considered a valid reason for depositing on a monthly basis, rather than after each paycheck? Is the answer different if the fees are paid by the plan and not the employer? DOL Response: If the plan incurs additional fees because of this arrangement (with no offsetting benefit), it may not be prudent to enter into or continue this arrangement. Regulation 2510.3-102(a) states that employee contributions become plan assets as soon as they "can reasonably be segregated from the employer's general assets". ERISA Section 403 also requires that plan assets be held in trust and this practice may fail to meet the reasonableness test. All the facts and circumstances have to be evaluated to determine whether the plan fiduciary is acting prudently and in the best interest of participants and beneficiaries. There may be a difference in evaluation if the fees are paid by the plan instead of the employer. If the fees are paid by the employer, then it could be that this arrangement was done for the benefit of the employer to avoid additional fees. If the fees are paid by the plan, then the fiduciaries must evaluate whether this 401(k) recordkeeper should be retained or whether there are other service providers who could accept more frequent deposits. Again, the underlying analysis conducted is whether the plan fiduciary is acting in the best interest of the plan participants and beneficiaries. Caveat: The answer was drafted by Fred Reish and Brad Huss, the program moderators, based on their understandings of discussions with four senior officials of the Pension and Welfare Benefits Administration (PWBA) of the U.S. DOL. As a result, it does not represent a formal or binding position statement by the PWBA. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.