What Happens When Health Plan Contributions Run Late
Late remittance of employee contributions can create personal fiduciary liability and federal enforcement risk. Here are the exposure points and the Department of Labor correction route.
Exposure And Correction.
General information, not legal or tax advice. Check the cited sources before you act.
Participant Contribution Timing Overview
Start here for the full set of timing rules and open points.
When Payroll Deductions Become Plan Assets
Why withheld money is treated as plan money.
Payroll To Carrier Remittance Checklist
Prevent the problem with a pay-period routine.
Where The Exposure Comes From.
Once withheld contributions are plan assets, the people who control them owe fiduciary duties. They must act solely in the interest of participants and for the exclusive purpose of providing benefits and paying reasonable expenses (ERISA section 404(a)(1), 29 U.S.C. 1104(a)(1)). People who decide when withheld money is paid are usually treated as fiduciaries for that decision, and we suggest confirming who that is in your company with counsel.
ERISA section 409(a), 29 U.S.C. 1109(a), makes a fiduciary who breaches those duties personally responsible for restoring losses to the plan and for returning profits made through use of plan assets. ERISA section 406, 29 U.S.C. 1106, bars a fiduciary from letting plan property benefit a party in interest, under subsection (a)(1)(D), and from managing plan assets in the fiduciary’s own interest, under subsection (b)(1). Using withheld premiums as working capital is the pattern those provisions describe.
Enforcement runs through section 502, 29 U.S.C. 1132. The Secretary of Labor, a participant, a beneficiary or a fiduciary may sue for relief under section 409. When the Secretary recovers money, subsection (l) requires a penalty of 20 percent of the recovery from the fiduciary, which the Secretary has discretion to waive or reduce if the fiduciary acted reasonably and in good faith or if full restoration would cause severe financial hardship. Separately, 18 U.S.C. 664 makes it a federal crime to knowingly and unlawfully divert employee benefit plan funds, with a penalty of up to five years in prison, a fine, or both.
The Correction Program.
The Department of Labor’s Voluntary Fiduciary Correction Program lets employers and plan officials correct certain violations, including delinquent participant contributions, and describes conditional relief from certain taxes. The program was restated in a Federal Register notice of January 15, 2025 (90 FR 4192), effective March 17, 2025, with conforming changes to Prohibited Transaction Exemption 2002-51.
The 2025 restatement added a self-correction component for late participant contributions. That component is limited to pension plans, with a lost-earnings cap of $1,000 and a 180-day remittance window. Delinquent contributions to welfare plans, including group health plans, are not eligible for self-correction. They go through the program’s application process, where the applicant restores lost earnings and files documentation with the Department.
The program’s value is that it gives a plan sponsor a structured route to fix a problem before it becomes an investigation. It does not erase the facts, and the Department’s own page does not promise protection from every action. Whether to apply, and how to calculate what is owed, belongs with benefits counsel.
If You Find A Late Contribution.
Stop and quantify. List each pay period affected, the amount withheld, the date it was withheld and the date it reached the carrier or plan.
Remit anything still unpaid now. Fixing the flow is the first priority and does not wait for a legal review.
Call counsel before contacting the carrier or the Department about the history. Ask whether to correct through the Voluntary Fiduciary Correction Program, and have the lost-earnings calculation done with the Department’s method.
Write down the cause and the control you added so the repair is visible to a later reviewer.
Common Misreadings.
Assuming a business owner is shielded because the company is a corporation. Section 409 speaks of the fiduciary personally, and we recommend asking counsel how it applies to named officers.
Assuming the self-correction option covers health plans. The 2025 self-correction component is for pension plans.
Treating a quiet cure as risk-free. A late payment that has already reached the carrier still leaves the question of what plan money did while it waited.
Related Rules And Tools.
ERISA Fiduciary Duties for Employer Health Plans
Who is a fiduciary and what loyalty and prudence require.
Selecting and Monitoring Health Plan Service Providers
The fiduciary process for choosing and reviewing plan vendors.
A Compliance Calendar for Your Plan Year
A plan-year view of the dates that matter.
Laws And Sources
ERISA Section 404, 29 U.S.C. 1104: Fiduciary duties of loyalty and prudence.
ERISA Section 406, 29 U.S.C. 1106: Prohibited transactions, including use of plan assets for a party in interest.
ERISA Section 409, 29 U.S.C. 1109: Personal liability of a fiduciary for losses and profits.
ERISA Section 502, 29 U.S.C. 1132: Civil enforcement, including the 20 percent penalty under subsection (l).
18 U.S.C. 664: Federal crime of theft or embezzlement from an employee benefit plan.
DOL Voluntary Fiduciary Correction Program: The DOL page describing the program, covered transactions and how to apply.
Federal Register, January 15, 2025 (90 FR 4192): The restated Voluntary Fiduciary Correction Program, effective March 17, 2025.
General information, not legal or tax advice. Check the cited sources before you act.
Quick Answers.
Short replies on this page’s topic, each tied to a fuller guide.
Can a business owner be personally liable for late health plan contributions?
A fiduciary who breaches duties is personally responsible for restoring losses and profits under ERISA section 409. Who counts as a fiduciary for a given decision is a fact question to confirm with counsel.
Can we use the Voluntary Fiduciary Correction Program for a health plan?
Yes, through the application process. The 2025 self-correction component is limited to pension plans, so a late health plan contribution is not eligible for that streamlined route.
What is the 20 percent penalty under ERISA section 502(l)?
It is a penalty the Secretary of Labor assesses on a fiduciary who breaches part 4 duties, equal to 20 percent of the amount recovered. The Secretary may waive or reduce it for reasonable good-faith conduct or severe financial hardship.
The Rest Of This Series.
When Payroll Deductions Become Plan Assets
The plan-asset definition and the reasonably-segregable standard.
The 90-Day Limit And The 7-Day Safe Harbor
Who each outer limit covers.
Cafeteria Plans And The Trust Position
What the 1992 DOL release says and what it does not.
Payroll To Carrier Remittance Checklist
A pay-period process that can be audited.
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