When a payday occurs within your company, Guideline will collect the necessary 401(k) contribution funds through ACH and allocate them to the appropriate employee accounts. If an ACH failure occurs, funds that should have been allocated to participant 401(k) accounts are not deposited and, therefore, not available for investing.
Once banking issues are resolved, the collection will be reattempted so contributions can be deposited into employees’ 401(k) accounts as soon as possible.
In recollecting and allocating the funds, participants must end up with the same number of mutual fund shares as they originally would have if the ACH failure did not occur. In the end, the participants must be in the same position as they would have been had the error not happened.
Why there may be discrepancies in ACH collection amounts
Depending on market activity between the first and second collection attempts, the cost of the shares originally purchased may have gone up or down. This is why there may be a slight difference between the two collection amounts.
For example, say your company had a pay date with contributions taking place on the 15th of the month, and when Guideline attempts to collect the funds, a banking failure occurs. Guideline is, therefore, unable to allocate participant funds timely into their accounts.
As a result, when Guideline is able to collect the funds from your bank, there is a possibility that the cost of the shares increased or decreased due to market fluctuation.
In the event that the cost of shares has increased due to market activity, Guideline will pull the original payroll deduction amount, plus the amount the funds increased in value over that period of time, from the company bank account. This ensures we are able to reinvest participant funds into the same number of shares to which they were originally entitled.
On the other hand, if the cost of shares has decreased due to market activity, Guideline will pull the original amount that was included in the payroll report and any excess funds will be moved into the plan cash account to be used for the benefit of the plan (for covering contributions, etc.) over time.
For more information on plan cash, please review Guideline's Terms of Service, and specifically the section titled "Surplus Cash Balance in the Plan.”