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What is plan cash and why does it appear on my contribution report?
What is plan cash and why does it appear on my contribution report?
Updated over a week ago

“Plan cash” is a holding account for funds that are not tied to any specific participants but that have been contributed to the 401(k) plan.

Because money contributed to a plan becomes “plan assets,” it is subject to specific requirements on when the amounts can be removed from the plan. Typically, the funds are allocated to a participant’s account, and it is the participant who can request a distribution. However, in certain circumstances the amounts deposited into the plan either need to be removed from participants’ accounts or cannot be allocated. In these cases the amounts will be placed in a plan cash account.

What causes a plan cash balance?

Plan cash can result from a variety of sources but is most commonly due to either a payroll correction or forfeiture of unvested funds from participant accounts.

Some other common types of corrections are for plan compliance purposes. For instance, if an employee over-contributes for the plan year and must be refunded their contributions, any employer match on those funds would be returned back to plan cash.

Why can’t the plan cash amount be sent back to my company’s bank account?

In most situations, the amount in plan cash was a legitimate contribution when deposited into the plan. Returning the amount to your company could be considered a “reversion of assets,” which would result in a 50% excise tax on the amount of the reversion.

The one exception is when the amount was contributed to the plan due to a “mistake of fact.” You can learn more about mistakes of fact here, but it is a very narrow definition and most often the amount needs to stay in the plan.

How is plan cash used?

At Guideline, amounts in plan cash will be used to offset future contributions until depleted or it can be used to make a pro-rata contribution to all eligible participants.

The reason the amount was deposited into plan cash will determine what types of contributions can be offset. For example, a forfeiture of matching contributions cannot be used to offset employee deferrals. Guideline’s system will track the type of contribution that can be offset and apply the amount to the next contribution accordingly.

Here are several ways your plan cash balance may be used:

  • Offset amount needed for employer contributions in future payroll runs or as part of true ups, profit sharing, or corrections (including lost earnings adjustments)

  • Offset amount needed for employee contributions in future payroll runs

  • Pro-rata allocation to participant accounts

How will I know if plan cash was used to offset contributions?

If you have a plan cash balance that was used to offset a contribution, you will see a line item within your payroll contribution reports and emails.

Is there a place in my administrator dashboard to view the plan cash balance?

At this time, there is not a report in the sponsor dashboard that displays this balance. We are working on making this information more accessible to you in the future.

If you have questions about your plan cash balance, you can contact our sponsor support team.

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