When “Float” is a Bad Thing
What is “float”? Float refers to the earnings or “compensation” accruing to a service provider while a plan’s contribution remittance (or other assets held in suspense) is awaiting deposit or distribution.
With many service providers, a contribution received after 2 p.m. EST will not be deposited until the next day.
Any return on these remittances that are held overnight (i.e. if placed in an interest bearing account) is considered by the DOL to be “compensation” and therefore treated as such and should be disclosed as required by ERISA Section 408(b)( 2). The plan sponsor, as per 408(b)(2), has a responsibility to determine whether total compensation inclusive of float is reasonable. Failure to do so may result in a prohibited transaction.
This may be a good time to inquire to your service provider as to this issue of float in order for this not to become a compliance issue down the road. The question to pose is as simple as “are there any opportunities for you, the service provider, to obtain what ERISA considers compensation for plan assets held in abeyance either for contributions pending allocation, which may be held in an interest bearing account, a forfeiture account, or a distribution check issued but not yet cashed?”
This ounce of prevention may be worth pounds of cure.