The purpose of this paper is to examine the impact of employer-delayed deposits to defined contribution plans on plan participant wealth. The history of regulatory oversight on the obligations of employers to remit deposits to defined contribution plans on behalf of employees is discussed. In light of these regulations, the paper discusses and examines situations in which employers may legally delay the deposit of employee contributions to a defined contribution plan and how the existence of various calendar anomalies may impact the returns of plan participants.
Simulated equity portfolios over the period 1985-2014 are created to determine the economic significance of possible delays in plan deposits on the accumulated wealth of plan participants.
The findings suggest that in situations where employees are paid monthly at the end of the month, it is always to their benefit to have their funds deposited as soon as possible. However, for employees paid weekly at the end of the week, a slight delay (one to three days) in the deposit of funds by the employer may actually be beneficial for the employee, particularly if the employee invests heavily in small and mid-cap stocks.
This is the first paper to explicitly study the impact of an employer’s timing of deposits to a defined contribution plan on the accumulated wealth of plan participants, and is thus the primary contribution of the paper.
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