We all assume that once your 401(k) contribution is deducted from your paycheck, the process of investing is instantaneous. This is largely due to our personal finance experience with banks. It seems that it takes only minutes for a bank to draw money from your account, but days in which to post the money. So why do we assume that the process will be any different when it comes to investing in your company sponsored retirement plan?
This may come as a surprise to most of us, but your company actually has about fifteen days (which is actually about three weeks) to make the contribution and once it is made, it is even more vague how soon the investment company makes the contribution to the actual investment.
The Department of Labor is actually the governing body in this instance. The practice, called “playing the float” allows the business to collect a little short-term interest on that money, much the way they do when paying accounts they owe money to. The idea is to make money with whatever is available and your 401(k) contribution is always available.
Most large companies do a pretty good job of getting the money moved quickly but the temptation to hold that cash for a short period may be too great to avoid. The longer they hold the money, perhaps in a short-term note, the more they can make. The best you can do is ask. To my knowledge, this is not one of the reforms being looked at by Congress. But it should be.
Read more or ask the DOL if you suspect your employer is lax in getting that money moved..
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