Plan cash is a holding account for 401(k) funds that have been contributed to the plan but are not tied to any specific participant. It can appear on your contribution report when funds from a payroll correction, forfeiture, or compliance fix need to be tracked separately. This article explains what plan cash is, what causes it, how it's used, and how to find it on your reports.
Plan cash is a holding account for funds that have been contributed to the 401(k) plan but are not tied to any specific participant.
Because money contributed to a plan becomes plan assets, it's subject to specific requirements on when it can be removed. Typically, funds are allocated to a participant's account, and the participant requests a distribution. However, in certain situations, amounts deposited into the plan either need to be removed from a participant's account or cannot be allocated. In these cases, the amounts go into a plan cash account.
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.
Other common sources include corrections for plan compliance purposes. For example, if an employee over-contributes for the plan year and you need to refund their contributions, any employer match on those funds would be returned to plan cash.
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, but it is a very narrow definition and most often the amount needs to stay in the plan.
Amounts in plan cash will be used to offset future contributions until depleted, or they can be used to make a pro-rata contribution to all eligible participants.
The reason the amount was deposited into plan cash determines what types of contributions can be offset. For example, a forfeiture of matching contributions cannot be used to offset employee deferrals. Gusto Retirement tracks the type of contribution that can be offset and applies 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.
If you have a plan cash balance that was used to offset a contribution, you'll see a line item in your payroll contribution reports and emails. The report will state Debited from Plan Cash and reference the applicable amount.
At this time, there is no report in the sponsor dashboard that displays your plan cash balance. We're working on making this information more accessible in the future.
If you have questions about your plan cash balance, contact our Retirement Sponsor Support Team.