Timeliness of Participant Contributions
DOL Issues Final Rule Providing a Safe Harbor for Small Plans
On January 14, 2010, the Department of Labor (DOL) issued final regulations to establish a safe harbor period that would provide a higher degree of compliance certainty with respect to when an employer is deemed to have made timely deposits of participant contributions to employee benefit plans with fewer than 100 participants.
The regulations provide that participant contributions to a pension or welfare benefit plan with fewer than 100 participants (as of the beginning of the plan year) are treated as having been made timely if the contributions are deposited with the plan no later than the seventh business day following the day on which the employee contributions are either received by the employer (for amounts that a participant or beneficiary pays to an employer), or would otherwise have been payable to the participant in cash for amounts withheld by an employer from a participant’s wages.
The safe harbor also applies to amounts paid by a participant, or withheld from a participant’s wages, for purposes of repaying a participant’s loan. Thus, the final regulations amend the existing plan asset definitions to include repayments of plan loans (regardless of plan size).
What Does This Mean for Large Plans?
Unfortunately, very little.
The DOL specifically invited comments on whether the safe harbor should extend to contributions to plans with 100 or more participants. After consideration however, the DOL decided not to change the safe harbor provisions to cover participant contributions to a pension or welfare benefit plan with 100 or more participants.
As a result, large plans need to continue to remit participant contributions in the most expedient manner and to have controls in place to prevent delayed remittances. At the same time, planning the efficient correction and reporting of those inadvertent late deposits might be the most practical approach. The DOL has indicated that close to 90% of the applications it receives under the Voluntary Fiduciary Correction Program have involved delinquent participant contribution violations. So clearly, if you find yourself in this situation, you are not alone.
Download below to read the final DOL rule in its entirety.