Friday, February 29, 2008

DOL Proposed Regulation – Amendment of Regulation Relating to Definition of ‘‘Plan Assets’’ Participant Contributions

29 CFR Part 2510

RIN 1210–AB02

DOL Proposed Regulation – Amendment of Regulation Relating to Definition of ''Plan Assets'' Participant Contributions

  • Who would this affect? This would affect the “sponsors and fiduciaries of contributory group welfare and pension plans covered by ERISA, including 401(k) plans, as well as the participants and beneficiaries covered by such plans and recordkeepers, and other service providers to such plans.”
  • Who is eligible for the safe harbor? All small employee benefit plans, defined as participants with fewer than 100 participants at the beginning of the plan year, are eligible. The large plan/small plan designation and 80-120 participant rule for IRS Form 5500 filing purposes does not apply.
  • What is the safe harbor? The safe harbor will consider deposits made within the 7-business day period as if they were made on “the earliest date on which such contributions can reasonably be segregated from the employer's general assets.”
  • Are loan repayments included? This proposed regulation would also apply to loan repayments (“amounts paid by a participant or beneficiary or withheld by an employer from a participant's wages for purposes of repaying a participant's loan (regardless of plan size)”). This is a change position from DOL Advisory Opinion 2002-02A (May 17, 2002).
  • When is the safe harbor effective? The DOL "will not assert a violation of ERISA" if a plan satisfies the requirements before the effective date.
  • What if plan deposits are considered late? There would be a prohibited transaction, as the plan funds would be commingled with employer funds. The plan would be required to be made whole, including the lost earnings. IRS Form 5330 would be required to be filed and an excise tax would be paid. Appropriate disclosures would be required to be made on IRS Form 5500. When are comments due? They are due on or before April 29, 2008.

The DOL announced a proposed regulation providing a safe harbor rule for employee contributions to small plans:

Washington – The U.S. Department of Labor today announced a proposed rule to provide greater protection for employee contributions deposited to pension and welfare benefit plans with fewer than 100 participants by proposing a safe harbor period of seven business days following receipt or withholding by employers.

"Our proposal will protect workers by encouraging employers to deposit participant contributions to small pension and welfare plans in a timely manner," said Assistant Secretary of Labor for the Employee Benefits Security Administration Bradford P. Campbell. "It also will provide employers with a higher degree of compliance certainty."

Under the, employers of all sizes current rules must transmit employee contributions to pension plans as soon as they can reasonably be segregated from the general assets of the employer, but no later than the 15th business day of the month following the month in which contributions are received or withheld by the employer. The latest date for forwarding participant contributions to health plans is 90 days from the date on which such amounts are received or withheld by the employer.

The proposed rule would amend the participant contribution rules by creating a safe harbor period under which participant contributions to a small plan will be deemed to be made in compliance with the law if those amounts are deposited with the plan within seven business days of receipt or withholding.

Before the effective date of the final regulation, the department will not assert a violation of the Employee Retirement Income Security Act regarding participant contributions where such contributions are deposited with small plans within the seven business day safe harbor period.

In addition, the department requests information and data regarding a possible safe harbor for plans with 100 or more participants to enable it to evaluate the current contribution practices of these large employers.

The public may submit comments on the proposed rule electronically through or via e-mail to Comments on paper should be sent to the Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, 200 Constitution Avenue, N.W., Washington, D.C. 20210, Attention: Participant Contribution Regulation Safe Harbor. The proposal is to be published in the February 29 edition of the Federal Register.

Contribution Timing and Collection Responsibility, a Q&A

  1. What are the current Department of Labor (DOL) rules regarding an employer depositing employee 401k deferrals?
  2. I heard there is some sort of 15-day rule. What's this about?
  3. What is the DOL trying to accomplish now?
  4. What will be the rule going forward?
  5. You said it is "not the rule yet." What does that mean?
  6. Was there anything else in this proposed amendment besides the timing of employee contributions?
  7. What about plans that have more than 100 participants-does this safe harbor apply to them?
  8. Is there an economic benefit to this proposed seven business-day safe harbor?
  9. What's happening with collection responsibility?
  10. When are contributions late?
  11. What does it mean when contributions are late?
  12. What must a plan sponsor do to fulfill its responsibility?
  13. What if the fiduciary has not assigned responsibility?
  14. What about plans such as a SIMPLE IRA or SEP IRA that have no trustee?
  15. What happens when one trustee, who has no direct responsibility for collecting contributions, knows that contributions are delinquent?
  16. So what's the bottom line?

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