DOL Proposes Small Plan Rules for Participant Contributions
Taking advantage of the extra day, the Department of Labor proposed a new "safe harbor" rule for small plan contributions on February 29, 2008. The proposed regulation addresses small plan (under 100 participants) contributions and the timing of these contributions.
Under the current regulations, participant contributions to a plan that are paid to the employer or deducted from payroll are due as of the earliest date such amounts can reasonably be segregated from the employers general assets, but in any event not later than (1) for retirement plans, the 15th business day of the month following the month in which the employer received the payment from the participant or would have otherwise paid the amount in cash to the participant; (2) for welfare plans, 90 days after the employer receives the amount withheld.
The difficulty has always been that following these regulations provided no assurance that the timing of the contribution from the employer was "reasonable." The "no later than" language has left open the discussion that "sooner" was required to be a sound fiduciary. This new proposed safe harbor provides that, at least for small plans, amounts deposited within the 7th business day after receipt of the withholding by the employer will be treated as reasonable.
Participants may generally assume that contributions made to a plan are deposited in their account almost immediately. In this time of market volatility, plan sponsors have to be wary of making sure contributions are made in a timely manner. While this new proposed regulation only applies to small plans, this new 7-day rule could be considered as an acceptable rule of thumb for larger plans.
The proposed regulations are open for comment until April 29, 2008, and will be final upon publication. The DOL has clarified that it will not assert an ERISA violation against any small plan sponsor that adheres to this rule prior to its final effective date. For a copy of the Federal Register provision, please click here.
