On January 14, 2010, the Department of Labor issued final regulations for the timely deposit of employee 401(k) contributions and loan repayments. This ruling now requires plan sponsors with fewer than 100 eligible participants to deposit employee 401(k) contributions and loan repayments to their plan no later than the seventh business day following the payroll date.
General Rules for Small Plan Safe Harbor
In Final Regulation paragraph (a)(2) of § 2510.3-102, as in the proposal, the DOL sets forth a safe harbor for the deposit of deferrals and loan repayments to a pension or welfare benefit plan with fewer than 100 participants (as determined at the beginning of the plan year). Thus, the safe harbor was not expanded to large plans.
This small plan safe harbor provides that the deposit will be treated as having been made to the plan in accordance with the general rule (i.e., on the earliest date on which such contributions can reasonably be segregated from the employer’s general assets) when contributions are deposited with the plan no later than the 7th business day following the day on which such amount would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant’s wages) OR when contributions are deposited with the plan no later than the 7th business day following the day on which such amount is received by the employer (in the case of amounts that a participant or beneficiary pays to an employer such as loan repayments).
Participant contributions will be considered deposited when placed in an account of the plan, without regard to whether the contributed amounts have been allocated to specific participants or investments of such participants.
SIMPLE IRA and SARSEP also Covered
SIMPLE IRA and SARSEP included in the final regulations as they are also CODA type arrangements. However, the maximum period during which SIMPLE IRA salary reduction elective contributions may be treated as other than plan assets is 30 calendar days in both ERISA and the IRC.
Safe Harbor Applied on a Deposit-by-Deposit Basis
The safe harbor is available on a deposit-by-deposit basis, such that a failure to satisfy the safe harbor for any deposit of participant contribution amounts to a plan will not result in the unavailability of the safe harbor for any other deposit to the plan. Thus, if one payroll misses the safe harbor, all other payrolls during the year may still use the safe harbor.
Optional Safe Harbor Concept
Using the safe harbor is an optional, not mandatory rule. The DOL added new paragraph 2510.3-102(a)(2)(ii), clarifying that the final safe harbor regulation is not the exclusive means by which employers can discharge their obligation to deposit participant contributions or loan repayments on the earliest date on which such contributions and payments can reasonably be segregated from the employer’s general assets.
The DOL states that, when an employer fails to deposit participant contributions (or loan repayments) in accordance with the general rule (i.e., as soon as such contributions or payments can reasonably be segregated from the employer’s general assets), losses and interest on such late contributions must be calculated from the actual date on which such contributions and/or payments could reasonably have been segregated from the employer’s general assets, not the end of the safe harbor period.
Large Plans Not Included in the Safe Harbor
After careful consideration of the comments, the DOL does not believe that it has a sufficient record on which to evaluate current practices and assess the costs, benefits, risks to participants associated with extending the safe harbor or any variation thereof to large plans at this time. As a result, the Department has determined not to change the safe harbor provision to cover participant contributions to a pension or welfare benefit plan with 100 or more participants.
Participant Loan Repayments
Participant loan repayments are included in the final regulations in addition to deferrals.
The safe harbor and the proposed amendments to paragraph (a)(1) and (f)(1) of § 2510.3-102 are effective on January 14, 2010, the date of publication of the final regulation in the Federal Register.
DOL Final Regulations for Safe Harbor for Deferral Deposit Deadline (and Loan Repayments) for Small Plans
The Final Regulation <http://www.mhco.com/Library/PDF/2010/DOL_FR_Deferral_Deposit_Safe_Harbor_011410.pdf> is the same as the proposed regulation with the exception of a few minor clarifying changes. For reference, the text of the final regulations is at the end of this article including the examples retained from the proposed regulations.
New Regulations on 401(k) Deposits
Copyright Pension Professionals, Inc / California 2014