In certain retirement and welfare plans, employees can elect to make contributions to their retirement plan by direct withholding from their pay. Once these amounts are withheld, they must be deposited to the retirement plan on the "earliest date on which such contributions can reasonably be segregated from the employer's general assets, but in any event, not later than the 15th business day of the month following the month the amounts were withheld".

Although the Department of Labor (DOL) set the aforementioned 15th day rule in their regulations as an outer limit, they have time and again expressly stated that this time period is not a safe harbor and the deposits must be made as soon as administratively feasible. Under most circumstances, most employers would be able to transmit contributions within 3 to 10 days after the amounts are withheld and DOL's enforcement efforts have focused on determining and upholding the "earliest date" requirements.

Because of general confusion on how to determine the earliest date by which employers must transmit employee contributions, the DOL is proposing a safe harbor for small plans (i.e., plans with few than 100 participants at the beginning of the plan year). The DOL will consider contributions timely deposited with the plan if they are made no later than the 7th business day following the date on which the amounts would have been payable to the participant in cash or following the day on which such amount is received by the employer (in the case of a participant loan payment made to the employer).

Although these regulation are not effective until the date of publication, the DOL states that in the interim, it will not assert a violation of ERISA if a plan satisfies the proposed safe harbor.

In light of the immediate safe harbor coverage offered, we are recommending that all of our employers with less than 100 participants at the beginning of the year immediately comply with the 7 day deposit requirement.

Any questions should be directed to your plan contact at Trendcepts.