The new Assistant Secretary of Labor of the Employee Benefits Security Administration, Phyllis Borzi, recently announced a new Department of Labor (DOL) Employee Retirement Income Security Act enforcement initiative to criminalize failures to forward participant contributions to retirement and health plans.

DOL regulations require employers to transfer employee salary deferrals to the plan as soon as administratively feasible. The regulations also contain a “latest possible transfer date” of the fifteenth business day of the month following the month in which such compensation was withheld from the employee’s paycheck. If salary deferrals are transferred after the latest possible transfer date, they are presumed to be late contributions. However, in most cases, the DOL would not consider transfers on, or just prior to, the latest possible transfer date as timely made. Instead, the DOL requires salary deferrals to be transferred to the plan as soon as reasonably possible, which in many cases is within one or two days after issuance of the paycheck.

If an employer transfers salary deferrals later than when it otherwise reasonably could have, the contributions are usually considered late by the DOL. This late contribution is a breach of fiduciary duties that could subject the employer to civil penalties. If a late contribution occurs, the employer should report the late contributions on the plan’s Form 5500. In addition, the employer should make an additional plan contribution for any lost earnings on the late contributions and may, but is not required to, submit the correction to the DOL under the DOL’s voluntary fiduciary correction program. If the employer does not use the DOL’s correction program, the DOL may contact the employer and invite the employer to use such program.

Under the DOL’s new criminal enforcement initiative, fiduciaries who make late contributions could be subject to criminal prosecution. At this time, it appears that only the most egregious and persistent violators will be prosecuted, and that enforcement will be sought against those who embezzle plan assets, do not transfer the contributions to the plan or knowingly file false Forms 5500.

We have noticed an increase in DOL benefit plan audit activity, and, in our experience, the DOL has questioned contribution delays that are as short as just a few days from the applicable payroll date. Based on this DOL announcement and the increased DOL audit activity, we recommend that employers review their procedures for withholding plan contributions from employees’ pay and transferring such amounts to benefit plans. All employers should be able to (a) justify the timing of their salary deferral transfers and (b) respond to a DOL agent’s request for support of any delay in transferring employee salary deferrals.

For more information about the DOL’s ERISA enforcement effort and results, click here.