Since 1988, the U.S. Department of Labor has imposed requirements as to the timing of the deposit of benefit plan employee contributions/wage withholdings to the account of the applicable employee benefit plan. (Intended to protect plan participants from the employer’s diverting contributions/withholdings intended for a benefit plan to other uses (i.e., investment or operational), even temporarily.) In this regard, the DOL’s 1988 regulations provide for an “earliest date on which the contributions can reasonably be segregated from the employer’s general assets” standard, with an “in no event to exceed 90 days” outer limit. Much confusion ensued, as many plan sponsors misunderstood the 90-day language as providing a safe harbor; an incorrect reading often discovered in the course of a DOL audit - the DOL’s audit standard has strictly followed the “earliest date” requirement. In 1996, the DOL modified its existing guidance by revising the 90-day outer limit to the 15th business day of the month following the month in which the contributions are received by the employer (for wage withholdings, the 15th business day of the month following the month in which the amounts would have been paid to the employee had they not been subject to the withholding). The “earliest date" requirement, however, was left unchanged, and therefore, has continued to control. In reaction to comments from the public regarding the ambiguity of the “earliest date” requirement, in February, 2008 the DOL issued a proposed safe harbor for plans with fewer than 100 participants. The DOL has now issued its final regulation establishing this small plan safe harbor.
Under the final regulation, an ERISA plan having less than 100 participants as of the first day of its plan year, will satisfy the “earliest date” requirement if the employee contributed/withheld amounts are deposited to the account of the plan by no later than the 7th business day of the month following the month in which the contributions are received by the employer (for wage withholdings, the 7th business day of the month following the month in which the amounts would have been paid to the employee had they not been subject to the withholding). The safe harbor is available on a deposit-by-deposit basis - a failure to satisfy the safe harbor for a particular deposit will not affect the availability of the safe harbor for other plan deposits.
As penalties are imposed for deposits which do not comply with the “earliest date” requirement, sponsors of employee benefit plans which provide for employee contributions (including plan loan repayments) and having less than 100 participants would be wise to avail themselves of the safe harbor protection, by taking steps to ensure that employee contributions (including plan loan repayments) are deposited into the applicable plan account within 7 business days of the end of the applicable month.
The DOL’s current position is that no similar safe harbor concept is under consideration for plans having 100 or more participants.