As of January 14, 2010, the U.S. Department of Labor (“DOL”) provided a new safe harbor period for employee contributions deposited into small 401(k) plans and welfare plans. Plan sponsors of small plans (fewer than 100 participants at the beginning of the plan year) will be deemed to be in compliance with the plan asset rules if they deposit employee contributions into a 401(k) plan or welfare plan no later than the seventh (7th) business day following the day on which such amounts are received by the employer (in cases where a participant or beneficiary pays an employer) or the seventh (7th) business day following the day such amounts would have been paid to the participant in cash (in cases where amounts are deducted from employee wages). Under this standard, small plan sponsors should coordinate with their payroll departments and/or third-party payroll providers to ensure immediate compliance.
The DOL is implementing this Rule to provide clarity for small plans and to reduce the amount of DOL resources required to enforce delinquent employee contribution cases, which have accounted for about 90% of the applications under the Voluntary Fiduciary Correction Program (“VFCP”) since its inception in 2000. Importantly, citing a lack of information and enough data to evaluate the practices of large plans and the ability to assess the costs and risk to employees associated with extending the safe harbor to large plans, the DOL has indicated that large plans (100 or more participants at the beginning of the plan year) will continue to be required to contribute employee contributions as soon as they can be reasonably segregated from the employer’s general assets, but in no event later than the fifteenth (15th) business day of the month following the month in which the employee’s contribution was received or withheld by the employer. For health plans, the latest day to deposit employee contributions is ninety (90) days from the date received or withheld by the employer.