Employee contributions to retirement plan have to be treated as plan assets and submitted to the plan in a timely manner. The old rule required that while employee contributions had to be segregated from the employer's general assets, there was limited guidance about how long the employer had to submit those withheld contributions to the plan. There is a requirement that they be submitted in a "reasonable" time frame at the earliest reasonable date, not later than the 15 business days into the month following the month in which employee contributions were withheld. But there was no "safe harbor" defining what would be reasonable.

Now, at least for small plans, there is a "safe Harbor" of 7 business days. Employers that sponsor a plan covering fewer than 100 participants (small plans) will be deemed to be in compliance with the "earliest possible date" if contributions are remitted to the plan within 7 business days. Any plan sponsor who remits the contributions within the 7-day window will be considered as having made a timely deposit.

This is important because plan participants assume employers put money into a 401(k) plan on the day it is withheld. In a volatile stock market, timing can be everything. Employee can claim that any delay in remittance was a breach of fiduciary duty because it hurt plan participants. At least now, a plan sponsor can use the 7-day rule as a safety net to be able to confirm satisfaction of fiduciary responsibilities.

The contributions don't have to be allocated within 7 days, only contributed to the plan. The 7 business days are counted from the day amounts are withheld. The effective date of the rule is January 14, 2010. The safe-harbor period applies on a deposit-by-deposit basis, so failure of one deposit does not take the safe-harbor away for future deposits. The 7-day rule also applies to welfare plans and cafeteria plans. This rules does not apply to large (over 100 participants) plans. They are still governed by the "15th-business day of the next month" guideline.

So if you are the sponsor of a small plan, I highly recommend that you review your administrative procedures to take advantage of the 7-day safe harbor and review with your plan service providers their procedures to ensure quick transmission of employee contributions. Failure to comply does not necessarily mean that a fiduciary duty has been breached, but it is better to be "safe harbor" than sorry.