The Department of Labor (DOL) has introduced new guidelines governing how soon employee contributions and participant loan repayments for small employer sponsored pension and welfare benefit plans must be deposited into the plan’s trust accout. Plans with fewer than 100 participants at the beginning of the plan year are being advised to deposit funds within seven business days from the date the amounts are withheld from the participant’s pay. Compliance with the seven day rule establishes a safe harbor period which ensures that plan sponsors will be considered to have satisfied the general rule that participant contributions become plan assets on the earliest date on which the amounts can reasonably be segregated from the employer’s general assets.
Previously, plan administrators were advised to make employee contributions or participant loan repayments as soon as the amounts could reasonably be segregated from the employer’s general assets, but no later than the 15th business day following the month of payroll. No specific safe harbor period was provided. The new seven day rule provides small plan administrators with certainty as to how soon participant contributions must be forwarded to pension and welfare benefits plans in order to avoid potential prohibited transactions or DOL audit issues.
There is no corresponding safe harbor for plans with greater than 100 participants. Large employers must continue to allocate employee contributions and participant loan repayments as soon as possible but no later than the 15th business day following the month of payroll. However, given that the DOL has determined that seven business days is a reasonable standard for small plans, it would be advisable for large employers to meet or exceed that standard. Contact Larkin Hoffman’s Benefit’s attorneys if you require additional assistance.