Department of Labor Finalizes Small Plan Contribution Safe Harbor Rules
On January 14th, the Department of Labor (DOL) published final regulations applicable to pension plans with fewer than 100 participants. The regulations have an immediate effective date. Under the regulations, employers are required to transmit employee payroll contributions and loan payments as soon as they can be reasonably segregated from general employer assets.
Regardless of the complications slowing delivery of the contributions, deposits cannot be made later than the 15th business day of the month following the month in which the contributions are received or withheld from the employee. The final rules establish a safe harbor period of seven business days for a small employer to transmit amounts received from employees or withheld from wages for contribution to employee accounts. This means that if the deposits are made within seven business days of the date withheld from pay, the DOL will not question whether they were made timely. The DOL has recently been applying a similar seven day standard in audits.
The DOL indicated that it does not have enough information available to determine if it is appropriate to extend this same safe harbor period to employer plans that cover 100 or more participants.
Caution
In general, the DOL believes that the employer should be able to remit the contributions to the plan as quickly as the employer is able to remit payroll taxes to the government. If an employer fails the seven day safe harbor, the DOL policy is to assess penalties to the income tax remittance date rather than the end of the seven day period.
Savitz Recommendation
We strongly recommend that all salary deferral plans, regardless of size, institute administrative protocols that meet the general requirement that contributions be deposited as soon as administratively feasible. In general, unless there are mitigating circumstances, the DOL believes that employee payroll contributions should be deposited as quickly as payroll taxes are remitted to the government. In no event, however, should deposits be made later than the seven day safe harbor date. Larger plans should be advised that no safe harbors exist and the DOL applies the stringent guidelines described above.
Process for Plans with Administrative Delays
The regulations are specific in providing that contributions must be segregated from the general assets of the employer within an appropriate timeframe and not necessarily deposited into participant investment accounts. If the plan maintains a properly titled bank or holding account (not a company account), contributions may be transferred to this account prior to allocating to participant investment accounts. This additional step will provide you with extra time to meet the DOL standards regardless of your internal complexities and resources.
As always, if you have any questions, please contact your Savitz consultant to discuss this matter.
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