On January 14, 2010, the U.S. Department of Labor (“DOL”) adopted a final regulation to clarify the safe harbor period during which amounts that an employer has received from employees or withheld from wages for contribution to certain employee benefit plans will not constitute ``plan assets'' for purposes of Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”). The new regulation aims to resolve an ongoing uncertainty by sponsors and fiduciaries of small welfare and pension plans as to when participant contributions will be treated as contributed in a timely manner to such plans.
As set forth in the new final regulation, the DOL, in 1996, published amendments to 53 FR 17628, which modified the outside limit beyond which participant contributions to an employee pension plan become plan assets. Since that time, the outer limit for participant contributions to a pension plan has been the 15th business day of the month following the month in which participant contributions are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer), or the 15th business day of the month following the month in which such amounts would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant’s wages). In addition, the general rule has been that amounts paid to or withheld by an employer become plan assets on the earliest date on which they can reasonably be segregated from the employer’s general assets.
The 1996 amendments created uncertainty among employers and plan advisers as to exactly when they must forward participant contributions to the plan in order to avoid the requirements associated with holding plan assets. Accordingly, on February 29, 2008, the DOL proposed a safe harbor with the goal of providing more clarity over the foregoing participant contributions concerns. The DOL ultimately received 28 comments to its proposal, which can be found here.
In response to the public comments, the DOL issued its recent final regulation, which is nearly identical to the 2008 proposal. The final safe harbor rule, and specifically Section 2510.3-102(a)(2), provides that participant contributions to an employee benefit plan with fewer than 100 participants at the beginning of the plan year will be treated as having been made to the plan in accordance with the general rule (the earliest date on which such contributions can reasonably be segregated from the employer's general assets) when contributions are deposited with the plan no later than the 7th business day following the day on which such amount is received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the 7th business day following the day on which such amount would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant's wages).
Click here for a complete copy of the DOL’s final safe harbor rule.