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In an effort to protect workers by ensuring that participant contributions to employer-sponsored retirement plans are made in a timely manner, the Department of Labor has amended their previous rules and regulations regarding the deposit of contributions to such plans. The proposed rules from the Department of Labor are detailed and provide specific language and timelines regarding the deposit of contributions. The new rule gives employers seven (7) business days following the receipt of withholding of employee deferrals before these contributions must be deposited. This rule also covers the deposit of loan repayments.
Formerly, employers were able to rely on the default rule providing that contributions must be made by the 15th business day of the month following the date of the deferral. This is no longer acceptable as employers now have only seven (7) business days following the date of the deferral before the deposit must be made.
The failure to deposit funds timely is considered a Prohibited Transaction by the IRS and the Department of Labor. Compliance with this seven (7) day “safe harbor” deposit window will ensure that employers are not assessed penalties for lost earnings attributable to their improper delay in making the necessary deposits. Compliance will not only ensure against penalties, it will also avoid having the IRS declare that the plan failed to timely submit deposits which will increase a plan’s odds of being audited.
While this is just a proposed rule, it is very likely that this rule will be made final in the very near future. Compliance with this rule now avoids any issues with the Department of Labor after the rules do become final. Review your plan procedures to ensure that deferrals, contributions and plan repayments are deposited within seven (7) days of receipt. Note that the seven (7) day period begins with each pay date, and, moreover, employers are no longer able to wait until month’s end to the make the deposit as was previously standard practice for many plans.
If you have any questions regarding this information, please contact Attorney Michael Bogdan (mbogdan@www.kwgd.com) at 330-497-0700 or one of the attorneys of the Krugliak, Wilkins, Griffiths & Dougherty Employee Benefits Group.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.