EMPLOYEE BENEFIT PLAN TIMELY REMITTANCE OF PARTICIPANT CONTRIBUTIONS

By Samantha Dudley, MBA, CPA - Manager

Employee benefit plans are subject to numerous rules and regulations. One such rule is the Department of Labor (DOL) Regulation 2510.3-102 which addresses remittance of participant contributions to employee benefit plans. This covers participant contributions for elective deferrals, after-tax contributions, loan repayments, and any other participant contributions.

The regulation requires that participant contributions be remitted to the Plan on the earliest date on which they can be reasonably segregated from the company's general assets, but in no event later than the 15th business day following the end of the month in which amounts are contributed by employees or withheld from their wages. The DOL does not consider the 15th business day a safe harbor and will focus on what is administratively feasible. Failure to comply would result in prohibited transactions reported to the DOL and may result in lost earnings for the Plan and penalties to the Plan Sponsor.

How would one go about determining when the earliest date with which participant contributions can be reasonably segregated from the company's general assets? Following are some questions to consider when making this determination.

• Is the Plan a single employer or multi-employer plan?
• Is there more than one location processing payroll or is it all centralized?
• Is payroll being processed internally or by an external vendor?
• What is the extent to which duties are segregated concerning payroll and Plan related activities?
• What policies are currently in place regarding payroll processing and transferring of assets to the Plan?

As with many rules, there is an exception. The DOL does provide for a safe harbor for small benefit plans that allows employers to deposit amounts contributed by employees or withheld from their wages within 7 business days. A small benefit plan is defined as a plan with fewer than 100 participants at the beginning of the plan year.