Small Employer Safe Harbor for 401(k) Contribution Timing

March 11th, 2008

On February 29, 2008, the Department of Labor (DOL) proposed an amendment to the existing regulation that establishes when participant contributions become plan assets. Currently, for plans that are subject to the trust requirement, Regulation §2510.3-102 provides that contributions become plan assets on the earlier of:

  • The earliest date on which contributions can be reasonably segregated from general assets; or
  • The 15th business day of the month following the month in which the contribution was
    • Withheld from the employee’s wages by the employer, or
    • Received by the employer

The proposed regulation applies to sponsors of plans with fewer than 100 participants at the beginning of the plan year. It allows participant contributions that are deposited within 7 business days to be regarded as having been deposited in a timely manner under §2510.3-102. The proposed regulation also states that the safe harbor applies to loan repayments subject to §2510.3-102.

The proposed regulation does not become effective until the final regulation is issued. However, the DOL has stated that an ERSIA violation will not be asserted against a small plan sponsor which complies with the proposed regulation prior to the release of the final regulation.

The DOL stated in the preamble to the proposed regulation that the issue of contribution timing has remained a source of uncertainty for small employers. In fact, almost 90% of the Voluntary Fiduciary Correction Program applications received by the DOL involve delinquent participant contribution issues. In order to verify whether the safe harbor is applicable and whether your existing remittance policy is acceptable, employers should contact their benefits counsel to review their plans and the processes that are currently in place for remitting participant contributions.

4 Responses to “Small Employer Safe Harbor for 401(k) Contribution Timing”

  1. […] amounts are withheld from wages or received by the employer.  Additionally, the IRS has proposed a safe harbor for small plans – those with less than 100 participants – that these plans can comply with […]

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