Under current rules, retirement plans must remit participant deferrals as soon as they can reasonably be segregated from the general assets of the employer, but no later than the 15th business day of the month following the date on which the deferrals were withheld from employees’ paychecks.
This rule sometimes results in confusion and uncertainty regarding the timeliness of contribution remittances. When deferrals are not deposited into the plan in a timely manner, ERISA deems it a prohibited transaction. That generally requires a Form 5330 filing to report the prohibited transaction and often an application to use the Department of Labor’s Voluntary Fiduciary Correction Program (VFCP).
Citing that the “vast majority” of applications to the VFCP involve delinquent contributions, the U.S. Department of Labor recently proposed a regulation that would establish a seven-day contribution remittance safe harbor. Under this safe harbor, contribution remittances and participant loan repayments made by plans with fewer than 100 participants within seven business days of the date the deferral was withheld will be considered timely.
The proposed rule adds a degree of compliance certainty that did not exist beforehand. While this is a proposed regulation, the proposed regulation states — and DOL officials have confirmed — that employers can rely on the safe harbor regulation as proposed until it is made final.
The DOL is seeking comments on the proposed safe harbor for plans with fewer than 100 participants. The DOL is also seeking information regarding the potential of adding a contribution remittance safe harbor provision for plans with 100 or more participants and intends that the final regulation will include such a provision.
We will keep you informed of any developments once the DOL evaluates this information and the comments it receives. In the meantime, if you have any questions regarding the timing of your plan’s contribution remittances and participant loan repayments, your service team at The Standard is ready to assist you.