Plan Sponsors Ask...
What are the rules around timely contribution deposits and loan repayments from plan participants?
The Department of Labor (DOL) regulations generally provide that amounts withheld from a participant's compensation become plan assets as of the earliest date on which such amounts can reasonably be segregated from the employer's general assets. Segregation should occur no later than the fifteenth business day of the month following the month in which the contributions are received by the employer or would otherwise have been paid to the employee as compensation. The 15th-business-day limit is an outside limit and is not a safe harbor.
In 2010, the DOL established a safe harbor rule for the timeliness of deposits that applies only to plans with fewer than 100 participants. It provides that employee contributions (including loan repayments) are deemed to be timely if the amounts are deposited in the plan no later than the seventh business day following the date the contributions are received by the employer or would otherwise have been paid to the employee as compensation.
Plans that have 100 or more participants are subject to the general requirements noted above. For example, we have seen recently that the DOL is applying anywhere from a three- to six-business-day standard for the deposit of contributions. The DOL determines which standard to apply based on what investigation findings deem reasonable.
If deposits are not made in a timely manner, the DOL requires that lost earnings be replaced for the period from when they should have been timely deposited through the date of actual deposit. In a DOL audit, the amount of the lost earnings to the plan will typically be calculated. Those lost earnings must be deposited into the plan and allocated among participants in a nondiscriminatory fashion. In addition, the plan sponsor is liable for a penalty of 15 percent of the lost earnings, as the late deposits would be considered a prohibited transaction. This penalty is paid concurrent with the submission of a Form 5330.
What changed with the release of the new final fee disclosure regulations?
In early February, the Department of Labor released an advance copy of its final 408(b)(2) regulations that, in turn, affect 404a-5 disclosure that you must make to your participating employees.
The biggest change for plan sponsors is the timing of participant notices.
- Initial and annual participant notices: The effective date for the initial and annual participant notices for calendar-year plans moved from May 31 to Aug. 31, 2012.
- Quarterly notice: The effective date for the quarterly notice, which will appear in the third-quarter participant account statement, moved from Aug. 14 to Nov. 14, 2012.
To learn more about the changes resulting from the final fee disclosure regulations, refer to the Fee Disclosure Deadlines Extended article.