Timeliness of Remitting Employee Contributions to Retirement Plans

By Dixon Odom

The Employee Benefits Security Administration, formerly the Pension and Welfare Benefits Administration, a division of the Department of Labor (DOL), has clarified and emphasized its position regarding the timeliness of remittances of participant contributions to employee retirement plans. The DOL regulations require an employer to segregate employee contributions, including plan loan repayments, from its general assets at the earliest date on which the contributions can reasonably be segregated from corporate assets, but in no event later than the fifteenth business day of the month following the month in which the amounts were withheld from wages. Failure to remit deferrals in accordance with these requirements could be interpreted by the DOL as a prohibited transaction, fiduciary breach, or both, and may result in significant penalties.

Many companies have been using the fifteenth business day rule as a safe harbor; however, this is not the intent of the DOL, and they have clarified this by making a significant revision to the recently issued 2002 Form 5500 (Annual Retirement/Report of Employee Benefit Plan). This revision appears on question 4a of Schedule H (large plan filers) and Schedule I (small plan filers) of the 2002 Form 5500. In the prior year return, this question inquired as to whether the employer had remitted employee deferrals within the maximum time period allowed (i.e. the fifteenth business day); however, the current year return inquires as to whether the employee deferrals were remitted within the time period described in the applicable code section of the regulations, as noted above.

Dixon Odom wants you to be aware of these changes because there is potential for significant costs to the employer if this issue is not addressed properly. The timelines of the remittances of participant contributions has been and remains an enforcement initiative. Your procedures should be reviewed to ensure that employee contributions are being segregated on the earliest date reasonable in accordance with these regulations without reliance on the fifteenth business day rule. Although the DOL has not defined what constitutes "the earliest date on which the contributions can reasonably be segregated from corporate assets", in their plan audits, they are generally holding employers accountable to remit employee contributions in the same time frame that it takes to remit payroll taxes.

In addition, you should be aware of the Voluntary Fiduciary Correction Program (VFCP), offered by the DOL for instances of fiduciary breach, such as the late deposits of employee withholdings. This program allows employers to voluntarily report instances such as late deposits and take corrective action without becoming the subject of an enforcement action. In addition, the department is giving applicants immediate relief from payment of excise taxes under a proposed class exemption.


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