Pentegra :: Timing Of Depositing Contributions

TIMING OF DEPOSITING EMPLOYEE CONTRIBUTIONS
SAFE HARBOR FOR SMALL PLANS

TIMING OF DEPOSITING EMPLOYEE CONTRIBUTIONS
SAFE HARBOR FOR SMALL PLANS

Timing of Depositing Employee Contributions -- Safe Harbor for Small Plans

March 9, 2010

In June of 2009, I provided a reminder of the importance of transmitting to your defined contribution plan employee contributions that have been withheld from a participant's wages. [Please note that the timing requirements for the transmittal of employee contributions also apply to loan repayments.]

The United States Department of Labor (the "DOL") previously issued regulations that provide that amounts withheld from a participant's wages for contributions to a qualified plan are required to become plan assets as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets. In no event, however, may this date be later than the 15th business day of the month following the month in which such amounts would otherwise have been payable to the participant in cash in the case of amounts withheld from wages by the employer. The DOL has emphasized that employers should not rely on the 15 business day deadline as a safe harbor. The DOL has consistently taken the position that the deadline for remittance of contributions should be viewed as the earliest date on which such contributions reasonably can be segregated.

In an effort to provide greater certainty to small plans (plans with less than 100 participants), the DOL has issued final regulations that provide a safe harbor period for the deposit of employee contributions to small retirement plans. Employee contributions are deemed to be timely remitted if the amounts are deposited with the plan no later than the 7th business day following the date the amounts would otherwise have been paid to the employee as compensation.

Because the safe harbor does not apply to plans with 100 or more participants, such plans will be subject to the general rule. As a result, employers will likely have to comply with a faster deposit requirement for large plans than for small plans.

Sincerely, Robert D. Alin Senior Vice President, Secretary & General Counsel