Benefits & ERISA Law

DOL?s Proposed 7-Day Safe Harbor for Employee Contributions May Affect FAB 2008-01

By Suzanne Wynn

In December of 2007, the Dept. of Labor released Field Assistance Bulletin 2008-01 addressing the trustee’s responsibility for the collection of delinquent employer and employee contributions. Part of the regulatory authority relied on by FAB 2008-01 was affected last Friday when the DOL released the new proposed safe harbor for employee contributions. This new proposed rule affects Labor Reg. 2510.3-102(a) by adding subsection (a)(2), which contains a 7-day safe harbor period for contributions, and which adds loan repayments alongside the contribution requirements in Labor Reg. 2510.3-102(a)(1).

In FAB 2008-01, the DOL provides this standard as to the timing of when contributions become delinquent:

Participant contributions become plan assets in the hands of the employer on the earliest date that the amount withheld from the participant’s pay or paid to the employer reasonably can be segregated from the employer’s general assets. With respect to an employee pension benefit plan, this date can be no later than the 15th business day of the month following the month in which participant contribution amounts were withheld from the employee’s paychecks or paid to the employer.

These two sentences are derived from Labor Reg. 2510.3-102(a) and (b), which state:

(a) General rule. For purposes of subtitle A and parts I and 4 of subtitle B of title I of ERISA and section 4975 of the Internal Revenue Code only (but without any implication for and may not be relied upon to bar criminal prosecutions under 18 USC 664), the assets of the plan include amounts (other than union dues) that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his wagse by an employer, for contributions to the plan as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets.

(b) Maximum time period for pension benefit plans. (1) Except as provided in paragraph (b)(2), of this section, with respect to an employee pension benefit plan as defined in section 3(2) of ERISA, in no event shall the date determined pursuant to paragraph (a) of this section occur later than the 15th business day of the month following the month in which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or 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 by an employer from a participant’s wages).

In the proposed rule released last Friday, the DOL proposes changing Labor Reg. 2510.3-102(a) by adding loan repayments to (a)(1), and adding a new subsection (a)(2) containing a 7-day safe harbor time period. These changes would be reflected in Labor Reg. 2510.3-102(a) and (b) as follows:

(a)(1) General rule. For purposes of subtitle A and parts 1 and 4 of subtitle B of title 1 of ERISA and section 4975 of the Internal Revenue Code only (but without any implication for and may not be relied upon to bar criminal prosecutions under 18 U.S.C. 664), the assets of the plan include amounts (other than union dues) that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his wagse by an employer, for contributions or repayment of a participant loan to the plan, as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer’s general assets.

(2) Safe harbor. For purposes of paragraph (a)(1) of this section, in the case of a plan with fewer than 100 participants with fewer than 100 participants at the beginning of the plan year, any amount deposited with such plan not later than the 7th business day following the day on which such amount is received by the employer (in the case of amounts that a participant or beneficiary pays to an employer), or the 7th business day following the day on which such amount would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant’s wages), shall be deemed to be contributed or repaid to such plan on the earliest date on which such contributions or participant loan repayments can reasonably be segregated from the employer’s general assets.

(b) Maximum time period for pension benefit plans. (1) Except as provided in paragraph (b)(2), of this section, with respect to an employee pension benefit plan as defined in section 3(2) of ERISA, in no event shall the date determined pursuant to paragraph (a) of this section occur later than the 15th business day of the month following the month in which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or 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 by an employer from a participant’s wages).

One of these interesting aspects of these changes from FAB 2008-01 and the proposed changes to Labor Reg. 2510.3-102(a) is that they are happening just before the IRS is expected to issue the opinion/advisory letters for the pre-approved EGTRRA defined contribution prototype and volume submitter plans, and too late to actually be reflected in those plan documents other than by amendment.

Technorati Tags: Pension Protection Act, ppa, 2510.3-102, DOL, FAB 2008-01, field assistance bulletin, ERISA

Full post as published by Pension Protection Act Blog on March 04, 2008 (boomark / email).