SAFE HARBOR REGS ISSUED FOR DEFERRAL DEPOSIT DEADLINE

Posted 2/9/10

The U.S. Department of Labor has issued final regulations relating to deposits of participant salary deferrals and loan payments to a retirement or welfare benefit plan. The regulations create a safe harbor for plans with fewer than 100 participants, which, if satisfied, would allow the plans to automatically meet the law’s requirements.

The Safe Harbor Rule for Small Plans

As a general rule, deposits must be made by the earliest date on which such contributions or payments can reasonably be segregated from the employer’s general assets. Under the final regulations, in the case of smaller plans, deposits will be treated as having been made to a plan in accordance with the general rule when:

• Amounts are deposited with the plan no later than the seventh business day following the day on which such amounts would otherwise have been payable to the participants in cash (in situations where money is withheld by an employer from a participant’s wages), or
• Amounts are deposited with the plan no later than the seventh business day following the day on which such amounts are received by the employer (in the case of money that a participant or beneficiary pays directly to an employer, such as loan repayments).

Participant contributions will be considered deposited when placed in the plan’s account, without regard to whether such contributions have been allocated to specific participants or their investments.

The DOL clarified that following the safe harbor method is not the exclusive means through which employers may discharge their obligations to deposit participant contributions or loan payments and satisfy the general rule.

The final regulations state that the safe harbor method is available on a deposit-by-deposit basis. This means a failure to satisfy the safe harbor for any single deposit of participant contribution amounts to a plan will not result in the unavailability of the safe harbor for other deposits to the plan.

Other Plans Covered

The final regulations cover other cash or deferred plans beyond traditional pension and welfare benefit plans. SIMPLE IRAs and SARSEPs are also included, although in the case of SIMPLE IRAs the date for depositing shall be no later than the 30th calendar day following the month the participant contribution amounts would otherwise been payable to the participants in cash.

The final regulations became effective January 14, 2010.

If we can be of assistance to you in applying the safe harbor rule contained in the final regulations to your retirement or welfare benefit plan, let us know.

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