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February 3, 2010

DOL Issues Final Safe Harbor Rules on Employee Contributions to Small Pension and Welfare Plans

The DOL has finalized its participant safe harbor rules applicable to small retirement and welfare benefit plans.  These regulations were proposed February, 2008 (seeSafe Harbor for Placing Participant Contributions in Small Plans).  The final regulations mirror the proposed regulations. 

In general, participant contributions to all-sized employer-sponsored ERISA welfare and pension plans must be submitted to the plan as soon as reasonably practicable following the date they are received or withheld by the employer.  For welfare benefit plans, the rules provide that participant contributions must be made to the plan as soon as reasonably practicable, but, in no event, more than 90 days from the date on which such amounts are received or withheld by the employer.  For retirement and savings plans, participant contributions must be made to the plan no later than the 15th business day of the month following the month in which contributions are received or withheld by the employer.  It is very important to remember that the rules provide “as soon as reasonably practicable”, and that the outside limits are not a safe harbor. 

These regulations offer a safe harbor to small welfare and pension plans, those with fewer than 100 participants at the beginning of the plan year.  The rules provide that a small plan will be deemed to have complied with the regulations, as long as participant contributions, including participant loan repayments, are paid to the plan:

  • Within 7 business days following the date on which such amount is received by the employer (in the event a participant pays contributions to an employer); or
  • Within 7 business days following the day on which such amount would otherwise have been payable to the participant in cash, or withheld by an employer from a participant’s wages. 

This is a safe harbor; plans are not required to follow the 7-business day rules; but if the plan does, it will be deemed to have satisfied the general regulation, described above.

These final rules are effective on January 14, 2010.

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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