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• Benefits Plan Design & Administration
• Employment & Benefits

DOL Announces 401(k) Deposit Timing Safe Harbor for Small Plans

Thanks largely to the Department of Labor, one of the more troublesome issues in 401(k) plan administration relates to the timing of deposits. The Department’s longstanding position has been that 401(k) contributions, and other amounts such as loan repayments, must be deposited into a plan’s related trust as of the date on which such amounts “can reasonably be segregated from the employer’s general assets.” Under current regulations, in no event can the deposits be made later than the fifteenth business day of the next month. But on audit, the Department tends to apply a much stricter standard.

After talking about it for nearly two years, the Department has finally offered some limited relief. In a newly proposed regulation, the Department provides that in the case of a “small” plan (fewer than 100 participants at the beginning of the plan year), contributions and repayments will not be treated as late as long as they are deposited not later than the seventh business day following the pay date on which they were withheld. The new safe harbor will not become effective until the regulation is finalized, but the Department has announced that it will not assert a violation of ERISA for small plans that comply with this new timing rule in the interim. The Department also solicits comments on whether a safe harbor is needed (and the timing rule for such a safe harbor) for large plans.

This safe harbor provides welcome relief for those plans that are eligible and already in compliance. For those that are not in compliance, and regardless of plan size, we would urge you to review your remittance processes and evaluate your timing in light of this new guidance.