The Prior Rule

Generally speaking, the money participants contribute to a plan must be deposited into the plan’s account as soon as possible. If contribution amounts are deposited late, it is considered a prohibited plan transaction, and that can spell trouble for the plan. Until recently, however, there was no clear definition of exactly when a deposit is considered to be late. The lack of clear guidance has resulted in much uncertainty among plan sponsors and their advisors and a high degree of noncompliance.

New DOL Guidance

The U.S. Department of Labor (DOL) has issued proposed regulations that spell out an unambiguous deadline for depositing participant contributions. The proposed regs establish a safe harbor period of seven business days for plan sponsors to complete the transfer. If deposits are made within the seven-business-day window, plan sponsors will be in compliance with the applicable laws. These regulations apply only to small plans — those with fewer than 100 participants. Larger plans must deposit contributions as of the earliest date the contributions can be separated from the employer’s assets.

Immediate Relief

Although the proposed regulations will be finalized sometime in the future, small plan sponsors may take advantage of the safe harbor immediately by following the seven-day rule for depositing participant contributions.