[Federal Register Volume 75, Number 9 (Thursday, January 14, 2010)]
[Rules and Regulations]
[Pages 2068-2077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-430]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2510
RIN 1210-AB02
Definition of ``Plan Assets''--Participant Contributions
AGENCY: Employee Benefits Security Administration, Department of Labor.
[[Page 2069]]
ACTION: Final rule.
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SUMMARY: This document contains a final regulation that establishes a
safe harbor period during which amounts that an employer has received
from employees or withheld from wages for contribution to certain
employee benefit plans will not constitute ``plan assets'' for purposes
of Title I of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), and the related prohibited transaction provisions of
the Internal Revenue Code. This regulation will enhance the clarity and
certainty for many employers as to when participant contributions will
be treated as contributed in a timely manner to employee benefit plans.
This final regulation will affect the sponsors and fiduciaries of
contributory group welfare and pension plans covered by ERISA,
including 401(k) plans, as well as the participants and beneficiaries
covered by such plans and recordkeepers, and other service providers to
such plans.
DATES: This final rule is effective on January 14, 2010.
FOR FURTHER INFORMATION CONTACT: Janet A. Walters, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, U.S. Department of Labor, Washington, DC 20210, (202)
693-8510. This is not a toll free number.
SUPPLEMENTARY INFORMATION:
A. Background
In 1988, the Department of Labor (the Department) published a final
rule (29 CFR 2510.3-102) in the Federal Register (53 FR 17628, May 17,
1988), defining when certain monies that a participant pays to, or has
withheld by, an employer for contribution to an employee benefit plan
are ``plan assets'' for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended (ERISA) and the related
prohibited transaction provisions of the Internal Revenue Code (the
Code).\1\ The 1988 regulation provided that the assets of a plan
included amounts (other than union dues) that a participant or
beneficiary pays to an employer, or amounts that a participant has
withheld from his or her wages by an employer, for contribution to a
plan, as of the earliest date on which such contributions can
reasonably be segregated from the employer's general assets, but in no
event to exceed 90 days from the date on which such amounts are
received or withheld by the employer. In 1996, the Department published
in the Federal Register (61 FR 41220, August 7, 1996), amendments to
the 1988 regulation modifying the outside limit beyond which
participant contributions to a pension plan become plan assets. Under
the 1996 amendments, the outer limit for participant contributions to a
pension plan was changed to the 15th business day of the month
following the month in which participant contributions 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). The general rule--providing that amounts
paid to or withheld by an employer become plan assets on the earliest
date on which they can reasonably be segregated from the employer's
general assets--did not change. The maximum time period applicable to
welfare plans also did not change as a result of the 1996 amendments.
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\1\ While the rule effects the application of ERISA and Code
provisions, it has no implications for and may not be relied upon to
bar criminal prosecutions under 18 U.S.C. 664. See paragraph (a) of
29 CFR 2510.3-102.
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In the course of investigations of 401(k) and other contributory
pension plans and in discussions with representatives of employers,
plan administrators, consultants and others, it is commonly represented
to the Department that, while efforts have been made to clarify the
application of the general rule (i.e., participant contributions become
plan assets on the earliest date on which they can reasonably be
segregated from the employer's general assets),\2\ many employers, as
well as their advisers, continue to be uncertain as to how soon they
must forward these contributions to the plan in order to avoid the
requirements associated with holding plan assets. At the same time, the
Department devotes significant enforcement resources to cases involving
delinquent employee contributions and the vast majority of applications
under the Department's Voluntary Fiduciary Correction Program involve
delinquent employee contribution violations.\3\
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\2\ See preamble to Final Rule, 61 FR 41220, 41223 (August 7,
1996). See also Field Assistance Bulletin 2003-2 (May 7, 2003).
\3\ Since the inception of the Voluntary Fiduciary Correction
Program in 2000, close to 90% of the applications have involved
delinquent participant contribution violations.
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For these reasons, the Department decided that it was in the
interest of plan sponsors and plan participants and beneficiaries to
amend the participant contribution regulation to establish a safe
harbor that would provide a higher degree of compliance certainty with
respect to when an employer has made timely deposits of participant
contributions to employee benefit plans with fewer than 100
participants. The Department published a proposed safe harbor in the
Federal Register (73 FR 11072) on February 29, 2008. Under the
proposal, employers with plans with fewer than 100 participants would
be considered to have made a timely deposit to their plan under the
regulation if participant contributions are deposited within 7 business
days. In response to the Department's invitation for comments, the
Department received 28 comments from a variety of parties, including
plan sponsors and fiduciaries, plan service providers, financial
institutions, and employee benefit plan industry representatives. These
comment letters are available for review under Public Comments on the
Laws & Regulations page of the Department's Employee Benefits Security
Administration Web site at http://www.dol.gov/ebsa. Set forth below is
an overview of the final regulation, along with a discussion of the
public comments received on the proposal.
B. Overview of Final Rule and Comments
For the reasons explained below, the Department has decided to
adopt a final regulation that, with the exception of a few minor
clarifying changes, is the same as the proposal. The following is a
paragraph by paragraph review of the regulation and a summary of the
comments received with respect to each.
Paragraph (a)(2) of Sec. 2510.3-102, like the proposal, sets forth
a safe harbor under which participant contributions to a pension or
welfare benefit plan with fewer than 100 participants at the beginning
of the plan year will be treated as having been made to the plan in
accordance with the general rule (i.e., on the earliest date on which
such contributions can reasonably be segregated from the employer's
general assets) when contributions are deposited with the plan no 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). As under the 1996 amendments, participant
contributions will be
[[Page 2070]]
considered deposited when placed in an account of the plan, without
regard to whether the contributed amounts have been allocated to
specific participants or investments of such participants.
Paragraphs (b)(1), (b)(2) and (c) of Sec. 2510.3-102 are being
revised to incorporate the appropriate cross references to ``paragraph
(a)(1)'' instead of ``paragraph (a)''.
Scope of Safe Harbor
The final safe harbor, like the proposal, is available for both
participant contributions to pension benefit plans and participant
contributions to welfare benefit plans. Several commenters requested
that the Department clarify whether the regulation applies to SIMPLE
IRAs and salary reduction SEPs. The Department's view is that elective
contributions to an employee benefit plan, whether made pursuant to a
salary reduction agreement or otherwise, constitute amounts paid to or
withheld by an employer (i.e., participant contributions) within the
scope of Sec. 2510.3-102, without regard to the treatment of such
contributions under the Internal Revenue Code. See 61 FR 41220 (Aug. 7,
1996). Both the general rule and the optional safe harbor provisions in
paragraphs (a)(1) and (a)(2) of Sec. 2510.3-102, respectively, are
applicable to participant contributions to any plan, including SIMPLE
IRAs and salary reduction SEPs. However, the Department notes that,
pursuant to Sec. 2510.3-102(b)(2), the maximum period during which
salary reduction elective contributions under a SIMPLE plan that
involves SIMPLE IRAs may be treated as other than plan assets is 30
calendar days, the same number of days as the period within which the
employer is required to deposit withheld contributions under a SIMPLE
plan that involves SIMPLE IRAs under section 408(p) of the Internal
Revenue Code. See 62 FR 62934 (Nov. 25, 1997).
One commenter suggested that, under the safe harbor and the general
rule, employers be permitted to pre-fund contributions. The commenter
indicated that an employer may wish to deposit the participant
contributions to the plan in advance of withholding those
contributions, and expressed concern that the general rule and the safe
harbor require that contributions be made within a certain number of
days after the amount is withheld from pay. In general, Sec. 2510.3-
102 is intended to ensure that an employer deposits participant
contributions, withheld by or paid to the employer, to the plan as soon
as practicable. As to whether in any given instance ``pre-funding'' of
participant contributions, such as that described by the commenter,
will necessarily result in compliance with the regulation or safe
harbor will, in the view of the Department, depend on the particular
facts and circumstances.\4\
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\4\ To the extent any instance of pre-funding might be an
extension of credit to the plan, PTE 80-26 would apply if its terms
and conditions are satisfied.
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One commenter requested that the Department clarify the application
of the safe harbor rule to contributory welfare plans in light of the
Department's guidance provided in Technical Release 92-01. 57 FR 23272
(June 2, 1992), 58 FR 45359 (Aug. 27, 1993). ERISA section 403(b)
contains a number of exceptions to the trust requirement for certain
types of assets, including assets which consist of insurance contracts,
and for certain types of plans. In addition, the Department has issued
Technical Release 92-01, which provides that, with respect to certain
welfare plans (e.g., associated with cafeteria plans), the Department
will not assert a violation of the trust or certain other reporting
requirements in any enforcement proceeding, or assess a civil penalty
for certain reporting violations involving such plans solely because of
a failure to hold participant contributions in trust. The Department
confirms that Technical Release 92-01 is not affected by the final
regulation contained in this document, and remains in effect until
further notice.
Length of Safe Harbor Period
A number of commenters requested that the Department increase the
length of the safe harbor period. Several commenters requested that the
safe harbor period be 10 business days. Several others requested that
it be 14 days. One commenter requested that the safe harbor period be
12 business days. One commenter requested that small employers have
until the 5th day of the month following the month in which amounts are
withheld from pay as a safe harbor period. One commenter requested that
small employers have until the 15th business day of the month following
the month in which amounts are received or withheld by the employer as
a safe harbor period. These commenters represented a variety of reasons
that would cause small employers difficulty in meeting a 7-business day
safe harbor period. Some commenters represented that small employers
will be unable to meet the 7-business day safe harbor period in
circumstances of the business owner's or staff person's illness or
vacation. Other commenters describe problems that arise for small
employers, particularly those using outside payroll firms to process
payroll and make contributions, such as Internet problems, loss of
power and incorrect reporting by a payroll company to the plan's
financial institution. These commenters requested that these types of
special circumstances be addressed by providing a longer safe harbor
period. Several commenters recommended that the 7-business day safe
harbor period be retained, noting that such period is an appropriate
safe harbor period for small plans. In attempting to define the
appropriate period for a safe harbor, the Department reviewed data
collected in the course of its investigations of possible failures to
deposit participant contributions in a timely fashion. On the basis of
these data, the Department concluded that adoption of a 7-business day
safe harbor rule would allow most employers with small plans to take
advantage of the safe harbor and, thereby, benefit from the certainty
of compliance afforded by the proposed regulation. After careful
consideration of all the comments concerning the length of the safe
harbor period, the Department has decided to retain the 7-business day
safe harbor period for small plans. The Department believes that the
special circumstances and problems particular to small employers noted
by commenters as described above, will generally be accommodated under
the current facts and circumstances general rule. Several commenters
requested a longer safe harbor period for small plans due to the
current systems of small plans involving manual payroll systems,
limited clerical staff, the amount of time needed to reconcile the plan
contributions, and the increased cost and workload for more frequent
remittances. The general rule--providing that amounts paid to or
withheld by an employer become plan assets on the earliest date on
which they can reasonably be segregated from the employer's general
assets--will also accommodate these other timing issues raised by
commenters.
Deposit-by-Deposit Basis
One commenter asked whether a failure to meet the safe harbor
during one payroll period will result in application of the general
rule for determining when participant contributions are plan assets for
an entire plan year. The safe harbor is available on a deposit-by-
deposit basis, such that a failure to satisfy the safe harbor for any
deposit of participant contribution amounts to a plan will not
[[Page 2071]]
result in the unavailability of the safe harbor for any other deposit
to the plan.
Optional Safe Harbor
One commenter requested that the safe harbor nature of the proposal
be confirmed. Several commenters misunderstood the optional safe harbor
nature of the proposal and objected to a mandatory requirement of 7
business days for the deposit of participant contributions into small
plans. In response to these concerns, the Department has added new
paragraph 2510.3-102(a)(2)(ii), clarifying that the final safe harbor
regulation is not the exclusive means by which employers can discharge
their obligation to deposit participant contributions or loan
repayments on the earliest date on which such contributions and
payments can reasonably be segregated from the employer's general
assets. The Department notes that, when an employer fails to deposit
participant contributions or loan repayments in accordance with the
general rule (i.e., as soon as such contributions or payments can
reasonably be segregated from the employer's general assets), losses
and interest on such late contributions must be calculated from the
actual date on which such contributions and/or payments could
reasonably have been segregated from the employer's general assets, not
the end of the safe harbor period.
Large Plans
The Department specifically invited comment on whether the proposed
safe harbor should extend to contributions to plans with 100 or more
participants. In this regard, the Department requested that commenters
provide information and data sufficient to evaluate the current
contribution practices of such employers and to conclude that it is a
net benefit to such employers and participants to have a safe harbor.
The Department also requested comments on the need for a safe harbor,
and the corresponding size of the plans for which there appears to be a
need for such a safe harbor. Several commenters requested that the safe
harbor rule be made available to larger plans, explaining that larger
plans have issues of reconciliation and multiple geographic sites with
different payroll periods. Some of these commenters argued that large
employers would not slow down remittances as a result of a safe harbor
provision. After careful consideration of the comments, the Department
does not believe that it has a sufficient record on which to evaluate
current practices and assess the costs, benefits, risks to participants
associated with extending the safe harbor or any variation thereof to
large plans at this time. As a result, the Department has determined
not to change the safe harbor provision to cover participant
contributions to a pension or welfare benefit plan with 100 or more
participants.
Multiemployer and Multiple Employer Plans
Several commenters argued that, in the case of multiemployer and
multiple employer plans, the regulation should base the safe harbor's
availability on the size of the employer, instead of the size of the
plan. These commenters argued that small employers maintaining
multiemployer and multiple employer plans should have the same
certainty as an employer sponsoring its own plan. These commenters
explained that small employers that participate in large multiemployer
and multiple employer plans face the same challenges as small employers
sponsoring single employer plans, representing that these small
employers also have payrolls that are independent, less sophisticated
and many are manual. Several commenters also argued that the safe
harbor should be expanded to cover all participating employers in
multiemployer and multiple employer plans. These commenters argued that
having a safe harbor only for small employers participating in large
multiemployer and multiple employer plans would create undue
administrative burden and cost. As described by these commenters,
employers remit participant contributions to multiemployer plans in
accordance with the collective bargaining agreements and other plan
documents. With regard to the foregoing, the Department notes that it
addressed the application of participant contribution requirements to
multiemployer defined contribution plans in Field Assistance Bulletin
(FAB) 2003-2 (May 7, 2003). As described in the FAB, the provisions of
the participant contribution regulation apply in the same way to
multiemployer plans that the provisions apply to single employer plans
and that, as is the case with single employer plans, if a multiemployer
plan maintains a reasonable process for the expeditious and cost-
effective receipt of contributions, this process may be taken into
account in determining when participant contributions can reasonably be
segregated from the employer's general assets. To the extent that a
collective bargaining describes such a process, the collective
bargaining agreement should be considered in determining when
participant contributions become plan assets. To be reasonable, a
plan's process for receiving participant contributions should take into
account how quickly the participating employers can reasonably
segregate and forward contributions. The plan fiduciaries should also
consider how costly to the plan a more expeditious process would be.
These costs should be balanced against any additional income and
security the plan and plan participants would realize from a faster
system. Thus, the FAB describes the Department's view that, in
determining when participant contributions can reasonably be segregated
from the general assets of any given contributing employer to a
multiemployer defined contribution plan, the time frames established in
collective bargaining, employer participation and similar agreements
must be taken into account to the extent such agreements represent the
considered judgment of the plan's trustees that such time frames
reflect the appropriate balancing of the costs of transmitting,
receiving and processing such contributions relative to the protections
provided to participants, provided that any such time frames do not
extend beyond the maximum period prescribed in Sec. 2510.3-102(b). The
Department believes that the guidance in this FAB provides clarity and
flexibility for contributing employers to multiemployer plans regarding
the application of the participant contribution requirements. For this
reason, the Department has decided to retain the safe harbor rule for
small plans without modification from the proposal for contributing
employers to multiemployer or multiple employer plans.
Examples
One commenter requested that the Department include an example in
the regulation regarding a situation involving participant
contributions made to a plan outside the safe harbor period. Under the
final safe harbor rule, like the proposal, the general rule--providing
that amounts paid to or withheld by an employer become plan assets on
the earliest date on which they can reasonably be segregated from the
employer's general assets--did not change. Given the facts and
circumstances general rule, the Department has determined not to add an
example concerning circumstances that require an employer to deposit
participant contributions beyond the safe harbor period. Another
commenter requested that the Department retain an example from the 1996
amendments in which an employer deposits
[[Page 2072]]
contributions into a pension plan after the 15th business day maximum
period limit. The Department believes that the examples in the proposal
effectively illustrate the general rule and the application of the safe
harbor. As a result, the Department has decided to retain the examples
in the proposal without modification.
Participant Loan Repayments
The Department proposed to amend paragraph (a)(1) of Sec. 2510.3-
102 to extend the application of the regulation to amounts paid by a
participant or beneficiary or withheld by an employer from a
participant's wages for purposes of repaying a participant's loan
(regardless of plan size). See Advisory Opinion 2002-02A (May 17, 2002)
\5\. The proposal also served to extend the availability of the 7-
business day safe harbor to loan repayments to plans with fewer than
100 participants. The Department received no comments on these
provisions and is adopting the provisions without change.
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\5\ This advisory opinion may be accessed at http://www.dol.gov/ebsa/regs/aos/ao2002-02a.html (May 17, 2002).
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Effective Date
Under the proposal, the Department contemplated making the safe
harbor and the proposed amendments to paragraph (a)(1) and (f)(1) of
Sec. 2510.3-102 effective on the date of publication of the final
regulation in the Federal Register. Two commenters suggested that the
effective date of the regulation should be delayed for at least 6
months following its publication to provide sufficient time for plan
sponsors to evaluate additional responsibilities and options. Since the
regulation provides an optional safe harbor rule as discussed above,
the Department has determined not to change the effective date of the
safe harbor provision. The safe harbor will provide a means for certain
employers to assure themselves that they are not holding plan assets,
without having to determine that participant contributions were
forwarded to the plan at the earliest reasonable date. By providing
such assurance, the safe harbor will grant or recognize an exemption or
relieve a restriction within the meaning of 5 U.S.C. 553(d)(1).
Moreover, the safe harbor will encourage certain employers to take
immediate steps to review their systems and, if necessary, shorten the
period within which participant contributions are forwarded to the plan
in order to take advantage of the safe harbor and, thereby, extend the
benefit of earlier contributions to participants and beneficiaries
earlier than might otherwise occur with a deferred effective date.
Thus, the Department retained the effective date of the final
regulation.
C. Regulatory Impact Analysis
Summary
The safe harbor will provide employers with increased certainty
that their remittance practices, to the extent that they meet the safe
harbor time limits, will be deemed to comply with the regulatory
requirement that participant contributions be forwarded to the plan on
the earliest date on which they can reasonably be segregated from the
employer's general assets. This increased certainty will produce
benefits to employers, participants, and beneficiaries by reducing
disputes over compliance and allowing easier oversight of remittance
practices. In addition, the tendency to conform to the safe harbor time
limit may serve to reduce the existing variations in remittance times,
providing increased certainty for employers and other plan sponsors and
participants. In the case of employers that expedite their remittance
practices to take advantage of the safe harbor, plan participants may
derive an additional benefit in the form of increased investment
earnings. The Department estimates that accelerated remittances could
result in $43.7 million in additional income to be credited annually to
participant accounts under the plans if no employers choose to delay
remittances in response to the safe harbor and $19 million annually
even if all eligible employers were to delay remittances to the full
duration of the safe harbor.
Costs attendant to the safe harbor arise principally from one-time
start-up costs to alter remittance practices to conform to the safe
harbor and from any additional on-going administrative costs attendant
to quicker, and possibly more frequent, transmissions of participant
contributions from employers to plans. The Department believes that the
costs likely to arise from either source will be small and that the
benefits of this regulation will justify its costs.\6\
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\6\ A key factor limiting the cost of this regulation is that it
requires no action of the part of any employer, plan, or
participant; it creates an incentive for employers to remit
participant contributions on more regular schedules.
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The data, methodology, and assumptions used in developing these
estimates are more fully described below in connection with the
Department's analyses under Executive Order 12866 and the Regulatory
Flexibility Act (RFA).
Executive Order 12866 Statement
Under Executive Order, the Department must determine whether a
regulatory action is ``significant'' ' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Exec. Order No. 12866, 58 FR 51735
(Oct. 4, 1993). Under section 3(f) of the Executive Order, a
``significant regulatory action'' ' is an action that is likely to
result in a rule (1) having an annual effect on the economy of $100
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or Tribal governments or communities
(also referred to as ``economically significant''); (2) creating
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order. It has
been determined that this action is significant under section 3(f)(4)
because it raises novel legal or policy issues arising from the
President's priorities. Accordingly, the Department has undertaken an
analysis of the costs and benefits of the final regulation. OMB has
reviewed this regulatory action.
This final rule will establish a safe harbor rule for employers'
timely remittance of participant contributions to employee benefit
plans. The safe harbor is available only to employer remittances of
participant contributions to plans with fewer than 100 participants.
Under the final rule, employers that remit participant contributions
within 7 business days after the date on which received or withheld
would be deemed to have complied with the requirement of 29 CFR 2510.3-
102 to treat participant contributions as plan assets ``as of the
earliest date on which such contributions can reasonably be segregated
from the employer's general assets.''
This rule is likely to encourage some eligible employers whose
current remittance practices involve holding participant contributions
for longer than 7 business days to change their remittance practices to
conform to the 7[dash]business day time limit. Because the rule is not
mandatory and changes in remittance practices are likely to entail
[[Page 2073]]
some cost to employers, only those employers that believe they will
benefit from the protection of the safe harbor will elect to take
advantage of the safe harbor.
In order to analyze the potential economic impact of this rule, the
Department examined data on the remittance of participant contributions
to a representative sample of contributory single employer defined
contribution pension plans collected from EBSA's Employee Contributions
Project 2004 Baseline Project (``ECP'').\7\ Based on data from this
project and from Form 5500 filings for the 2004 plan year, which is the
year of this one-time project, the Department estimates that the safe
harbor will be available to an estimated 311,000 single employer
defined contribution plans with fewer than 100 participants.\8\ These
plans receive approximately 18% of participant contributions made to
all contributory single employer defined contribution plans.\9\
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\7\ This project was undertaken by the Department in order to
develop a better understanding of current employer practices
regarding contributory individual account pension plans. The project
was based on a representative sample of 487 contributory, single
employer defined contribution plans. Plans having these
characteristics will be referred to as the ``ECP Universe.'' In
2004, the Department collected detailed data on the remittance
practices of the employers sponsoring the sample plans. The
collected data covered the 12-month period preceding the date in
2004 on which EBSA interviewed the employer-sponsor and included,
for example, the exact dates on which wages were withheld from
employees and the exact dates on which participant contributions
were deposited in the plan's accounts. For purposes of this
analysis, the sample data has been weighted to the 2004 Form 5500
universe of contributory, single employer defined contribution
plans.
\8\ While the safe harbor is available to contributory defined
benefit plans, contributory multiemployer defined contribution
plans, and contributory welfare benefit plans, the Department
expects that a small number of such plans will take advantage of the
safe harbor. SIMPLE IRAs and SARSEPs (``SIMPLE/SARSEPs'') are the
major type of plans eligible for the safe harbor that are not
included in the ECP Universe, because they are exempt from the Form
5500 filing requirement. Although complete and reliable data on the
number of SIMPLE/SARSEPs and the amount of participant contributions
to them is not available, based on data from sources including the
IRS (http://www.irs.gov/pub/irs-soi/04inretirebul.pdf) and the
Investment Company Institute (Table A14 from http://www.ici.org/stats/res/retmrkt_update.pdf), the Department estimates that plans
included in the ECP Universe may comprise about half of all plans
eligible for the safe harbor and hold about 79% of all participant
contributions to eligible plans. The Department, therefore, believes
that the ECP provides highly meaningful data for estimating
potential impacts.
\9\ This percentage is based on an EBSA tabulation of its 2004
Form 5500 research file.
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Using these data, the Department analyzed the current remittance
practices of the employers sponsoring these plans, extrapolated the
results to characterize the remittance practices of plans in general,
and projected the potential impact of this safe harbor rule. The
Department considered both the extent to which data on remittance
records of these plans reveal a preference or standard practice
regarding timing, and the extent to which changes in the length of time
between withholding and receipt by the plan might result in an increase
(or decrease) in investment income to participants' accounts.
The sample data indicate that employers' remittance patterns for
participant contributions to plans vary substantially, both across
payroll periods of an individual employer and across employers. Based
on analysis of these data, the Department has concluded that most
employers sponsoring plans with fewer than 100 participants will not
find it difficult to take advantage of the safe harbor.\10\ Twenty-one
percent of all plans with fewer than 100 participants for which data
was obtained had remittance times within 7 business days for all pay
periods; an additional 69% remitted participant contributions for at
least some of the employer's payroll periods within 7 business days.
Based on these data, the Department has concluded that a large majority
of contributory plans could comply with a 7-business day safe harbor.
Moreover, a substantial portion of contributory plans would reduce the
time taken to make at least some deposits. The Department recognizes
that to take advantage of the safe harbor for all remittances, many of
the firms that currently remit employee contributions within 7 business
days for some, but not all, pay periods would have to change their
remittance schedule from monthly remittances to remittances following
each weekly or biweekly pay period.
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\10\ These data indicate that 90% of plans with fewer than 100
participants currently receive at least some participant
contributions within 7 business days after withholding.
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The Department anticipates that a substantial number of employers
that currently take longer than 7 business days to remit participant
contributions will speed up their remittances in order to take
advantage of the safe harbor. At the same time, it is possible that
some employers that currently remit participant contributions more
quickly than the safe harbor rule will slow their remittances due to
the safe harbor. Such behavior might benefit the remitting employers by
reducing their administrative costs and by increasing the time they are
holding the remittances. However, the Department believes that only a
small fraction of that group, if any, would elect to incur the expense
and risk of negative participant reaction that might arise from slowing
down their remittances to take full advantage of the safe harbor time
period, especially because the amount of the potential income transfer
on a per-plan basis is very small.\11\ The potential consequences of
reliance on the safe harbor for earnings on participant contributions
are further described in the Benefits section below.
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\11\ The employers having the most to gain from delaying
remittances to the full extent allowed under the safe harbor would
be those who currently remit employee contributions most promptly.
For example, an employer that currently remits contributions on the
day they are received or withheld and responds to the safe harbor by
delaying remittances to the 7-business day safe harbor limit would
gain use of the funds for 7 business days. At an annual rate of 8%,
the value of the float gain would be less than one-quarter of one
percent of employee contributions.
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Costs
On the basis of information from EBSA's ECP,\12\ the Department
believes that an estimated 21% of eligible single employer defined
contribution plans (approximately 64,000 plans) currently receive all
participant contributions within 7 or fewer business days. The
employers that sponsor such plans would not have to modify their
current systems and, as a result, would incur no additional costs to
obtain the compliance certainty available under the safe harbor
provisions. On the other hand, 10% of the eligible plans (approximately
32,000 plans) consistently receive participant contributions later than
7 business days from the date of the employer's receipt or withholding.
The remaining 69% of the eligible plans in the ECP Universe defined in
footnote 6 above (approximately 215,000 plans) are estimated to receive
participant contributions within 7 business days for some, but not all,
of their payroll dates, and the Department assumes that these employers
would have to make only minor modifications in order to take advantage
of the safe harbor for all participant contributions.
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\12\ See fn.6, supra.
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In deciding whether to rely on the safe harbor, employers will
weigh the benefits of compliance certainty against the cost of changes
needed to make quicker and possibly more frequent deposits. Because the
cost of modifying remittance practices or systems will depend, to some
extent, on the length of time currently taken to make remittances, the
Department believes it is reasonable to assume that those employers
currently transmitting some of the participant contributions within
[[Page 2074]]
an 8- to 14-day period may find it less expensive to modify their
practices to take advantage of the safe harbor than employers currently
operating under remittance practices or systems with longer delays. The
cost to the former group of employers to shorten the remittance period
to conform to the safe harbor may be modest or negligible. However, the
Department has no current, reliable data concerning the cost of
required changes relating to shortening the remittance period for
participant contributions and therefore did not attempt to estimate
that cost.\13\ Because conformance to the safe harbor is voluntary, the
Department believes that the transition cost for employers electing to
conform will be offset by the elimination of the current cost
attributable to existing uncertainty about how to meet the ``earliest
date'' standard of 29 CFR 2510.3-102. Those employers that already
conform will not incur any costs, but will benefit from the safe
harbor.
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\13\ While several commenters questioned the Department's
assumption that employers currently meeting the safe harbor in some,
but not all, pay periods would have to make only minor modifications
in order to come fully within the safe harbor time limit, no
commenter provided any information or data with which to estimate
such costs in response to the Department's request for information
and comments on this issue in the proposed rule. For this reason,
and because no employer is under any obligation to change its
remittance practices as a result of the final rule, the Department
did not modify its assumption.
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Benefits
The rule will produce benefits for both participants and employers
in the form of increased certainty regarding timely remittance of
participant contributions to plans. This increased certainty will
decrease costs for both employers and participants by reducing the need
to determine, on an individualized basis in light of particular
circumstances, whether timely remittances have been made. Employers
that conform to the safe harbor will also benefit by obviating the need
to determine and monitor how quickly participant contributions can be
segregated from their general assets. They also will face a reduced
risk of challenges to their particular remittance practices from
participants and the Department.
In the case of plan sponsors that elect to expedite the deposit of
participant contributions to take advantage of the safe harbor,
contributions will be credited to the investment accounts earlier than
previously and will be able to accrue investment earnings sooner. The
Department has calculated these potential investment gains, but lack of
knowledge about how employers will react to a regulatory safe harbor
renders these estimates uncertain. If, for illustration, the safe
harbor results in a 7-business day remittance of all remittances that
are currently taking more than 7 business days, then the regulatory
safe harbor would result in an estimated additional $34.5 million in
investment earnings \14\ for participants in the ECP Universe each year
and $43.7 million for participants in all eligible plans.\15\ These
potential gains would be reduced by any losses that would occur due to
any slow-down in response to the safe harbor by employers with
currently quicker remittance times.\16\ The Department, however,
believes it unlikely that a significant fraction of employers would
slow down remittances for the sole purpose of taking advantage of the
minor income transfer resulting from retaining contributions for the
full safe harbor period.\17\
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\14\ The Department has assumed an average annual return of 8.3%
for pension plan assets. This rate is an estimate of the long-term
rate of return on defined contribution plan assets implicit in the
flow of funds account of the Federal Reserve. One commenter
expressed concern that the Department's use of a long-term rate of
return on defined contribution plan assets was inappropriate,
because it overestimates the short-term rates at which firms would
actually invest participant contributions before their remittance to
the plan. The Department chose a long-term rate to the value the
gains or losses that participants would experience, because an
acceleration or delay of plan remittances affects participants' and
beneficiaries' long-term investments, and, therefore, has not
modified its assumption.
\15\ The estimate of $43.7 million is derived by dividing $34.5
million by 79%, the percentage of total contributions to eligible
plans estimated to be made to plans in the ECP Universe. In this
absence of data on remittance practices for plans not in the ECP
Universe, the calculation assumes that their practices are similar
to those for eligible plans in the ECP Universe.
\16\ As described above in footnote 7, SIMPLE/SARSEPs were not
included in the ECP Universe because such plans are exempt from the
Form 5500 filing requirement. In the absence of data on the
remittance practices of sponsors of such plans, the Department
examined what is known about these plans to make assumptions
regarding their remittance practices. SIMPLE/SARSEPs average 4-5
participants compared to 30 participants for plans in the ECP
Universe. The data collected through the ECP showed a strong
tendency for smaller plans to receive employee contributions more
slowly than larger plans. Although factors other than plan size
clearly influence remittance behavior, based solely on this factor,
the Department expects that SIMPLE/SARSEPs would receive employee
contributions, on average, more slowly than plans included in the
ECP Universe. Therefore, a higher percentage of these plans would
have an incentive to accelerate remittances to qualify for the safe
harbor and lower percentages of these plans would have an incentive
to delay remittances to capture float gains than plans in the ECP
Universe. As a result, the Department believes that the risk that
participants in SIMPLE/SARSEPs would suffer net investment losses as
a direct result of changes in remittance practices made in response
to this regulation is even less than for plans in the ECP Universe.
Moreover, if the expected difference in remittance behavior does
exist, then sponsors of SIMPLE/SARSEPs would have to implement
greater changes to qualify for the safe harbor, on average, than
plans in the ECP Universe. The Department, therefore, expects that
smaller percentages of these employers would opt to change their
remittance practices in order to qualify for the safe harbor due to
prohibitive costs.
\17\ If all employers that currently remit contributions in
fewer than 7 days were to slow down their remittance times to 7
days, participants in plans in the ECP Universe might experience
transfer losses of as much as $19.5 million annually, but would
nonetheless likely experience an aggregate net gain of $14 million.
Assuming that remittance patterns for eligible plans not in the ECP
Universe resemble patterns for those in the ECP Universe, the
Department estimates potential transfer losses for participants in
all eligible plans of $24.7 million and aggregate net gains of $19
million.
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Alternatives Considered
The Department's consideration of alternatives primarily focused on
striking the right balance between a time frame that is not so short as
to foreclose any meaningful number of plans from taking advantage of
the safe harbor and a time frame that is not so long as to create
financial incentives for employers to hold participant contributions
longer than necessary, taking into account current practices. Among
others, the Department considered the following two alternative time
periods: (1) A 5-business day safe harbor, and (2) a 10-business day
safe harbor. After reviewing the available data, however, the
Department rejected these alternatives in favor of the 7-business day
safe harbor for the reasons discussed below.
The 7-business day safe harbor is likely to encourage eligible
employers whose remittance practices involve holding participant
contributions for longer than 7 business days to change their
remittance practices to conform to the 7-business day safe harbor time
limit. Currently, only 12 percent of the eligible single employer
defined contribution plans consistently receive remittances within 5
business days, compared to the 21 percent that consistently receive
remittances within 7 business days. Although a 5-business day safe
harbor could provide higher potential gains (an estimated $40.5 million
for plans in the ECP Universe) and lower potential losses (an estimated
$12.2 million for plans in the ECP Universe) to participants if
employers choose to conform to the safe harbor, the shorter remittance
period would likely make it unattractive to many employers, because the
shorter safe harbor would increase the disparity from current
practices. Any employer anticipating large costs of compliance with the
safe harbor might not be convinced that its
[[Page 2075]]
benefits would be sufficient to justify changing its remittance
practices. If, as a result, too few employers adopt the safe harbor,
the regulation might fail to produce the intended benefit that would
flow from the certainty of uniform remittance practices on which
employers and participants can rely.
The 10-business day safe harbor, in contrast, was considered to
represent little compliance burden, since currently 29 percent of
eligible single employer defined contribution plans receive remittances
consistently within 10 business days and 94 percent receive remittances
that quickly for at least some pay periods. However, because a large
proportion of eligible plans currently receive some or all participant
contributions more quickly, a safe harbor of 10 business days would
entail some risk of producing a net aggregate loss of investment income
to participant accounts as compared with current practice.\18\
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\18\ If all currently faster remittances were delayed until the
tenth business day, annual investment earnings credited to
participant accounts could be reduced by as much as $32.3 million.
Accelerating all currently slower remittances to the tenth business
day would increase such earnings by $27.4 million resulting in an
aggregate annual loss of $4.9 million.
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As part of the ECP, EBSA investigators also made judgments as to
reasonable periods for each remittance. These data show that while
remittance within 5 business days was consistently reasonable for 48%
of eligible plans, that percentage increased to 61% by extending the
reasonable period to 7 business days. Thus, the two-day longer
reasonable period also has the advantage of being consistently
reasonable for a clear majority of eligible plans. A further extension
of the safe harbor to 10 business days would further increase (to 81%)
the percentage of plans for which the safe harbor is consistently
reasonable, but was not chosen because it would risk producing net
investment losses for participants if employers were to delay
remittances to the full extent permitted under the safe harbor.\19\
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\19\ EBSA estimates that if the safe harbor were set at 10
business days, then potential losses to participants of $32 million
would exceed potential gains of $27 million. Some commenters
expressed the opinion that employers will not delay remittances in
response to the safe harbor, and that the Department could therefore
safely establish a safe harbor period with a duration of longer than
seven days without risking net investment losses for participants.
The Department has acknowledged uncertainty regarding the extent to
which employers will accelerate or delay remittances in response to
the safe harbor, and assumes neither that remittances will be
maximally delayed as assumed in the loss calculation, nor maximally
accelerated as assumed in the gain calculation, but recognizes that
selection of a safe harbor period for which potential gains exceed
potential losses at least provides assurance that participants will
not experience net losses as long as the extent to which employers
delay remittances in response to the safe harbor does not exceed the
extent to which they accelerate remittances.
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Taking into account the potential costs and benefits presented by
the various alternative safe harbors, the Department believes that the
7-business day safe harbor would best balance the current practices of
employers and the potential costs to them of change, as well as the
value to participants of encouraging quicker transmission of
contributions. As explained earlier, the available data indicate that
employers sponsoring plans with fewer than 100 participants are
generally able to transmit participant contributions within 7 business
days of withholding or receipt. Furthermore, the impact of a 7-business
day safe harbor is anticipated to be generally favorable to
participants and to result in aggregate net gains to their accounts,
even in the unlikely event that all employers that currently remit
contributions more quickly than 7 business days were to slow down their
remittances to the maximum duration of the safe harbor.
Paperwork Reduction Act
The Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public
can clearly understand the Department's collection instructions and
provide the requested information in the desired format and that the
Department minimizes the public's reporting burden (in both time and
financial resources) and can properly assess the impact of its
collection requirements.
On August 7, 1996 (61 FR 41220), the Department published in the
Federal Register an amendment to the Regulation Relating to a
Definition of ``Plan Assets''--Participant Contributions (29 CFR
2510.3-102). This amendment created a procedure through which an
employer could extend the maximum period for depositing participant
contributions by an additional 10 business days with respect to
participant contributions for a single month. OMB approved the
paperwork requirements arising from the amendment under OMB control
number 1210-0100. The current amendment of 29 CFR 2510.3-102 contained
in this final rule does not change the extension procedure or add any
additional information collection requirements, and, accordingly, the
Department does not intend to submit this final rule to OMB for review
under the PRA.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and are likely to
have a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a final rule is not likely to
have a significant economic impact on a substantial number of small
entities, 5 U.S.C. 604 requires that the agency present a regulatory
flexibility analysis at the time of the publication of the notice of
final rulemaking describing the impact of the rule on small entities.
Small entities include small businesses, organizations and governmental
jurisdictions.
For purposes of analysis under the RFA, the Employee Benefits
Security Administration (EBSA) continues to consider a small entity to
be an employee benefit plan with fewer than 100 participants.\20\ The
basis of this definition is found in section 104(a)(2) of ERISA, which
permits the Secretary of Labor to prescribe simplified annual reports
for pension plans that cover fewer than 100 participants. Under section
104(a)(3), the Secretary may also provide for exemptions or simplified
annual reporting and disclosure for welfare benefit plans. Pursuant to
the authority of section 104(a)(3), the Department has previously
issued at 29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46 and
2520.104b-10 certain simplified reporting provisions and limited
exemptions from reporting and disclosure requirements for small plans,
including unfunded or insured welfare plans covering fewer than 100
participants and satisfying certain other requirements.
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\20\ The Department consulted with the Small Business
Administration in making this determination as required by 5 U.S.C.
601(3) and 13 CFR 121.903(c).
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Further, while some large employers may have small plans, in
general small employers maintain most small plans. Thus, EBSA believes
that assessing the impact of this rule on small plans is an appropriate
substitute for evaluating the effect on small entities. The definition
[[Page 2076]]
of small entity considered appropriate for this purpose differs,
however, from a definition of small business that is based on size
standards promulgated by the Small Business Administration (SBA) (13
CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et
seq.). EBSA requested comments on the appropriateness of the size
standard used in evaluating the impact of the proposed rule on small
entities in the proposal, but no comments were received.
EBSA hereby certifies that the final rule will not have a
significant economic impact on a substantial number of small entities.
As explained above, the provision being added to the regulation is a
safe harbor, compliance with which is wholly voluntary on the part of
the employer. Because the rule creates a safe harbor, rather than a
mandatory rule, it is unlikely that any employer will elect to take
advantage of the safe harbor if the employer concludes that the
benefits of complying with the safe harbor time limit do not exceed the
costs of such compliance. Therefore, the Department believes that most
of these small plans will elect to take advantage of the safe harbor,
provided that doing so does not significantly increase their costs or
that any cost increase is offset by reductions in other administrative
costs attendant to compliance uncertainty.
Unfunded Mandates Reform Act
Pursuant to provisions of the Unfunded Mandates Reform Act of 1995
(Pub. L. 104-4), this rule does not include any Federal mandate that
may result in expenditures by State, local, or Tribal governments, or
the private sector, which may impose an annual burden of $100 million
or more.
Congressional Review Act
This notice of final rulemaking is subject to the Congressional
Review Act provisions of the Small Business Regulatory Enforcement
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and therefore has been
transmitted to the Congress and the Comptroller General for review.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires the adherence to specific
criteria by Federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. This rule would not have federalism
implications because it has no substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Section 514 of ERISA provides, with certain
exceptions specifically enumerated, that the provisions of Titles I and
IV of ERISA supersede any and all laws of the States as they relate to
any employee benefit plan covered under ERISA. The requirements
implemented in this final rule do not alter the fundamental provisions
of the statute with respect to employee benefit plans, and as such
would have no implications for the States or the relationship or
distribution of power between the national government and the States.
List of Subjects in 29 CFR Part 2510
Employee benefit plans, Employee Retirement Income Security Act,
Pensions, Plan assets.
0
For the reasons set forth in the preamble, the Department amends
Chapter XXV of Title 29 of the Code of Federal Regulations as follows:
PART 2510--DEFINITION OF TERMS USED IN SUBCHAPTERS C, D, E, F, AND
G OF THIS CHAPTER
0
1. The authority citation for part 2510 continues to read as follows:
Authority: 29 U.S.C. 1002(2), 1002(21), 1002(37), 1002(38),
1002(40), 1031, and 1135; Secretary of Labor's Order 1-2003, 68 FR
5374; Sec. 2510.3-101 also issued under sec. 102 of Reorganization
Plan No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp., p. 332 and E.O.
12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275, and 29 U.S.C. 1135
note. Sec. 2510.3-102 also issued under sec. 102 of Reorganization
Plan No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp., p. 332 and E.O.
12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275. Sec. 2510.3-38 is also
issued under sec. 1, Pub. L. 105-72, 111 Stat. 1457.
0
2. In Sec. 2510.3-102, revise paragraphs (a), (b), (c) and (f) to read
as follows:
Sec. 2510.3-102 Definition of ``plan assets''--participant
contributions.
(a)(1) General rule. For purposes of subtitle A and parts 1 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 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 wages by an employer, for
contribution 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. (i) For purposes of paragraph (a)(1) of this
section, in the case of a plan 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.
(ii) This paragraph (a)(2) sets forth an optional alternative
method of compliance with the rule set forth in paragraph (a)(1) of
this section. This paragraph (a)(2) does not establish the exclusive
means by which participant contribution or participant loan repayment
amounts shall be considered to be contributed or repaid to a plan by
the earliest date on which such contributions or 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)(1) of this
section occur later than the 15th business day of the month following
the month in which the participant contribution or participant loan
repayment 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).
(2) With respect to a SIMPLE plan that involves SIMPLE IRAs (i.e.,
Simple Retirement Accounts, as described in section 408(p) of the
Internal Revenue Code), in no event shall the date determined pursuant
to paragraph (a)(1) of this section occur later than the 30th calendar
day following the month in which the participant contribution
[[Page 2077]]
amounts would otherwise have been payable to the participant in cash.
(c) Maximum time period for welfare benefit plans. With respect to
an employee welfare benefit plan as defined in section 3(1) of ERISA,
in no event shall the date determined pursuant to paragraph (a)(1) of
this section occur later than 90 days from the date on 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 date on 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).
* * * * *
(f) Examples. The requirements of this section are illustrated by
the following examples:
(1) Employer A sponsors a 401(k) plan. There are 30 participants in
the 401(k) plan. A has one payroll period for its employees and uses an
outside payroll processing service to pay employee wages and process
deductions. A has established a system under which the payroll
processing service provides payroll deduction information to A within 1
business day after the issuance of paychecks. A checks this information
for accuracy within 5 business days and then forwards the withheld
employee contributions to the plan. The amount of the total withheld
employee contributions is deposited with the trust that is maintained
under the plan on the 7th business day following the date on which the
employees are paid. Under the safe harbor in paragraph (a)(2) of this
section, when the participant contributions are deposited with the plan
on the 7th business day following a pay date, the participant
contributions are deemed to be contributed to the plan on the earliest
date on which such contributions can reasonably be segregated from A's
general assets.
(2) Employer B is a large national corporation which sponsors a
401(k) plan with 600 participants. B has several payroll centers and
uses an outside payroll processing service to pay employee wages and
process deductions. Each payroll center has a different pay period.
Each center maintains separate accounts on its books for purposes of
accounting for that center's payroll deductions and provides the
outside payroll processor the data necessary to prepare employee
paychecks and process deductions. The payroll processing service issues
the employees' paychecks and deducts all payroll taxes and elective
employee deductions. The payroll processing service forwards the
employee payroll deduction data to B on the date of issuance of
paychecks. B checks this data for accuracy and transmits this data
along with the employee 401(k) deferral funds to the plan's investment
firm within 3 business days. The plan's investment firm deposits the
employee 401(k) deferral funds into the plan on the day received from
B. The assets of B's 401(k) plan would include the participant
contributions no later than 3 business days after the issuance of
paychecks.
(3) Employer C sponsors a self-insured contributory group health
plan with 90 participants. Several former employees have elected,
pursuant to the provisions of ERISA section 602, 29 U.S.C. 1162, to pay
C for continuation of their coverage under the plan. These checks
arrive at various times during the month and are deposited in the
employer's general account at bank Z. Under paragraphs (a) and (c) of
this section, the assets of the plan include the former employees'
payments as soon after the checks have cleared the bank as C could
reasonably be expected to segregate the payments from its general
assets, but in no event later than 90 days after the date on which the
former employees' participant contributions are received by C. If,
however, C deposits the former employees' payments with the plan no
later than the 7th business day following the day on which they are
received by C, the former employees' participant contributions will be
deemed to be contributed to the plan on the earliest date on which such
contributions can reasonably be segregated from C's general assets.
* * * * *
Signed at Washington, DC, this 7th day of January 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 2010-430 Filed 1-13-10; 8:45 am]
BILLING CODE 4510-29-P