Posted by Saaib Uppal
We often speak of and promote a diversity of opinion. It is, after all, what leads to creativity and imaginative thinking. Take the following rule as an example:
“Funds have to be deposited as ‘of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets.’”
Chances are that if you put 20 different employers in one room and asked them what they would consider to be reasonable in this scenario, you would receive close to 20 different answers. Yet, as much as we all like to believe that we are individuals, we are not so different from each other. Again, an example:
“…but in no event to exceed the 15th business day of the month following the month in which the participants’ contributions are received by the employer”
This time, if you asked the 20 different employers what the deadline was for depositing elective deferrals, you would get similar answers. Many employers would contend that the rule provides enough leeway that deferrals deposited at any time prior to the 15th business day of the month following the month of the withholding would be considered timely.
This is the issue with which the Department of Labor (DOL) was dealing until 2010. Naturally, many 401(k) plan sponsors exploited the vagueness and considered the deadline to be the 15th business day of the following month when in fact, from the DOL’s point of view, the deadline is the earliest date in which funds can be reasonably segregated from the employer’s assets.
Luckily, in February of 2008, the DOL recognized that everyone would be better served if the regulation was amended for more clarity. After some proposals, the DOL published final regulations on January 14, 2010. These regulations provided “…a safe harbor for retirement and health & welfare plans with fewer than 100 participants (often referred to as “small plans”).” The DOL now said that “…employee contributions are deemed to be timely if the amounts are deposited with the plan no later than the 7th business day following the date the contributions (including loan repayments) are received by the employer.”
What about big plans, however? The DOL has declined to extend the safe harbor to large plans due to lack of sufficient record. (We wouldn’t want to make things too easy now, would we?) Until the DOL comes up with a better solution, those dealing with big plans will have to make a facts-and-circumstances determination. Different standards will apply for a corporation dealing with various payroll centers or divisions than withemployers with fewer employees that are paid from a single location. What “reasonably” means will have to be determined using one’s judgment. Yet that shouldn’t be a problem for us since in the end, we all love having our own opinion, right?