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February
2010
Dear
Partner Name,
On January 13, 2010, the Department of Labor
(DOL) released a final rule that establishes
a safe harbor period under which participant
contributions and loan payments are considered
plan assets in small plans.
General
Rule
Participant contributions become plan assets
as soon as they can reasonably be segregated
from the employer’s general assets but
no later than the 15th business day of the month
following the month in which they are received
by the employer to be deposited into the plan
— or would otherwise be paid in cash to
the participant as compensation. This is the
date by which participant contributions must
be deposited into the plan.
Final
Rule
The
final rule does not change the general rule.
However, it creates a safe harbor for small
plans with fewer than 100 participants. The
final rule provides that participant contributions
in small plans are deemed to be contributed
to the plan on the earliest date they can reasonably
be segregated from the employer’s general
assets if the contributions are deposited no
later than seven business days after they are
received.
In
the final rule, the DOL clarifies that this
safe harbor is optional. Plans continue to meet
the contribution timing requirement if they
meet the general rule.
The
final rule also clarifies that participant contributions
are considered deposited when placed in an account
under the plan, without regard to whether the
amount has been allocated to a specific participant
or specific investment. If an employer fails
to deposit contributions by the general rule
deadline, losses and interest on the late contributions
must be calculated from the actual date the
contributions could have reasonably been segregated
from the employer’s general assets, not
the end of the safe harbor period.
Applicable
Contributions
This
safe harbor applies to amounts that a participant
or beneficiary pays to an employer and amounts
that are withheld from an employee’s wages
by an employer. This includes elective deferral
contributions, voluntary employee contributions,
loan payments, employee contributions to a defined
benefit plan and employee contributions to a
multiemployer defined contribution plan.
Effective
Date
The
final rule is effective January 14, 2010.
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