Employees contribute into their pension, health, and other welfarevia paycheck withholding. Under proposed regulations, employers that move those contributions from their general assets into the plans' assets within seven business days of payday would be able to take advantage of a new safe harbor, and thus avoid liability for a fiduciary breach. The proposed regulations would apply to pension and welfare benefits plans that have fewer than 100 participants at the beginning of the plan year, and won't become effective until final regs are issued.
Is The Safe Harbor Really Safe?
The proposed safe harbor gives you seven business days after withholding (in effect, seven business days after payday) to segregate employees' contributions from the company's general assets. As under current rules, employees' contributions need not be allocated to their individual accounts within those seven days.
A seven-day safe harbor, while providing a high degree of compliance certainty, isn't very long. For example, under the general rule that defines plan assets, employees' contributions into a 401(k) plan must become plan assets at the earliest date on which those contributions can reasonably be segregated from the employer's general assets. The outside time limit is the 15th day of the month following the month during which the withholding occurred. For welfare benefits plans, the outside time limit is the 90th day after withholding.
The proposed regs leave intact the general rule and the two outside dates. Potential impact: If you miss the seven-day safe harbor, your liability for a breach of fiduciary duty would be the same as it is currently. The fear is that Department of Labor (DOL) investigators will concentrate on the safe harbor, and not when employees' contributions become plan assets.
Large Plans Get A Little Something, Too
Regardless of plan size, the proposed regs would apply the seven-day safe harbor to determining when employees' 401(k) loan repayments become plan assets.
The DOL also noted that it would be amenable to extending the general seven-day safe harbor to large plans, but it needs to know if those plans would be interested. Comments on the proposed regs must be received by April 29, 2008, and may be submitted via e-mail to e-ORI@dol.gov.
Click here to read the proposed regs.