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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The Employee Benefits Security Administration (EBSA) has issued final regulations, applicable primarily to defined contribution plans with fewer than 100 participants at the beginning of the plan year, that provide a seven-business-day safe harbor period for employers to deposit participant contributions. Thus, for small contributory pension and welfare benefit plans, amounts deposited no later than the seventh business day following the day in which the amounts are received by an employer or withheld from a participant's wages will be deemed contributed to the plan on the earliest date on which the contributions could be reasonably be segregated from the employer's general assets.
EBSA has also amended the regulations to explicitly subject repayments of participant loans to the same rules as other participant contributions (i.e., for both the general rule and for the safe harbor).
Compliance uncertainty under current rules
Under the current rules, employers are obligated to transfer participant contributions into pension plans by the earliest date on which such contributions can reasonably be segregated from the employers' general assets, but in no event later than the 15th business day of the month following the month in which participant contributions are received by the employers (i.e., elective deferrals) or would have been payable to the participants in cash (withheld from participants' wages). For SIMPLE IRAs, participant contributions must transferred no later than the 30th calendar day following the month in which the contribution amounts would otherwise be payable to the participants in cash. The maximum time period for welfare benefit plans is no later than 90 days from the date on which the participant contribution amounts are received by the employers or the date on which the amounts would be payable to the participants in cash.
According to EBSA, there has been continued confusion on the part of plan sponsors and their advisers as to whether their remittances of participant contributions into plans were compliant with the rules, or left employers subject to the penalty for violating ERISA's requirements governing the holding of plan assets. The vast majority of applications under the Voluntary Fiduciary Correction Program (VFCP), nearly 90%, involve delinquent employee contribution violations, EBSA notes.
Safe harbor to help small plans with compliance certainty
EBSA concluded that it is in the best interests of plan sponsors and participants/beneficiaries to amend the regulations to establish a safe harbor that will provide a higher degree of compliance certainty as to when participant contributions will be considered to have been deposited with the plan in a timely fashion. The final regulations, except for a few minor clarifying changes, are the same as the proposed regulations, according to EBSA.
EBSA's responses to comments
Several commenters requested an increase in the number of days of the safe harbor period —for example, 10 days, 12 days, and 14 days. EBSA decided to retain the seven-business day safe harbor period. Based on data collected while investigating possible failures to timely deposit participant contributions, EBSA determined that a seven-day safe harbor would allow most employers with small plans to take advantage of the safe harbor and to benefit from the certainty of compliance. The general rule will accommodate small employers that have difficulties with meeting the seven-day safe harbor period. EBSA further explained that the safe harbor is available on a deposit-by-deposit basis. Therefore, the failure to meet the safe harbor during one payroll period will not result in the application of the general rule for the entire plan year.
Some commenters also objected to the seven-day safe harbor, thinking that the safe harbor was mandatory. EBSA added a new paragraph to the regulations, clarifying that the safe harbor is not the exclusive means for employers to meet their obligation to timely deposit participant contributions or loan repayments on the earliest date on which contributions and repayments can reasonably be segregated from the employers' general assets.
In response to commenters' questions concerning applicability of the safe harbor to SIMPLE IRAs and to salary reduction SEPs, EBSA stated that the general rule and the safe harbor are applicable to participant contributions to any plan, including SIMPLE IRAs and salary reduction SEPs.
After consideration of comments concerning a safe harbor for large plans, EBSA did not expand the safe harbor to cover plans with 100 or more participants because of a lack of information and data sufficient to evaluate current practices of the employers and to assess the costs, benefits, and risks to participants of extending the safe harbor to large plans.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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