Benefits: participant contribution timing needs scrutiny.

One of the hot topics at the Employee Benefits Security Administration (EBSA) of the Department of Labor is the timely remittance of participant contributions. Regardless of materiality, failure to remit or untimely remittance of participant contributions is a prohibited transaction under the Employee Retirement Income Security Act (ERISA), notes Linda S. Cummings, director of quality control at accounting firm J.H. Cohn LLP. This is considered to be an extension of credit--unlawful financing, or the use of plan assets for the benefit of the employer. Determining exactly when the contributions are considered to be late is not always a simple matter, however, Cummings notes.

Participant contributions are considered to be plan assets as soon as they can be reasonably segregated from the employer's general assets, but not later than the 15th day of the month following the month in which the contributions are withheld. However, she says, plan sponsors must be aware that the 15th day of the following month is not a safe harbor, especially if the assets can be "reasonably segregated" earlier.

EBSA has been pursuing an aggressive enforcement project by investigating the timing of employer payments into benefit plans and vigorously pursuing recoveries of diverted contributions and earnings, Cummings says. In addition, plan fiduciaries may be subject to other monetary penalties. The law is clear: When a company sponsors a plan to benefit employees, it cannot use the plan assets for business purposes.