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Department of Labor reviewing timely remittance of participant contributions by Employee Benefit Plans. (regulatory matters).

The AICPA's Employee Benefit Plans Expert Panel has learned that the Department of Labor's focus on reviewing the timeliness of employee remittances has recently involved a review of the benefit plan administrator's ability to remit funds on a bimonthly basis. In this instance, the service provider would only accept the transfers on a monthly basis, which required the plan sponsor to hold onto the funds for several days. The DOL determined that the funds were deemed to be segregated within a few days after each payroll and therefore required the plan sponsor to make the participants whole for the entire time (5 years) that the plan utilized such service provider.

Both pre-tax (salary deferral) and after-tax contributions to qualified pension plans must be held in trust as soon as they are deemed to be plan assets. DOL regulations require that these contributions be considered plan assets as of the earliest date they can reasonably be segregated from the general assets of the company. That date can be no later than 15 business days after the end of the month in which the participant contributions are withheld or received by the employer. Some employers believe the 15 business-day provision is a safe harbor rule on such transmittals, and that they have until the 15th business day after the month in which the amounts were withheld from the paychecks. However, there is no safe harbor. The employer must transmit the amounts to the plan as soon as they can be reasonably segregated from the employee's paycheck. Failure to remit or untimely remittance of participant contributions may constitute a prohibited transaction (either a use of plan assets for the benefit of the employer or a prohibited extension of credit) and, in certain circumstances, may constitute embezzlement of plan assets.

[e-mail] wfrederick@aicpa.org
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Publication:CPA Letter
Article Type:Brief Article
Geographic Code:1USA
Date:Oct 1, 2001
Words:300
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