Form 5500 Reviews Lead to DOL Letters About Timely Remitting Contributions

The Department of Labor (DOL) has been cracking down on plan sponsors that fail to remit contributions and loan repayments in a timely manner.

An update from law firm Masuda, Funai, Eifert & Mitchell, Ltd. says that based on reviews of Form 5500s, the DOL’s Employee Benefit Security Administration (EBSA) is sending letters to plan sponsors saying, “it appears that the Plan sponsor failed to remit ($xxx,xxx.00) in participant contributions and/or loan repayments to the Plan within the time period described in Department of Labor Regulation 29 CFR 2510.3-102.”

The update, written by Frank Del Barto , chair of the firm’s Employment, Labor & Benefits group, points out that per DOL regulations, employee contributions and loan repayments generally become assets of Employee Retirement Income Security Act (ERISA) plans as of the earliest date that such contributions or repayments can be reasonably segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the amounts otherwise would have payable to the employee. He says many plan sponsors mistakenly believe that the “15th business day” is the deadline to deposit employee contributions and loan repayments to the plan. However, as the “invitation to correct” letter states, “the 15th business day is not a safe harbor and is included in the regulation only as an outside limit of the time that may be considered for segregation of assets.”

“In contrast to the ‘15th business day,’ most plan sponsors must focus on the ‘earliest date that such contributions or repayments can be reasonably segregated from the employer’s general assets,’” Del Barto says. He notes that the ‘earliest date’ will be different for each plan sponsor, but is likely a matter of days.

Del Barto also reminds plan sponsors that, for ERISA plans with fewer than 100 participants at the beginning of a plan year, there is a safe harbor. For these plans, contributions or participant loan repayments shall be deemed to be segregated from the employer’s general assets on the earliest date possible if they are deposited into the plan no later than the seventh business day following the day the amounts are received or withheld, even if they could have been deposited earlier.

According to the update, the letters summarize the plan asset regulations, note that the failure to remit or the untimely remittance of contributions or loan repayments violates several ERISA provisions, and provide information regarding the DOL’s Voluntary Fiduciary Correction Program (VFCP). The law firm recommends that plan sponsors accept the DOL’s “invitation to correct” under VFCP in order to prevent the regulator from considering alternative enforcement measures.