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Late Deposits - DOL Safe Harbor


PensionPro

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We have a client that remitted funds to the custodian on the 6th business day following pay date, the custodian received funds on the 7th business day, and the funds were allocated to participant accounts per investment election on the 8th business day.

DOL investigator is claiming the payroll deposit is late because the investment allocation/earnings in the participant account began after the 7th business day. Our argument is that the funds were segregated from the employer's general assets by the 7th business day, and therefore there is no prohibited transaction.

Is there a statutory basis for the DOL investigator's assertion that the deposit is late even though the funds were segregated timely from the employer's general assets? Thank you for any help!

PensionPro, CPC, TGPC

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The underlying issue (prohibited transaction) is the maintenance and use of plan assets by the employer, a party in interest/disqualified person. Segregation from employer assets and delivery to the trust is the key event, not loss of earnings to the plan. Loss of eranings to the plan (and value to the employer of holding the funds before delivery) are relevant only to correct of a prohibited transaction, not determining if there is a PT. There would be no PT issue if the funds were delivered promptly to the trust, but sat unallocated and uninvested for seven or eight days. The timing of investment of plan assets is a fiduciary issue. At some point uninvested assets become a fiduciary concern. If the roles of employer and fiduciary are properly assigned and observed, the fiduciary has no responsibility for investing plan assets until receipt by the trust unless the fiduciary did something to delay the receipt. I express no view about how to count days between payday and delivery or how to apply the safe harbor.

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In reading the DOL's final rule on the subject, the safe harbor is satisfied "when contributions are deposited with the plan no later than the 7th business day ..." Nothing about allocating it to participant accounts, which may be a secondary issue but not the topic of discussion with the DOL investigator relating to PTs. Thanks for clarifying!

PensionPro, CPC, TGPC

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I was a senior investigator with the DOL. I will not argue for or against the merits of how EBSA looked at the timing of deposits, but just offer this insight regarding how we looked at this when I was still with the EBSA. It's been a few years since I was there, so enforcement policies may have changed.

We did not look at the date the contribution was remitted, or even the date the money was received by financial institution, but the date it posted to the trust account. And, we never looked at when the contributions were allocated to the actual participants. There is a difference between when the entity receives the assets and when it was posted to the account--often it is the following day.

The original posting does not explicitly say that the employer is a small employer that would have the 7 day safe harbor. Assuming it was a small employer, if the contribution did not post to the account until the 8th day (even though it was received by the custodian on the 7th day), then the DOL would say that the 7 day Safe Harbor is inapplicable, and then you must determine when the assets could have been reasonably segregated (as a very general rule of thumb, 3 days from my personal point of view).

I believe that the DOL's viewpoint could be summed up as just because the custodian received money on the 7th day, it does not mean the money was actually deposited into the trust on that day. The day it posts to the account is the most accurate way of knowing when the contribution actually made it to the trust account--and thus, segregated from general assets

Again, it has been a few years since I left EBSA. Let me know if you are seeing different enforcement policies being put into effect.

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