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Guest Article (6/28/2002)

Perhaps the Judge Was Right

By S. Derrin Watson, Esq.

A recent case from the United States District Court in Minnesota, Golden v. wwwrrr, 2002 U.S. Dist. LEXIS 3053 (D. Minn. 2002), has attracted a great deal of attention from the employee benefits community lately. It is the first case to discuss in detail the DOL's plan asset regulations on the deadlines for contributing employee deferrals.

The employer in the case,, had established a 401(k) plan. As its financial condition worsened, its deferral deposits to the plan became later. Until the very end when the company closed, they always made deposits by the fifteenth day of the following month, but in some cases deposits weren't deposited until several weeks after payroll. The judge declined to penalize the company or the trustees, ruling that a company in financial difficulties might not be able to segregate contributions as quickly as it did when times were good.

My purpose here is not to discuss the decision in detail. I do that in a forthcoming somewhat humorous article in the Journal of Pension Benefits. (You do subscribe to the Journal, don't you?) Rather, I want to respond here to some of the comments that have been made online and elsewhere criticizing the decision.

Everyone knows that the decision does not conform to the wishes of the Department of Labor. The position they have taken, publicly and repeatedly, is that their ASAP deadline ("earliest date on which such contributions can reasonably be segregated from the employer's general assets") is the "real" deadline. They've essentially said that if you could make your deposit in two days once, you should be able to do it in two days forever after. So, it is not surprising to learn that the DOL is less than thrilled with the decision. In fact, the attorney for the plaintiffs, in a motion for reconsideration, had the ill grace to quote a phone conversation with a DOL attorney. The DOL attorney is quoted as making a more intemperate remark about the decision than he likely would have made had he known his comment would become public record and submitted to the Court.

But the issue is not whether the DOL likes the decision. Any practitioner would know that they would be less than thrilled. They have been very firm (some would call it "hard nosed") in their stance. But frankly, therein may lay the strength of the opinion.

Although the DOL is enforcing its regulation in a very stiff, inflexible manner, the regulation itself is anything but stiff. Instead of imposing a clear, bright-line deadline, the regulation imposes an amorphous requirement of depositing contributions as soon as they can reasonably be segregated.

In the wwwrrr case you have a diligent District Court Judge trying to apply that variable standard to a hard factual situation. It is obvious from the Court's opinion that the Judge was impressed with overall conduct of the officers of the company. In many respects, these appeared to be people who warranted approval, not condemnation. In fact, they put the final 401(k) contribution in out of their own pockets. They were confronted with difficult cash flow situations, in which they sometimes had to borrow money to make payroll. So, they would get the paychecks out on time, and get the deferrals into the plan as soon as they could, and always before the 15th of the following month. On that basis, the deposits were found to be timely.

Now we can argue whether that decision is good policy or not. But in doing so we must realize that the DOL, however much it may dislike the Court's opinion, invited that opinion by setting the standard they did. Give us a firm date, and we can all live with it. But give us a flexible standard, and expect that people (including courts) will apply that standard differently. Just as beauty is in the eye of the holder, so too is a determination of what ASAP means in a particular case.

I'm not saying I would have ruled the way Judge Montgomery did. I'm not saying her opinion should be free from criticism. But I am saying that it is important to consider her opinion in light of a regulatory scheme many practitioners have criticized as oppressive, and to give her praise for bringing some real world common sense to soften those regulations.

S. Derrin Watson, Esq. graduated from UCLA Law School. Formerly the tax partner of a law firm in Beverly Hills, Mr. Watson is now a tax attorney in solo practice in Santa Barbara, California. He is a contributing editor for the Journal of Pension Benefits and authors the Who's the Employer column for BenefitsLink. He can be reached via email at

BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.
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