Retaining Interest: The Float Issue

[Guest TDeckert]

An entity receives premium payments (consisting of both employer and employee contributions) under a fully insured multiple employer plan. It retains those premiums for some time and then remits them to the insurance company. Is there any problem with the entity's retention of the interest earned (the "float")?

[Chester]

My understanding is that if this is an ERISA plan, the payments should be remitted to the insurance policy as soon as administratively feasible. In fact, for 401(k) plans, the DOL has ruled that employee deferrals should be deposited no later than 15 days following the end of the month in which the contributions were made. I would expect that this employer would have problems defending this practice if they were ever audited. The fact that employees are losing interest on their own contributions should be cause for concern, and I would recommend that the employer cease this practice immediately.In fact, consideration should be given to filing a VCR submission to the IRS if this is an ERISA plan.