EBSA Final Rules

Definition of ``Plan Assets''--Participant Contributions   [1/14/2010]
[PDF]
FR Doc 2010-430
[Federal Register: January 14, 2010 (Volume 75, Number 9)]
[Rules and Regulations]               
[Page 2068-2077]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14ja10-7]                         

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2510

RIN 1210-AB02

 
Definition of ``Plan Assets''--Participant Contributions

AGENCY: Employee Benefits Security Administration, Department of Labor.

[[Page 2069]]


ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This document contains a final regulation that establishes a 
safe harbor period during which amounts that an employer has received 
from employees or withheld from wages for contribution to certain 
employee benefit plans will not constitute ``plan assets'' for purposes 
of Title I of the Employee Retirement Income Security Act of 1974, as 
amended (ERISA), and the related prohibited transaction provisions of 
the Internal Revenue Code. This regulation will enhance the clarity and 
certainty for many employers as to when participant contributions will 
be treated as contributed in a timely manner to employee benefit plans. 
This final regulation will affect the sponsors and fiduciaries of 
contributory group welfare and pension plans covered by ERISA, 
including 401(k) plans, as well as the participants and beneficiaries 
covered by such plans and recordkeepers, and other service providers to 
such plans.

DATES: This final rule is effective on January 14, 2010.

FOR FURTHER INFORMATION CONTACT: Janet A. Walters, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, U.S. Department of Labor, Washington, DC 20210, (202) 
693-8510. This is not a toll free number.

SUPPLEMENTARY INFORMATION: 

A. Background

    In 1988, the Department of Labor (the Department) published a final 
rule (29 CFR 2510.3-102) in the Federal Register (53 FR 17628, May 17, 
1988), defining when certain monies that a participant pays to, or has 
withheld by, an employer for contribution to an employee benefit plan 
are ``plan assets'' for purposes of Title I of the Employee Retirement 
Income Security Act of 1974, as amended (ERISA) and the related 
prohibited transaction provisions of the Internal Revenue Code (the 
Code).\1\ The 1988 regulation provided that the assets of a plan 
included amounts (other than union dues) that a participant or 
beneficiary pays to an employer, or amounts that a participant has 
withheld from his or her wages by an employer, for contribution to a 
plan, as of the earliest date on which such contributions can 
reasonably be segregated from the employer's general assets, but in no 
event to exceed 90 days from the date on which such amounts are 
received or withheld by the employer. In 1996, the Department published 
in the Federal Register (61 FR 41220, August 7, 1996), amendments to 
the 1988 regulation modifying the outside limit beyond which 
participant contributions to a pension plan become plan assets. Under 
the 1996 amendments, the outer limit for participant contributions to a 
pension plan was changed to the 15th business day of the month 
following the month in which participant contributions are received by 
the employer (in the case of amounts that a participant or beneficiary 
pays to an employer) or the 15th business day of the month following 
the month in which such amounts would otherwise have been payable to 
the participant in cash (in the case of amounts withheld by an employer 
from a participant's wages). The general rule--providing that amounts 
paid to or withheld by an employer become plan assets on the earliest 
date on which they can reasonably be segregated from the employer's 
general assets--did not change. The maximum time period applicable to 
welfare plans also did not change as a result of the 1996 amendments.
---------------------------------------------------------------------------

    \1\ While the rule effects the application of ERISA and Code 
provisions, it has no implications for and may not be relied upon to 
bar criminal prosecutions under 18 U.S.C. 664. See paragraph (a) of 
29 CFR 2510.3-102.
---------------------------------------------------------------------------

    In the course of investigations of 401(k) and other contributory 
pension plans and in discussions with representatives of employers, 
plan administrators, consultants and others, it is commonly represented 
to the Department that, while efforts have been made to clarify the 
application of the general rule (i.e., participant contributions become 
plan assets on the earliest date on which they can reasonably be 
segregated from the employer's general assets),\2\ many employers, as 
well as their advisers, continue to be uncertain as to how soon they 
must forward these contributions to the plan in order to avoid the 
requirements associated with holding plan assets. At the same time, the 
Department devotes significant enforcement resources to cases involving 
delinquent employee contributions and the vast majority of applications 
under the Department's Voluntary Fiduciary Correction Program involve 
delinquent employee contribution violations.\3\
---------------------------------------------------------------------------

    \2\ See preamble to Final Rule, 61 FR 41220, 41223 (August 7, 
1996). See also Field Assistance Bulletin 2003-2 (May 7, 2003).
    \3\ Since the inception of the Voluntary Fiduciary Correction 
Program in 2000, close to 90% of the applications have involved 
delinquent participant contribution violations.
---------------------------------------------------------------------------

    For these reasons, the Department decided that it was in the 
interest of plan sponsors and plan participants and beneficiaries to 
amend the participant contribution regulation to establish a safe 
harbor that would provide a higher degree of compliance certainty with 
respect to when an employer has made timely deposits of participant 
contributions to employee benefit plans with fewer than 100 
participants. The Department published a proposed safe harbor in the 
Federal Register (73 FR 11072) on February 29, 2008. Under the 
proposal, employers with plans with fewer than 100 participants would 
be considered to have made a timely deposit to their plan under the 
regulation if participant contributions are deposited within 7 business 
days. In response to the Department's invitation for comments, the 
Department received 28 comments from a variety of parties, including 
plan sponsors and fiduciaries, plan service providers, financial 
institutions, and employee benefit plan industry representatives. These 
comment letters are available for review under Public Comments on the 
Laws & Regulations page of the Department's Employee Benefits Security 
Administration Web site at http://www.dol.gov/ebsa. Set forth below is 
an overview of the final regulation, along with a discussion of the 
public comments received on the proposal.

B. Overview of Final Rule and Comments

    For the reasons explained below, the Department has decided to 
adopt a final regulation that, with the exception of a few minor 
clarifying changes, is the same as the proposal. The following is a 
paragraph by paragraph review of the regulation and a summary of the 
comments received with respect to each.
    Paragraph (a)(2) of Sec.  2510.3-102, like the proposal, sets forth 
a safe harbor under which participant contributions to a pension or 
welfare benefit plan with fewer than 100 participants at the beginning 
of the plan year will be treated as having been made to the plan in 
accordance with the general rule (i.e., on the earliest date on which 
such contributions can reasonably be segregated from the employer's 
general assets) when contributions are deposited with the plan no later 
than the 7th business day following the day on which such amount is 
received by the employer (in the case of amounts that a participant or 
beneficiary pays to an employer) or the 7th business day following the 
day on which such amount would otherwise have been payable to the 
participant in cash (in the case of amounts withheld by an employer 
from a participant's wages). As under the 1996 amendments, participant 
contributions will be

[[Page 2070]]

considered deposited when placed in an account of the plan, without 
regard to whether the contributed amounts have been allocated to 
specific participants or investments of such participants.
    Paragraphs (b)(1), (b)(2) and (c) of Sec.  2510.3-102 are being 
revised to incorporate the appropriate cross references to ``paragraph 
(a)(1)'' instead of ``paragraph (a)''.

Scope of Safe Harbor

    The final safe harbor, like the proposal, is available for both 
participant contributions to pension benefit plans and participant 
contributions to welfare benefit plans. Several commenters requested 
that the Department clarify whether the regulation applies to SIMPLE 
IRAs and salary reduction SEPs. The Department's view is that elective 
contributions to an employee benefit plan, whether made pursuant to a 
salary reduction agreement or otherwise, constitute amounts paid to or 
withheld by an employer (i.e., participant contributions) within the 
scope of Sec.  2510.3-102, without regard to the treatment of such 
contributions under the Internal Revenue Code. See 61 FR 41220 (Aug. 7, 
1996). Both the general rule and the optional safe harbor provisions in 
paragraphs (a)(1) and (a)(2) of Sec.  2510.3-102, respectively, are 
applicable to participant contributions to any plan, including SIMPLE 
IRAs and salary reduction SEPs. However, the Department notes that, 
pursuant to Sec.  2510.3-102(b)(2), the maximum period during which 
salary reduction elective contributions under a SIMPLE plan that 
involves SIMPLE IRAs may be treated as other than plan assets is 30 
calendar days, the same number of days as the period within which the 
employer is required to deposit withheld contributions under a SIMPLE 
plan that involves SIMPLE IRAs under section 408(p) of the Internal 
Revenue Code. See 62 FR 62934 (Nov. 25, 1997).
    One commenter suggested that, under the safe harbor and the general 
rule, employers be permitted to pre-fund contributions. The commenter 
indicated that an employer may wish to deposit the participant 
contributions to the plan in advance of withholding those 
contributions, and expressed concern that the general rule and the safe 
harbor require that contributions be made within a certain number of 
days after the amount is withheld from pay. In general, Sec.  2510.3-
102 is intended to ensure that an employer deposits participant 
contributions, withheld by or paid to the employer, to the plan as soon 
as practicable. As to whether in any given instance ``pre-funding'' of 
participant contributions, such as that described by the commenter, 
will necessarily result in compliance with the regulation or safe 
harbor will, in the view of the Department, depend on the particular 
facts and circumstances.\4\
---------------------------------------------------------------------------

    \4\ To the extent any instance of pre-funding might be an 
extension of credit to the plan, PTE 80-26 would apply if its terms 
and conditions are satisfied.
---------------------------------------------------------------------------

    One commenter requested that the Department clarify the application 
of the safe harbor rule to contributory welfare plans in light of the 
Department's guidance provided in Technical Release 92-01. 57 FR 23272 
(June 2, 1992), 58 FR 45359 (Aug. 27, 1993). ERISA section 403(b) 
contains a number of exceptions to the trust requirement for certain 
types of assets, including assets which consist of insurance contracts, 
and for certain types of plans. In addition, the Department has issued 
Technical Release 92-01, which provides that, with respect to certain 
welfare plans (e.g., associated with cafeteria plans), the Department 
will not assert a violation of the trust or certain other reporting 
requirements in any enforcement proceeding, or assess a civil penalty 
for certain reporting violations involving such plans solely because of 
a failure to hold participant contributions in trust. The Department 
confirms that Technical Release 92-01 is not affected by the final 
regulation contained in this document, and remains in effect until 
further notice.

Length of Safe Harbor Period

    A number of commenters requested that the Department increase the 
length of the safe harbor period. Several commenters requested that the 
safe harbor period be 10 business days. Several others requested that 
it be 14 days. One commenter requested that the safe harbor period be 
12 business days. One commenter requested that small employers have 
until the 5th day of the month following the month in which amounts are 
withheld from pay as a safe harbor period. One commenter requested that 
small employers have until the 15th business day of the month following 
the month in which amounts are received or withheld by the employer as 
a safe harbor period. These commenters represented a variety of reasons 
that would cause small employers difficulty in meeting a 7-business day 
safe harbor period. Some commenters represented that small employers 
will be unable to meet the 7-business day safe harbor period in 
circumstances of the business owner's or staff person's illness or 
vacation. Other commenters describe problems that arise for small 
employers, particularly those using outside payroll firms to process 
payroll and make contributions, such as Internet problems, loss of 
power and incorrect reporting by a payroll company to the plan's 
financial institution. These commenters requested that these types of 
special circumstances be addressed by providing a longer safe harbor 
period. Several commenters recommended that the 7-business day safe 
harbor period be retained, noting that such period is an appropriate 
safe harbor period for small plans. In attempting to define the 
appropriate period for a safe harbor, the Department reviewed data 
collected in the course of its investigations of possible failures to 
deposit participant contributions in a timely fashion. On the basis of 
these data, the Department concluded that adoption of a 7-business day 
safe harbor rule would allow most employers with small plans to take 
advantage of the safe harbor and, thereby, benefit from the certainty 
of compliance afforded by the proposed regulation. After careful 
consideration of all the comments concerning the length of the safe 
harbor period, the Department has decided to retain the 7-business day 
safe harbor period for small plans. The Department believes that the 
special circumstances and problems particular to small employers noted 
by commenters as described above, will generally be accommodated under 
the current facts and circumstances general rule. Several commenters 
requested a longer safe harbor period for small plans due to the 
current systems of small plans involving manual payroll systems, 
limited clerical staff, the amount of time needed to reconcile the plan 
contributions, and the increased cost and workload for more frequent 
remittances. The general rule--providing that amounts paid to or 
withheld by an employer become plan assets on the earliest date on 
which they can reasonably be segregated from the employer's general 
assets--will also accommodate these other timing issues raised by 
commenters.

Deposit-by-Deposit Basis

    One commenter asked whether a failure to meet the safe harbor 
during one payroll period will result in application of the general 
rule for determining when participant contributions are plan assets for 
an entire plan year. The safe harbor is available on a deposit-by-
deposit basis, such that a failure to satisfy the safe harbor for any 
deposit of participant contribution amounts to a plan will not

[[Page 2071]]

result in the unavailability of the safe harbor for any other deposit 
to the plan.

Optional Safe Harbor

    One commenter requested that the safe harbor nature of the proposal 
be confirmed. Several commenters misunderstood the optional safe harbor 
nature of the proposal and objected to a mandatory requirement of 7 
business days for the deposit of participant contributions into small 
plans. In response to these concerns, the Department has added new 
paragraph 2510.3-102(a)(2)(ii), clarifying that the final safe harbor 
regulation is not the exclusive means by which employers can discharge 
their obligation to deposit participant contributions or loan 
repayments on the earliest date on which such contributions and 
payments can reasonably be segregated from the employer's general 
assets. The Department notes that, when an employer fails to deposit 
participant contributions or loan repayments in accordance with the 
general rule (i.e., as soon as such contributions or payments can 
reasonably be segregated from the employer's general assets), losses 
and interest on such late contributions must be calculated from the 
actual date on which such contributions and/or payments could 
reasonably have been segregated from the employer's general assets, not 
the end of the safe harbor period.

Large Plans

    The Department specifically invited comment on whether the proposed 
safe harbor should extend to contributions to plans with 100 or more 
participants. In this regard, the Department requested that commenters 
provide information and data sufficient to evaluate the current 
contribution practices of such employers and to conclude that it is a 
net benefit to such employers and participants to have a safe harbor. 
The Department also requested comments on the need for a safe harbor, 
and the corresponding size of the plans for which there appears to be a 
need for such a safe harbor. Several commenters requested that the safe 
harbor rule be made available to larger plans, explaining that larger 
plans have issues of reconciliation and multiple geographic sites with 
different payroll periods. Some of these commenters argued that large 
employers would not slow down remittances as a result of a safe harbor 
provision. After careful consideration of the comments, the Department 
does not believe that it has a sufficient record on which to evaluate 
current practices and assess the costs, benefits, risks to participants 
associated with extending the safe harbor or any variation thereof to 
large plans at this time. As a result, the Department has determined 
not to change the safe harbor provision to cover participant 
contributions to a pension or welfare benefit plan with 100 or more 
participants.

Multiemployer and Multiple Employer Plans

    Several commenters argued that, in the case of multiemployer and 
multiple employer plans, the regulation should base the safe harbor's 
availability on the size of the employer, instead of the size of the 
plan. These commenters argued that small employers maintaining 
multiemployer and multiple employer plans should have the same 
certainty as an employer sponsoring its own plan. These commenters 
explained that small employers that participate in large multiemployer 
and multiple employer plans face the same challenges as small employers 
sponsoring single employer plans, representing that these small 
employers also have payrolls that are independent, less sophisticated 
and many are manual. Several commenters also argued that the safe 
harbor should be expanded to cover all participating employers in 
multiemployer and multiple employer plans. These commenters argued that 
having a safe harbor only for small employers participating in large 
multiemployer and multiple employer plans would create undue 
administrative burden and cost. As described by these commenters, 
employers remit participant contributions to multiemployer plans in 
accordance with the collective bargaining agreements and other plan 
documents. With regard to the foregoing, the Department notes that it 
addressed the application of participant contribution requirements to 
multiemployer defined contribution plans in Field Assistance Bulletin 
(FAB) 2003-2 (May 7, 2003). As described in the FAB, the provisions of 
the participant contribution regulation apply in the same way to 
multiemployer plans that the provisions apply to single employer plans 
and that, as is the case with single employer plans, if a multiemployer 
plan maintains a reasonable process for the expeditious and cost-
effective receipt of contributions, this process may be taken into 
account in determining when participant contributions can reasonably be 
segregated from the employer's general assets. To the extent that a 
collective bargaining describes such a process, the collective 
bargaining agreement should be considered in determining when 
participant contributions become plan assets. To be reasonable, a 
plan's process for receiving participant contributions should take into 
account how quickly the participating employers can reasonably 
segregate and forward contributions. The plan fiduciaries should also 
consider how costly to the plan a more expeditious process would be. 
These costs should be balanced against any additional income and 
security the plan and plan participants would realize from a faster 
system. Thus, the FAB describes the Department's view that, in 
determining when participant contributions can reasonably be segregated 
from the general assets of any given contributing employer to a 
multiemployer defined contribution plan, the time frames established in 
collective bargaining, employer participation and similar agreements 
must be taken into account to the extent such agreements represent the 
considered judgment of the plan's trustees that such time frames 
reflect the appropriate balancing of the costs of transmitting, 
receiving and processing such contributions relative to the protections 
provided to participants, provided that any such time frames do not 
extend beyond the maximum period prescribed in Sec.  2510.3-102(b). The 
Department believes that the guidance in this FAB provides clarity and 
flexibility for contributing employers to multiemployer plans regarding 
the application of the participant contribution requirements. For this 
reason, the Department has decided to retain the safe harbor rule for 
small plans without modification from the proposal for contributing 
employers to multiemployer or multiple employer plans.

Examples

    One commenter requested that the Department include an example in 
the regulation regarding a situation involving participant 
contributions made to a plan outside the safe harbor period. Under the 
final safe harbor rule, like the proposal, the general rule--providing 
that amounts paid to or withheld by an employer become plan assets on 
the earliest date on which they can reasonably be segregated from the 
employer's general assets--did not change. Given the facts and 
circumstances general rule, the Department has determined not to add an 
example concerning circumstances that require an employer to deposit 
participant contributions beyond the safe harbor period. Another 
commenter requested that the Department retain an example from the 1996 
amendments in which an employer deposits

[[Page 2072]]

contributions into a pension plan after the 15th business day maximum 
period limit. The Department believes that the examples in the proposal 
effectively illustrate the general rule and the application of the safe 
harbor. As a result, the Department has decided to retain the examples 
in the proposal without modification.

Participant Loan Repayments

    The Department proposed to amend paragraph (a)(1) of Sec.  2510.3-
102 to extend the application of the regulation to amounts paid by a 
participant or beneficiary or withheld by an employer from a 
participant's wages for purposes of repaying a participant's loan 
(regardless of plan size). See Advisory Opinion 2002-02A (May 17, 2002) 
\5\. The proposal also served to extend the availability of the 7-
business day safe harbor to loan repayments to plans with fewer than 
100 participants. The Department received no comments on these 
provisions and is adopting the provisions without change.
---------------------------------------------------------------------------

    \5\ This advisory opinion may be accessed at http://www.dol.gov/
ebsa/regs/aos/ao2002-02a.html (May 17, 2002).
---------------------------------------------------------------------------

Effective Date

    Under the proposal, the Department contemplated making the safe 
harbor and the proposed amendments to paragraph (a)(1) and (f)(1) of 
Sec.  2510.3-102 effective on the date of publication of the final 
regulation in the Federal Register. Two commenters suggested that the 
effective date of the regulation should be delayed for at least 6 
months following its publication to provide sufficient time for plan 
sponsors to evaluate additional responsibilities and options. Since the 
regulation provides an optional safe harbor rule as discussed above, 
the Department has determined not to change the effective date of the 
safe harbor provision. The safe harbor will provide a means for certain 
employers to assure themselves that they are not holding plan assets, 
without having to determine that participant contributions were 
forwarded to the plan at the earliest reasonable date. By providing 
such assurance, the safe harbor will grant or recognize an exemption or 
relieve a restriction within the meaning of 5 U.S.C. 553(d)(1). 
Moreover, the safe harbor will encourage certain employers to take 
immediate steps to review their systems and, if necessary, shorten the 
period within which participant contributions are forwarded to the plan 
in order to take advantage of the safe harbor and, thereby, extend the 
benefit of earlier contributions to participants and beneficiaries 
earlier than might otherwise occur with a deferred effective date. 
Thus, the Department retained the effective date of the final 
regulation.

C. Regulatory Impact Analysis

Summary

    The safe harbor will provide employers with increased certainty 
that their remittance practices, to the extent that they meet the safe 
harbor time limits, will be deemed to comply with the regulatory 
requirement that participant contributions be forwarded to the plan on 
the earliest date on which they can reasonably be segregated from the 
employer's general assets. This increased certainty will produce 
benefits to employers, participants, and beneficiaries by reducing 
disputes over compliance and allowing easier oversight of remittance 
practices. In addition, the tendency to conform to the safe harbor time 
limit may serve to reduce the existing variations in remittance times, 
providing increased certainty for employers and other plan sponsors and 
participants. In the case of employers that expedite their remittance 
practices to take advantage of the safe harbor, plan participants may 
derive an additional benefit in the form of increased investment 
earnings. The Department estimates that accelerated remittances could 
result in $43.7 million in additional income to be credited annually to 
participant accounts under the plans if no employers choose to delay 
remittances in response to the safe harbor and $19 million annually 
even if all eligible employers were to delay remittances to the full 
duration of the safe harbor.
    Costs attendant to the safe harbor arise principally from one-time 
start-up costs to alter remittance practices to conform to the safe 
harbor and from any additional on-going administrative costs attendant 
to quicker, and possibly more frequent, transmissions of participant 
contributions from employers to plans. The Department believes that the 
costs likely to arise from either source will be small and that the 
benefits of this regulation will justify its costs.\6\
---------------------------------------------------------------------------

    \6\ A key factor limiting the cost of this regulation is that it 
requires no action of the part of any employer, plan, or 
participant; it creates an incentive for employers to remit 
participant contributions on more regular schedules.
---------------------------------------------------------------------------

    The data, methodology, and assumptions used in developing these 
estimates are more fully described below in connection with the 
Department's analyses under Executive Order 12866 and the Regulatory 
Flexibility Act (RFA).

Executive Order 12866 Statement

    Under Executive Order, the Department must determine whether a 
regulatory action is ``significant'' ' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Exec. Order No. 12866, 58 FR 51735 
(Oct. 4, 1993). Under section 3(f) of the Executive Order, a 
``significant regulatory action'' ' is an action that is likely to 
result in a rule (1) having an annual effect on the economy of $100 
million or more, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or Tribal governments or communities 
(also referred to as ``economically significant''); (2) creating 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. It has 
been determined that this action is significant under section 3(f)(4) 
because it raises novel legal or policy issues arising from the 
President's priorities. Accordingly, the Department has undertaken an 
analysis of the costs and benefits of the final regulation. OMB has 
reviewed this regulatory action.
    This final rule will establish a safe harbor rule for employers' 
timely remittance of participant contributions to employee benefit 
plans. The safe harbor is available only to employer remittances of 
participant contributions to plans with fewer than 100 participants. 
Under the final rule, employers that remit participant contributions 
within 7 business days after the date on which received or withheld 
would be deemed to have complied with the requirement of 29 CFR 2510.3-
102 to treat participant contributions as plan assets ``as of the 
earliest date on which such contributions can reasonably be segregated 
from the employer's general assets.''
    This rule is likely to encourage some eligible employers whose 
current remittance practices involve holding participant contributions 
for longer than 7 business days to change their remittance practices to 
conform to the 7[dash]business day time limit. Because the rule is not 
mandatory and changes in remittance practices are likely to entail

[[Page 2073]]

some cost to employers, only those employers that believe they will 
benefit from the protection of the safe harbor will elect to take 
advantage of the safe harbor.
    In order to analyze the potential economic impact of this rule, the 
Department examined data on the remittance of participant contributions 
to a representative sample of contributory single employer defined 
contribution pension plans collected from EBSA's Employee Contributions 
Project 2004 Baseline Project (``ECP'').\7\ Based on data from this 
project and from Form 5500 filings for the 2004 plan year, which is the 
year of this one-time project, the Department estimates that the safe 
harbor will be available to an estimated 311,000 single employer 
defined contribution plans with fewer than 100 participants.\8\ These 
plans receive approximately 18% of participant contributions made to 
all contributory single employer defined contribution plans.\9\
---------------------------------------------------------------------------

    \7\ This project was undertaken by the Department in order to 
develop a better understanding of current employer practices 
regarding contributory individual account pension plans. The project 
was based on a representative sample of 487 contributory, single 
employer defined contribution plans. Plans having these 
characteristics will be referred to as the ``ECP Universe.'' In 
2004, the Department collected detailed data on the remittance 
practices of the employers sponsoring the sample plans. The 
collected data covered the 12-month period preceding the date in 
2004 on which EBSA interviewed the employer-sponsor and included, 
for example, the exact dates on which wages were withheld from 
employees and the exact dates on which participant contributions 
were deposited in the plan's accounts. For purposes of this 
analysis, the sample data has been weighted to the 2004 Form 5500 
universe of contributory, single employer defined contribution 
plans.
    \8\ While the safe harbor is available to contributory defined 
benefit plans, contributory multiemployer defined contribution 
plans, and contributory welfare benefit plans, the Department 
expects that a small number of such plans will take advantage of the 
safe harbor. SIMPLE IRAs and SARSEPs (``SIMPLE/SARSEPs'') are the 
major type of plans eligible for the safe harbor that are not 
included in the ECP Universe, because they are exempt from the Form 
5500 filing requirement. Although complete and reliable data on the 
number of SIMPLE/SARSEPs and the amount of participant contributions 
to them is not available, based on data from sources including the 
IRS (http://www.irs.gov/pub/irs-soi/04inretirebul.pdf) and the 
Investment Company Institute (Table A14 from http://www.ici.org/
stats/res/retmrkt_update.pdf), the Department estimates that plans 
included in the ECP Universe may comprise about half of all plans 
eligible for the safe harbor and hold about 79% of all participant 
contributions to eligible plans. The Department, therefore, believes 
that the ECP provides highly meaningful data for estimating 
potential impacts.
    \9\ This percentage is based on an EBSA tabulation of its 2004 
Form 5500 research file.
---------------------------------------------------------------------------

    Using these data, the Department analyzed the current remittance 
practices of the employers sponsoring these plans, extrapolated the 
results to characterize the remittance practices of plans in general, 
and projected the potential impact of this safe harbor rule. The 
Department considered both the extent to which data on remittance 
records of these plans reveal a preference or standard practice 
regarding timing, and the extent to which changes in the length of time 
between withholding and receipt by the plan might result in an increase 
(or decrease) in investment income to participants' accounts.
    The sample data indicate that employers' remittance patterns for 
participant contributions to plans vary substantially, both across 
payroll periods of an individual employer and across employers. Based 
on analysis of these data, the Department has concluded that most 
employers sponsoring plans with fewer than 100 participants will not 
find it difficult to take advantage of the safe harbor.\10\ Twenty-one 
percent of all plans with fewer than 100 participants for which data 
was obtained had remittance times within 7 business days for all pay 
periods; an additional 69% remitted participant contributions for at 
least some of the employer's payroll periods within 7 business days. 
Based on these data, the Department has concluded that a large majority 
of contributory plans could comply with a 7-business day safe harbor. 
Moreover, a substantial portion of contributory plans would reduce the 
time taken to make at least some deposits. The Department recognizes 
that to take advantage of the safe harbor for all remittances, many of 
the firms that currently remit employee contributions within 7 business 
days for some, but not all, pay periods would have to change their 
remittance schedule from monthly remittances to remittances following 
each weekly or biweekly pay period.
---------------------------------------------------------------------------

    \10\ These data indicate that 90% of plans with fewer than 100 
participants currently receive at least some participant 
contributions within 7 business days after withholding.
---------------------------------------------------------------------------

    The Department anticipates that a substantial number of employers 
that currently take longer than 7 business days to remit participant 
contributions will speed up their remittances in order to take 
advantage of the safe harbor. At the same time, it is possible that 
some employers that currently remit participant contributions more 
quickly than the safe harbor rule will slow their remittances due to 
the safe harbor. Such behavior might benefit the remitting employers by 
reducing their administrative costs and by increasing the time they are 
holding the remittances. However, the Department believes that only a 
small fraction of that group, if any, would elect to incur the expense 
and risk of negative participant reaction that might arise from slowing 
down their remittances to take full advantage of the safe harbor time 
period, especially because the amount of the potential income transfer 
on a per-plan basis is very small.\11\ The potential consequences of 
reliance on the safe harbor for earnings on participant contributions 
are further described in the Benefits section below.
---------------------------------------------------------------------------

    \11\ The employers having the most to gain from delaying 
remittances to the full extent allowed under the safe harbor would 
be those who currently remit employee contributions most promptly. 
For example, an employer that currently remits contributions on the 
day they are received or withheld and responds to the safe harbor by 
delaying remittances to the 7-business day safe harbor limit would 
gain use of the funds for 7 business days. At an annual rate of 8%, 
the value of the float gain would be less than one-quarter of one 
percent of employee contributions.
---------------------------------------------------------------------------

Costs

    On the basis of information from EBSA's ECP,\12\ the Department 
believes that an estimated 21% of eligible single employer defined 
contribution plans (approximately 64,000 plans) currently receive all 
participant contributions within 7 or fewer business days. The 
employers that sponsor such plans would not have to modify their 
current systems and, as a result, would incur no additional costs to 
obtain the compliance certainty available under the safe harbor 
provisions. On the other hand, 10% of the eligible plans (approximately 
32,000 plans) consistently receive participant contributions later than 
7 business days from the date of the employer's receipt or withholding. 
The remaining 69% of the eligible plans in the ECP Universe defined in 
footnote 6 above (approximately 215,000 plans) are estimated to receive 
participant contributions within 7 business days for some, but not all, 
of their payroll dates, and the Department assumes that these employers 
would have to make only minor modifications in order to take advantage 
of the safe harbor for all participant contributions.
---------------------------------------------------------------------------

    \12\ See fn.6, supra.
---------------------------------------------------------------------------

    In deciding whether to rely on the safe harbor, employers will 
weigh the benefits of compliance certainty against the cost of changes 
needed to make quicker and possibly more frequent deposits. Because the 
cost of modifying remittance practices or systems will depend, to some 
extent, on the length of time currently taken to make remittances, the 
Department believes it is reasonable to assume that those employers 
currently transmitting some of the participant contributions within

[[Page 2074]]

an 8- to 14-day period may find it less expensive to modify their 
practices to take advantage of the safe harbor than employers currently 
operating under remittance practices or systems with longer delays. The 
cost to the former group of employers to shorten the remittance period 
to conform to the safe harbor may be modest or negligible. However, the 
Department has no current, reliable data concerning the cost of 
required changes relating to shortening the remittance period for 
participant contributions and therefore did not attempt to estimate 
that cost.\13\ Because conformance to the safe harbor is voluntary, the 
Department believes that the transition cost for employers electing to 
conform will be offset by the elimination of the current cost 
attributable to existing uncertainty about how to meet the ``earliest 
date'' standard of 29 CFR 2510.3-102. Those employers that already 
conform will not incur any costs, but will benefit from the safe 
harbor.
---------------------------------------------------------------------------

    \13\ While several commenters questioned the Department's 
assumption that employers currently meeting the safe harbor in some, 
but not all, pay periods would have to make only minor modifications 
in order to come fully within the safe harbor time limit, no 
commenter provided any information or data with which to estimate 
such costs in response to the Department's request for information 
and comments on this issue in the proposed rule. For this reason, 
and because no employer is under any obligation to change its 
remittance practices as a result of the final rule, the Department 
did not modify its assumption.
---------------------------------------------------------------------------

Benefits

    The rule will produce benefits for both participants and employers 
in the form of increased certainty regarding timely remittance of 
participant contributions to plans. This increased certainty will 
decrease costs for both employers and participants by reducing the need 
to determine, on an individualized basis in light of particular 
circumstances, whether timely remittances have been made. Employers 
that conform to the safe harbor will also benefit by obviating the need 
to determine and monitor how quickly participant contributions can be 
segregated from their general assets. They also will face a reduced 
risk of challenges to their particular remittance practices from 
participants and the Department.
    In the case of plan sponsors that elect to expedite the deposit of 
participant contributions to take advantage of the safe harbor, 
contributions will be credited to the investment accounts earlier than 
previously and will be able to accrue investment earnings sooner. The 
Department has calculated these potential investment gains, but lack of 
knowledge about how employers will react to a regulatory safe harbor 
renders these estimates uncertain. If, for illustration, the safe 
harbor results in a 7-business day remittance of all remittances that 
are currently taking more than 7 business days, then the regulatory 
safe harbor would result in an estimated additional $34.5 million in 
investment earnings \14\ for participants in the ECP Universe each year 
and $43.7 million for participants in all eligible plans.\15\ These 
potential gains would be reduced by any losses that would occur due to 
any slow-down in response to the safe harbor by employers with 
currently quicker remittance times.\16\ The Department, however, 
believes it unlikely that a significant fraction of employers would 
slow down remittances for the sole purpose of taking advantage of the 
minor income transfer resulting from retaining contributions for the 
full safe harbor period.\17\
---------------------------------------------------------------------------

    \14\ The Department has assumed an average annual return of 8.3% 
for pension plan assets. This rate is an estimate of the long-term 
rate of return on defined contribution plan assets implicit in the 
flow of funds account of the Federal Reserve. One commenter 
expressed concern that the Department's use of a long-term rate of 
return on defined contribution plan assets was inappropriate, 
because it overestimates the short-term rates at which firms would 
actually invest participant contributions before their remittance to 
the plan. The Department chose a long-term rate to the value the 
gains or losses that participants would experience, because an 
acceleration or delay of plan remittances affects participants' and 
beneficiaries' long-term investments, and, therefore, has not 
modified its assumption.
    \15\ The estimate of $43.7 million is derived by dividing $34.5 
million by 79%, the percentage of total contributions to eligible 
plans estimated to be made to plans in the ECP Universe. In this 
absence of data on remittance practices for plans not in the ECP 
Universe, the calculation assumes that their practices are similar 
to those for eligible plans in the ECP Universe.
    \16\ As described above in footnote 7, SIMPLE/SARSEPs were not 
included in the ECP Universe because such plans are exempt from the 
Form 5500 filing requirement. In the absence of data on the 
remittance practices of sponsors of such plans, the Department 
examined what is known about these plans to make assumptions 
regarding their remittance practices. SIMPLE/SARSEPs average 4-5 
participants compared to 30 participants for plans in the ECP 
Universe. The data collected through the ECP showed a strong 
tendency for smaller plans to receive employee contributions more 
slowly than larger plans. Although factors other than plan size 
clearly influence remittance behavior, based solely on this factor, 
the Department expects that SIMPLE/SARSEPs would receive employee 
contributions, on average, more slowly than plans included in the 
ECP Universe. Therefore, a higher percentage of these plans would 
have an incentive to accelerate remittances to qualify for the safe 
harbor and lower percentages of these plans would have an incentive 
to delay remittances to capture float gains than plans in the ECP 
Universe. As a result, the Department believes that the risk that 
participants in SIMPLE/SARSEPs would suffer net investment losses as 
a direct result of changes in remittance practices made in response 
to this regulation is even less than for plans in the ECP Universe. 
Moreover, if the expected difference in remittance behavior does 
exist, then sponsors of SIMPLE/SARSEPs would have to implement 
greater changes to qualify for the safe harbor, on average, than 
plans in the ECP Universe. The Department, therefore, expects that 
smaller percentages of these employers would opt to change their 
remittance practices in order to qualify for the safe harbor due to 
prohibitive costs.
    \17\ If all employers that currently remit contributions in 
fewer than 7 days were to slow down their remittance times to 7 
days, participants in plans in the ECP Universe might experience 
transfer losses of as much as $19.5 million annually, but would 
nonetheless likely experience an aggregate net gain of $14 million. 
Assuming that remittance patterns for eligible plans not in the ECP 
Universe resemble patterns for those in the ECP Universe, the 
Department estimates potential transfer losses for participants in 
all eligible plans of $24.7 million and aggregate net gains of $19 
million.
---------------------------------------------------------------------------

Alternatives Considered

    The Department's consideration of alternatives primarily focused on 
striking the right balance between a time frame that is not so short as 
to foreclose any meaningful number of plans from taking advantage of 
the safe harbor and a time frame that is not so long as to create 
financial incentives for employers to hold participant contributions 
longer than necessary, taking into account current practices. Among 
others, the Department considered the following two alternative time 
periods: (1) A 5-business day safe harbor, and (2) a 10-business day 
safe harbor. After reviewing the available data, however, the 
Department rejected these alternatives in favor of the 7-business day 
safe harbor for the reasons discussed below.
    The 7-business day safe harbor is likely to encourage eligible 
employers whose remittance practices involve holding participant 
contributions for longer than 7 business days to change their 
remittance practices to conform to the 7-business day safe harbor time 
limit. Currently, only 12 percent of the eligible single employer 
defined contribution plans consistently receive remittances within 5 
business days, compared to the 21 percent that consistently receive 
remittances within 7 business days. Although a 5-business day safe 
harbor could provide higher potential gains (an estimated $40.5 million 
for plans in the ECP Universe) and lower potential losses (an estimated 
$12.2 million for plans in the ECP Universe) to participants if 
employers choose to conform to the safe harbor, the shorter remittance 
period would likely make it unattractive to many employers, because the 
shorter safe harbor would increase the disparity from current 
practices. Any employer anticipating large costs of compliance with the 
safe harbor might not be convinced that its

[[Page 2075]]

benefits would be sufficient to justify changing its remittance 
practices. If, as a result, too few employers adopt the safe harbor, 
the regulation might fail to produce the intended benefit that would 
flow from the certainty of uniform remittance practices on which 
employers and participants can rely.
    The 10-business day safe harbor, in contrast, was considered to 
represent little compliance burden, since currently 29 percent of 
eligible single employer defined contribution plans receive remittances 
consistently within 10 business days and 94 percent receive remittances 
that quickly for at least some pay periods. However, because a large 
proportion of eligible plans currently receive some or all participant 
contributions more quickly, a safe harbor of 10 business days would 
entail some risk of producing a net aggregate loss of investment income 
to participant accounts as compared with current practice.\18\
---------------------------------------------------------------------------

    \18\ If all currently faster remittances were delayed until the 
tenth business day, annual investment earnings credited to 
participant accounts could be reduced by as much as $32.3 million. 
Accelerating all currently slower remittances to the tenth business 
day would increase such earnings by $27.4 million resulting in an 
aggregate annual loss of $4.9 million.
---------------------------------------------------------------------------

    As part of the ECP, EBSA investigators also made judgments as to 
reasonable periods for each remittance. These data show that while 
remittance within 5 business days was consistently reasonable for 48% 
of eligible plans, that percentage increased to 61% by extending the 
reasonable period to 7 business days. Thus, the two-day longer 
reasonable period also has the advantage of being consistently 
reasonable for a clear majority of eligible plans. A further extension 
of the safe harbor to 10 business days would further increase (to 81%) 
the percentage of plans for which the safe harbor is consistently 
reasonable, but was not chosen because it would risk producing net 
investment losses for participants if employers were to delay 
remittances to the full extent permitted under the safe harbor.\19\
---------------------------------------------------------------------------

    \19\ EBSA estimates that if the safe harbor were set at 10 
business days, then potential losses to participants of $32 million 
would exceed potential gains of $27 million. Some commenters 
expressed the opinion that employers will not delay remittances in 
response to the safe harbor, and that the Department could therefore 
safely establish a safe harbor period with a duration of longer than 
seven days without risking net investment losses for participants. 
The Department has acknowledged uncertainty regarding the extent to 
which employers will accelerate or delay remittances in response to 
the safe harbor, and assumes neither that remittances will be 
maximally delayed as assumed in the loss calculation, nor maximally 
accelerated as assumed in the gain calculation, but recognizes that 
selection of a safe harbor period for which potential gains exceed 
potential losses at least provides assurance that participants will 
not experience net losses as long as the extent to which employers 
delay remittances in response to the safe harbor does not exceed the 
extent to which they accelerate remittances.
---------------------------------------------------------------------------

    Taking into account the potential costs and benefits presented by 
the various alternative safe harbors, the Department believes that the 
7-business day safe harbor would best balance the current practices of 
employers and the potential costs to them of change, as well as the 
value to participants of encouraging quicker transmission of 
contributions. As explained earlier, the available data indicate that 
employers sponsoring plans with fewer than 100 participants are 
generally able to transmit participant contributions within 7 business 
days of withholding or receipt. Furthermore, the impact of a 7-business 
day safe harbor is anticipated to be generally favorable to 
participants and to result in aggregate net gains to their accounts, 
even in the unlikely event that all employers that currently remit 
contributions more quickly than 7 business days were to slow down their 
remittances to the maximum duration of the safe harbor.

Paperwork Reduction Act

    The Department of Labor, as part of its continuing effort to reduce 
paperwork and respondent burden, conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public 
can clearly understand the Department's collection instructions and 
provide the requested information in the desired format and that the 
Department minimizes the public's reporting burden (in both time and 
financial resources) and can properly assess the impact of its 
collection requirements.
    On August 7, 1996 (61 FR 41220), the Department published in the 
Federal Register an amendment to the Regulation Relating to a 
Definition of ``Plan Assets''--Participant Contributions (29 CFR 
2510.3-102). This amendment created a procedure through which an 
employer could extend the maximum period for depositing participant 
contributions by an additional 10 business days with respect to 
participant contributions for a single month. OMB approved the 
paperwork requirements arising from the amendment under OMB control 
number 1210-0100. The current amendment of 29 CFR 2510.3-102 contained 
in this final rule does not change the extension procedure or add any 
additional information collection requirements, and, accordingly, the 
Department does not intend to submit this final rule to OMB for review 
under the PRA.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and are likely to 
have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a final rule is not likely to 
have a significant economic impact on a substantial number of small 
entities, 5 U.S.C. 604 requires that the agency present a regulatory 
flexibility analysis at the time of the publication of the notice of 
final rulemaking describing the impact of the rule on small entities. 
Small entities include small businesses, organizations and governmental 
jurisdictions.
    For purposes of analysis under the RFA, the Employee Benefits 
Security Administration (EBSA) continues to consider a small entity to 
be an employee benefit plan with fewer than 100 participants.\20\ The 
basis of this definition is found in section 104(a)(2) of ERISA, which 
permits the Secretary of Labor to prescribe simplified annual reports 
for pension plans that cover fewer than 100 participants. Under section 
104(a)(3), the Secretary may also provide for exemptions or simplified 
annual reporting and disclosure for welfare benefit plans. Pursuant to 
the authority of section 104(a)(3), the Department has previously 
issued at 29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46 and 
2520.104b-10 certain simplified reporting provisions and limited 
exemptions from reporting and disclosure requirements for small plans, 
including unfunded or insured welfare plans covering fewer than 100 
participants and satisfying certain other requirements.
---------------------------------------------------------------------------

    \20\ The Department consulted with the Small Business 
Administration in making this determination as required by 5 U.S.C. 
601(3) and 13 CFR 121.903(c).
---------------------------------------------------------------------------

    Further, while some large employers may have small plans, in 
general small employers maintain most small plans. Thus, EBSA believes 
that assessing the impact of this rule on small plans is an appropriate 
substitute for evaluating the effect on small entities. The definition

[[Page 2076]]

of small entity considered appropriate for this purpose differs, 
however, from a definition of small business that is based on size 
standards promulgated by the Small Business Administration (SBA) (13 
CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et 
seq.). EBSA requested comments on the appropriateness of the size 
standard used in evaluating the impact of the proposed rule on small 
entities in the proposal, but no comments were received.
    EBSA hereby certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities. 
As explained above, the provision being added to the regulation is a 
safe harbor, compliance with which is wholly voluntary on the part of 
the employer. Because the rule creates a safe harbor, rather than a 
mandatory rule, it is unlikely that any employer will elect to take 
advantage of the safe harbor if the employer concludes that the 
benefits of complying with the safe harbor time limit do not exceed the 
costs of such compliance. Therefore, the Department believes that most 
of these small plans will elect to take advantage of the safe harbor, 
provided that doing so does not significantly increase their costs or 
that any cost increase is offset by reductions in other administrative 
costs attendant to compliance uncertainty.

Unfunded Mandates Reform Act

    Pursuant to provisions of the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), this rule does not include any Federal mandate that 
may result in expenditures by State, local, or Tribal governments, or 
the private sector, which may impose an annual burden of $100 million 
or more.

Congressional Review Act

    This notice of final rulemaking is subject to the Congressional 
Review Act provisions of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and therefore has been 
transmitted to the Congress and the Comptroller General for review.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by Federal agencies in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This rule would not have federalism 
implications because it has no substantial direct effect on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. Section 514 of ERISA provides, with certain 
exceptions specifically enumerated, that the provisions of Titles I and 
IV of ERISA supersede any and all laws of the States as they relate to 
any employee benefit plan covered under ERISA. The requirements 
implemented in this final rule do not alter the fundamental provisions 
of the statute with respect to employee benefit plans, and as such 
would have no implications for the States or the relationship or 
distribution of power between the national government and the States.

List of Subjects in 29 CFR Part 2510

    Employee benefit plans, Employee Retirement Income Security Act, 
Pensions, Plan assets.

0
For the reasons set forth in the preamble, the Department amends 
Chapter XXV of Title 29 of the Code of Federal Regulations as follows:

PART 2510--DEFINITION OF TERMS USED IN SUBCHAPTERS C, D, E, F, AND 
G OF THIS CHAPTER

0
1. The authority citation for part 2510 continues to read as follows:

    Authority: 29 U.S.C. 1002(2), 1002(21), 1002(37), 1002(38), 
1002(40), 1031, and 1135; Secretary of Labor's Order 1-2003, 68 FR 
5374; Sec. 2510.3-101 also issued under sec. 102 of Reorganization 
Plan No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp., p. 332 and E.O. 
12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275, and 29 U.S.C. 1135 
note. Sec. 2510.3-102 also issued under sec. 102 of Reorganization 
Plan No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp., p. 332 and E.O. 
12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275. Sec. 2510.3-38 is also 
issued under sec. 1, Pub. L. 105-72, 111 Stat. 1457.


0
2. In Sec.  2510.3-102, revise paragraphs (a), (b), (c) and (f) to read 
as follows:


Sec.  2510.3-102  Definition of ``plan assets''--participant 
contributions.

    (a)(1) General rule. For purposes of subtitle A and parts 1 and 4 
of subtitle B of title I of ERISA and section 4975 of the Internal 
Revenue Code only (but without any implication for and may not be 
relied upon to bar criminal prosecutions under 18 U.S.C. 664), the 
assets of the plan include amounts (other than union dues) that a 
participant or beneficiary pays to an employer, or amounts that a 
participant has withheld from his wages by an employer, for 
contribution or repayment of a participant loan to the plan, as of the 
earliest date on which such contributions or repayments can reasonably 
be segregated from the employer's general assets.
    (2) Safe harbor. (i) For purposes of paragraph (a)(1) of this 
section, in the case of a plan with fewer than 100 participants at the 
beginning of the plan year, any amount deposited with such plan not 
later than the 7th business day following the day on which such amount 
is received by the employer (in the case of amounts that a participant 
or beneficiary pays to an employer), or the 7th business day following 
the day on which such amount would otherwise have been payable to the 
participant in cash (in the case of amounts withheld by an employer 
from a participant's wages), shall be deemed to be contributed or 
repaid to such plan on the earliest date on which such contributions or 
participant loan repayments can reasonably be segregated from the 
employer's general assets.
    (ii) This paragraph (a)(2) sets forth an optional alternative 
method of compliance with the rule set forth in paragraph (a)(1) of 
this section. This paragraph (a)(2) does not establish the exclusive 
means by which participant contribution or participant loan repayment 
amounts shall be considered to be contributed or repaid to a plan by 
the earliest date on which such contributions or repayments can 
reasonably be segregated from the employer's general assets.
    (b) Maximum time period for pension benefit plans. (1) Except as 
provided in paragraph (b)(2) of this section, with respect to an 
employee pension benefit plan as defined in section 3(2) of ERISA, in 
no event shall the date determined pursuant to paragraph (a)(1) of this 
section occur later than the 15th business day of the month following 
the month in which the participant contribution or participant loan 
repayment amounts are received by the employer (in the case of amounts 
that a participant or beneficiary pays to an employer) or the 15th 
business day of the month following the month in which such amounts 
would otherwise have been payable to the participant in cash (in the 
case of amounts withheld by an employer from a participant's wages).
    (2) With respect to a SIMPLE plan that involves SIMPLE IRAs (i.e., 
Simple Retirement Accounts, as described in section 408(p) of the 
Internal Revenue Code), in no event shall the date determined pursuant 
to paragraph (a)(1) of this section occur later than the 30th calendar 
day following the month in which the participant contribution

[[Page 2077]]

amounts would otherwise have been payable to the participant in cash.
    (c) Maximum time period for welfare benefit plans. With respect to 
an employee welfare benefit plan as defined in section 3(1) of ERISA, 
in no event shall the date determined pursuant to paragraph (a)(1) of 
this section occur later than 90 days from the date on which the 
participant contribution amounts are received by the employer (in the 
case of amounts that a participant or beneficiary pays to an employer) 
or the date on which such amounts would otherwise have been payable to 
the participant in cash (in the case of amounts withheld by an employer 
from a participant's wages).
* * * * *
    (f) Examples. The requirements of this section are illustrated by 
the following examples:
    (1) Employer A sponsors a 401(k) plan. There are 30 participants in 
the 401(k) plan. A has one payroll period for its employees and uses an 
outside payroll processing service to pay employee wages and process 
deductions. A has established a system under which the payroll 
processing service provides payroll deduction information to A within 1 
business day after the issuance of paychecks. A checks this information 
for accuracy within 5 business days and then forwards the withheld 
employee contributions to the plan. The amount of the total withheld 
employee contributions is deposited with the trust that is maintained 
under the plan on the 7th business day following the date on which the 
employees are paid. Under the safe harbor in paragraph (a)(2) of this 
section, when the participant contributions are deposited with the plan 
on the 7th business day following a pay date, the participant 
contributions are deemed to be contributed to the plan on the earliest 
date on which such contributions can reasonably be segregated from A's 
general assets.
    (2) Employer B is a large national corporation which sponsors a 
401(k) plan with 600 participants. B has several payroll centers and 
uses an outside payroll processing service to pay employee wages and 
process deductions. Each payroll center has a different pay period. 
Each center maintains separate accounts on its books for purposes of 
accounting for that center's payroll deductions and provides the 
outside payroll processor the data necessary to prepare employee 
paychecks and process deductions. The payroll processing service issues 
the employees' paychecks and deducts all payroll taxes and elective 
employee deductions. The payroll processing service forwards the 
employee payroll deduction data to B on the date of issuance of 
paychecks. B checks this data for accuracy and transmits this data 
along with the employee 401(k) deferral funds to the plan's investment 
firm within 3 business days. The plan's investment firm deposits the 
employee 401(k) deferral funds into the plan on the day received from 
B. The assets of B's 401(k) plan would include the participant 
contributions no later than 3 business days after the issuance of 
paychecks.
    (3) Employer C sponsors a self-insured contributory group health 
plan with 90 participants. Several former employees have elected, 
pursuant to the provisions of ERISA section 602, 29 U.S.C. 1162, to pay 
C for continuation of their coverage under the plan. These checks 
arrive at various times during the month and are deposited in the 
employer's general account at bank Z. Under paragraphs (a) and (c) of 
this section, the assets of the plan include the former employees' 
payments as soon after the checks have cleared the bank as C could 
reasonably be expected to segregate the payments from its general 
assets, but in no event later than 90 days after the date on which the 
former employees' participant contributions are received by C. If, 
however, C deposits the former employees' payments with the plan no 
later than the 7th business day following the day on which they are 
received by C, the former employees' participant contributions will be 
deemed to be contributed to the plan on the earliest date on which such 
contributions can reasonably be segregated from C's general assets.
* * * * *

    Signed at Washington, DC, this 7th day of January 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 2010-430 Filed 1-13-10; 8:45 am]
BILLING CODE 4510-29-P