Understand the 15th Business Day

Misunderstanding what the “15th business day” means for purposes of Department of Labor (DOL) regulations can earn one unwelcome federal attention. A recent blog entry discusses that risk and how to obviate it.
 
The DOL’s participant contribution regulation requires employers of all sizes to transmit employee contributions to pension plans as soon as they can be segregated and no later than the 15th business day of the month immediately following the month in which the contribution is either withheld or received by the employer. The DOL amended the participant contribution regulation to create a safe harbor rule under which participant contributions to small plans (with fewer than 100 participants) will be deemed to be made in compliance with the law if those amounts are deposited with small plans within seven business days of withholding or receipt.

Frank J. Del Barto in “The Department of Labor Is Reviewing Your 401(k) Form 5500 and Encouraging Voluntary Correction,” an entry in the blog of Masuda, Funai, Eifert & Mitchell, Ltd. says, “Many 401(k) plan sponsors mistakenly believe that the ‘15th business day’ is the deadline to deposit employee contributions and loan repayments to the plan.” He notes that the DOL’s Employee Benefits Security Administration (EBSA) is sending letters advising the recipients that it reviewed a prior year’s Form 5500 for their 401(k) plan, and that the letters include a reminder that “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.”

Del Barto warns that failing to make such deposits on time breaches fiduciary duty. And he notes that the EBSA letters inform their recipients that “it appears that the Plan sponsor failed to remit ($xxx,xxx.xx) 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 letters, he adds, also warn that such failures violate several ERISA provisions.

Del Barto argues that “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.’” And, he adds, “Due to the sophisticated payroll and accounting systems that most plan sponsors utilize today, the ‘earliest date’ will be different for each plan sponsor, but is likely a matter of days.”

Correcting such mistakes need not be difficult, Del Barto says; in fact, he calls self-correction “a relatively painless process” and says that his firm suggests that its clients accept the DOL’s “invitation to correct” through its Voluntary Fiduciary Correction Program (VFCP). Aside from correcting the error, he says, that will stop the DOL from considering “alternative enforcement measures.”