• DOL Clarifies Time for Deposits of Participant Loan Repayments
  • June 26, 2003
  • Law Firm: Leonard, Street and Deinard, Professional Association - Minneapolis Office
  • The Department of Labor recently published an Advisory Opinion discussing when participant loan repayments withheld from an employee's wages must be remitted to a plan.

    ERISA requires that participant contributions be timely remitted to the plan. Under the final participant contribution regulation, amounts paid by a participant or withheld by an employer from a participant's wages for contribution to the plan become plan assets as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets. That date must be no later than the fifteenth business day of the month immediately following the month in which participant contributions are received by the employer or would otherwise have been paid in cash to the participant. In the experience of benefits practitioners, the DOL consistently finds that participant contributions must be deposited well before that outside time limit.

    In the preamble to the participant contribution regulation, the Department stated that participant loan contributions were beyond the scope of such regulation. However, in this recent Advisory Opinion, the Department stated that participant loan repayments paid to or withheld by an employer for transmitting to an employee benefit plan become plan assets as of the earliest date on which such repayments can reasonably be segregated from the employer's general assets. While the maximum time limit in the participant contribution regulation does not govern repayment of participant loans, the Department believes that holding participant loan repayments beyond that time limit would raise serious questions as to whether the employer forwarded the repayments to the plan as soon as they were reasonable segregable from its general assets.

    Employers should review their loan repayment procedures to ensure that participant repayments are timely remitted to the plan. Late deposits can be corrected under the VFCP described in the article on page two.