Small businesses need to know that the seven-day rule for the depositing of employee contributions, proposed by the Department of Labor (DOL) in 2008, was finalized and made an official regulation as of January 14, 2010.

This means that small businesses (i.e., employers having fewer than 100 participants at the beginning of the plan year) are now required by law to deposit employee/participant contributions no later than the seventh business day following the day on which the amounts would have been payable to the participant in cash or following the day on which the amount is received by the employer. Failure to do so will result in late-interest penalties for the employer and possible tax penalties.

According to an online summary posted by actuarial and consulting firm Milliman, Inc., the DOL did adopt some modifications to seven-day rule, such as:

• To satisfy the seven-day rule, amounts must be placed in an account of the plan. The contributions do not have to be allocated to specific participant accounts or the selected investments of such participants
• The seven business days are counted from the day amounts are withheld by the employer from a participant’s wages or the day a participant contribution is received by the employer
• The safe harbor period is available to plan sponsors on a deposit-by-deposit basis, so that a failure to comply for any one deposit period will not result in the unavailability of the safe harbor for any other deposit to the plan
• The rule applies to employee/participant contributions and participant loan repayments
• Losses and interest on amounts not deposited into the plan by the date that contributions can reasonably be segregated are calculated from that date, rather than from the end of the safe harbor period

The seven-day rule is spelled out clearly in the NADART contributions deposit process and our plans have followed it even before the January finalization. If you have any questions about the process or about sponsoring a NADART retirement plan, please contact us at (800) 462-3278, ext. 7161 or by e-mail at nadart401k@nada.org.