On February 28, 2008, the Department of Labor (DOL) issued proposed regulations for small employers (those with fewer than 100 participants at the beginning of the plan year) to more specifically define the timely deposit of employee contributions to their retirement plan.  Under the proposed regulations, small employers will be required to deposit employee contributions to their trust account 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.

The proposed regulations would effectively ‘speed up’ the current regulation, which provides that employee contributions must be deposited as soon as they can reasonably be segregated from the general employer assets but no later than the 15th day of the month following the withholding of such contributions.  Small employers making deposits within the seven-day time frame will be deemed to have made the contributions under a “safe harbor” time frame and will not be subject to late deposit penalties or interest.

The proposed regulations officially become effective on the date of publication of the final regulations.  However, the DOL has indicated it will begin using the proposed regulations immediately where contribution timing is concerned.  The DOL is considering whether to apply a similar standard for large plan sponsors and their participants. 

Additional information is available on the DOL Web site.