(a) 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 to the plan as
of the earliest date on which such contributions 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) of this
section occur later than the 15th business day of the month following
the month in 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 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) of this section occur later than the 30th calendar day
following the month in which the participant contribution 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) 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).
(d) Extension of maximum time period for pension plans. (1) With
respect to participant contributions received or withheld by the
employer in a single month, the maximum time period provided under
paragraph (b) of this section shall be extended for an additional 10
business days for an employer who--
(i) Provides a true and accurate written notice, distributed in a
manner reasonably designed to reach all the plan participants within 5
business days after the end of such extension period, stating--
(A) That the employer elected to take such extension for that month;
(B) That the affected contributions have been transmitted to the
plan; and
(C) With particularity, the reasons why the employer cannot
reasonably segregate the participant contributions within the time
period described in paragraph (b) of this section;
(ii) Prior to such extension period, obtains a performance bond or
irrevocable letter of credit in favor of the plan and in an amount of
not less than the total amount of participant contributions received or
withheld by the employer in the previous month; and
(iii) Within 5 business days after the end of such extension period,
provides a copy of the notice required under paragraph (d)(1)(i) of this
section to the Secretary, along with a certification that such notice
was provided to the participants and that the bond or letter of credit
required under paragraph (d)(1)(ii) of this section was obtained.
(2) The performance bond or irrevocable letter of credit required in
paragraph (d)(1)(ii) of this section shall be guaranteed by a bank or
similar institution that is supervised by the Federal government or a
State government and shall remain in effect for 3 months after the month
in which the extension expires.
(3)(i) An employer may not elect an extension under this paragraph
(d) more than twice in any plan year unless the employer pays to the
plan an amount representing interest on the participant contributions
that were subject to all the extensions within such plan year.
(ii) The amount representing interest in paragraph (d)(3)(i) of this
section shall be the greater of--
(A) The amount that otherwise would have been earned on the
participant contributions from the date on which such contributions were
paid to, or withheld by, the employer until such money is transmitted to
the plan had such contributions been invested during such period in the
investment alternative available under plan which had the highest rate
of return; or
(B) Interest at a rate equal to the underpayment rate defined in
section 6621(a)(2) of the Internal Revenue Code from the date on which
such contributions were paid to, or withheld by, the employer until such
money is fully restored to the plan.
(e) Definition. For purposes of this section, the term business day
means any day other than a Saturday, Sunday or any day designated as a
holiday by the Federal Government.
(f) Examples. The requirements of this section are illustrated by
the following examples:
(1) Employer W is a small company with a small number of employees
at a
single payroll location. W maintains a plan under section 401(k) of the
Code in which all of its employees participate. W's practice is to issue
a single check to a trust that is maintained under the plan in the
amount of the total withheld employee contributions within two business
days of the date on which the employees are paid. In view of the
relatively small number of employees and the fact that they are paid
from a single location, W could reasonably be expected to transmit
participant contributions to the trust within two days after the
employee's wages are paid. Therefore, the assets of W's 401(k) plan
include the participant contributions attributable to such pay periods
as of the date two business days from the date the employee's wages are
paid.
(2) Employer X is a large national corporation which sponsors a
section 401(k) plan. X 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 has adopted a procedure under which it
issues the employees' paychecks when due and deducts all payroll taxes
and elective employee deductions. It deposits withheld income and
employment payroll taxes within the time frame specified by 26 CFR
31.6302-1 and forwards a computer data tape representing the total
payroll deductions for each employee, for a month's worth of pay
periods, to a centralized location in X, within 4 days after the end of
the month, where the data tape is checked for accuracy. A single check
representing the aggregate participant contributions for the month is
then issued to the plan by the employer. X has determined that this
procedure, which takes up to 10 business days to complete, permits
segregation of participant contributions at the earliest practicable
time and avoids mistakes in the allocation of contribution amounts for
each participant. Therefore, the assets of X's 401(k) plan would include
the participant contributions no later than 10 business days after the
end of the month.
(3) Assume the same facts as in paragraph (f)(2) of this section,
except that X takes 30 days after receipt of the data tape to issue a
check to the plan representing the aggregate participant contributions
for the prior month. X believes that this procedure permits segregation
of participant contributions at the earliest practicable time and avoids
mistakes in the allocation of contribution amounts for each participant.
Under paragraphs (a) and (b) of this section, the assets of the plan
include the participant contributions as soon as X could reasonably be
expected to segregate the contributions from its general assets, but in
no event later than the 15th business day of the month following the
month that a participant or beneficiary pays to an employer, or has
withheld from his wages by an employer, money for contribution to the
plan. The participant contributions become plan assets no later than
that date.
(4) Employer Y is a medium-sized company which maintains a self-
insured contributory group health plan. Several former employees have
elected, pursuant to the provisions of ERISA section 602, 29 U.S.C.
1162, to pay Y 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 (b) of
this section, the assets of the plan include the former employees'
payments as soon after the checks have cleared the bank as Y could
reasonably be expected to segregate the payments from its general
assets, but in no event later than the 90 days after a participant or
beneficiary, including a former employee, pays to an employer, or has
withheld from his wages by an employer, money for contribution to the
plan.
(g) Effective date. This section is effective February 3, 1997.
(h) Applicability date for collectively-bargained plans. (1)
Paragraph (b) of this section applies to collectively bargained plans no
sooner than the later of--
(i) February 3, 1997; or
(ii) The first day of the plan year that begins after the expiration
of the last to expire of any applicable bargaining agreement in effect
on August 7, 1996.
(2) Until paragraph (b) of this section applies to a collectively
bargained plan, paragraph (c) of this section shall apply to such plan
as if such plan were an employee welfare benefit plan.
(i) Optional postponement of applicability. (1) The application of
paragraph (b) of this section shall be postponed for up to an additional
90 days beyond the effective date described in paragraph (g) of this
section for an employer who, prior to February 3, 1997--
(i) Provides a true and accurate written notice, distributed in a
manner designed to reach all the plan participants before the end of
February 3, 1997, stating--
(A) That the employer elected to postpone such applicability;
(B) The date that the postponement will expire; and
(C) With particularity the reasons why the employer cannot
reasonably segregate the participant contributions within the time
period described in paragraph (b) of this section, by February 3, 1997;
(ii) Obtains a performance bond or irrevocable letter of credit in
favor of the plan and in an amount of not less than the total amount of
participant contributions received or withheld by the employer in the
previous 3 months;
(iii) Provides a copy of the notice required under paragraph
(i)(1)(i) of this section to the Secretary, along with a certification
that such notice was provided to the participants and that the bond or
letter of credit required under paragraph (i)(1)(ii) of this section was
obtained; and
(iv) For each month during which such postponement is in effect,
provides a true and accurate written notice to the plan participants
indicating the date on which the participant contributions received or
withheld by the employer during such month were transmitted to the plan.
(2) The notice required in paragraph (i)(1)(iv) of this section
shall be distributed in a manner reasonably designed to reach all the
plan participants within 10 days after transmission of the affected
participant contributions.
(3) The bond or letter of credit required under paragraph (i)(1)(ii)
shall be guaranteed by a bank or similar institution that is supervised
by the Federal government or a State government and shall remain in
effect for 3 months after the month in which the postponement expires.
(4) During the period of any postponement of applicability with
respect to a plan under this paragraph (i), paragraph (c) of this
section shall apply to such plan as if such plan were an employee
welfare benefit plan.
[61 FR 41233, Aug. 7, 1996, as amended at 62 FR 62936, Nov. 25, 1997]
