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Mr. Richard M. Steinberg, Chair
Employee Benefit Plans Expert Panel
Department of Labor Liaison Task Force
American Institute of Certified Public Accountants
1455 Pennsylvania Avenue, NW
Washington, DC 20004-1081
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2002-02A
29 CFR 2510.3-102
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Dear Chairman Steinberg:
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This is in response to your request for guidance under the Employee
Retirement Income Security Act of 1974 (ERISA) regarding participant loan
repayments. You request the Department’s views with respect to when
participant loan repayments withheld from employee wages by an employer
become plan assets subject to the prohibited transaction rules under section
406 of ERISA.
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You represent that practitioners within the accounting industry treat
remittance of participant loan repayments in one of two ways. Some
practitioners treat funds withheld from employee wages for loan repayments
as subject to 29 C.F.R. § 2510.3-102 (the final participant contribution
regulation).(1) These practitioners deem the untimely remittance
of participant loan repayments as prohibited transactions pursuant to
section 406 of ERISA. Other practitioners, however, take a contrary position
because they do not view participant loan repayments as subject to the final
participant contribution regulation.
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Section 406(a) of ERISA prohibits a plan fiduciary from causing the plan to
engage in, among other things, the lending of money or other extension of
credit between the plan and a party in interest, and the transfer to, or use
by or for the benefit of, a party in interest of the assets of a plan.
Section 406(b) of ERISA provides that, among other things, a fiduciary shall
not deal with the assets of a plan in his own interest or for his own
account. Section 3(14) of ERISA defines a party in interest to include a
fiduciary with respect to a plan and an employer any of whose employees are
covered by such plan. As a result, the employer’s failure to remit
participant loan repayments to a plan as soon as the repayments are
considered assets of the plan would be a prohibited transaction under
section 406 of ERISA.
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Under the final participant contribution regulation, the Department stated
that 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. Generally, participant contributions
to a pension plan would be considered plan assets under the final
participant contribution regulation in no event later than the 15th
business day of the month immediately following the month in which the
participant contributions 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). However, the Department
stated in the preamble(2) to the regulation that the question of
when participant loan repayments become plan assets was beyond the scope of
the final participant contribution regulation.
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It is the opinion of the Department that, while not subject to the
participant contribution regulation, participant loan repayments paid to or
withheld by an employer for purposes of transmittal to an employee benefit
plan are sufficiently similar to participant contributions to justify, in
the absence of regulations providing otherwise, the application of
principles similar to those underlying the final participant contribution
regulation for purposes of determining when such repayments become assets of
the plan.(3) Accordingly, it is the Department’s opinion that
participant loan repayments, made to the employer for purposes of
transmittal to the plan or withheld from employee wages by the employer for
transmittal to the plan, become plan assets as of the earliest date on which
such repayments can reasonably be segregated from the employer’s general
assets.
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We note that the final participant contribution regulation contained the
requirement that in no event shall the date on which such contributions
become plan assets occur later than the 15th business day of the
month immediately following the month in which the participant contributions
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). While these maximum periods do not
govern repayment of participant loans, we believe that holding participant
loan repayments beyond such periods would raise serious questions as to
whether the employer forwarded the repayments to the plan as soon as they
were reasonably segregable from its general assets.
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This letter constitutes an advisory opinion under ERISA Procedure 76-1, 41
Fed. Reg. 36281 (Aug. 27, 1976). Accordingly, it is issued subject to the
provisions of that procedure, including section 10 thereof relating to the
effect of advisory opinions.
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Sincerely,
Louis Campagna
Chief, Division of Fiduciary Interpretations
Office of Regulations and Interpretations
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61 Fed. Reg. 41220, 41233 (Aug. 7,
1996). The final participant contribution regulation was amended on
November 25, 1997, 62 Fed. Reg. 62934, 62936, to harmonize the rules
in Title I of ERISA governing the definition of plan assets with the
Internal Revenue Code (Code) rules governing the timing of deposits
for Savings Incentive Match Plans for Employees (SIMPLE plans) that
involve Individual Retirement Accounts (SIMPLE IRAs). The amendment
simplifies compliance by small businesses.
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61 Fed. Reg. 41226.
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Without relying on the regulation,
courts have concluded that payroll deduction contributions become plan
assets after they are withheld from the employees' paychecks. See
Pension Benefit Guar. Corp. v. Solmsen, 671 F. Supp. 938, 946 (E.D.N.Y.
1987); see also Coleman v. Coleman, 231 B.R. 393, 396 (Bankr. S.D. Ga.
1999). In United States v. Grizzle, 933 F.2d 943 (11th Cir.), cert.
denied, 502 U.S. 897 (1991), a criminal embezzlement conviction, the
court cited the regulation, but did not rely on it because it did not
take effect until after the crime. The court stated that the
regulation was consistent with the provisions of ERISA that require
that plan assets be held in trust and never inure to the benefit of
the employer. 933 F.2d 947 n.3.
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