A common question among plan sponsors is when participant contributions (i.e., amounts that a participant or beneficiary pays to an employer or amounts that a participant has withheld from his or her wages by an employer for contribution to certain employee benefit plans) must be deposited into a plan to avoid penalty? Unfortunately, prior regulations adopted an ambiguous “general rule” which provides that participant contributions must be deposited on the earliest date on which they can reasonably be segregated from the employer’s general assets. This general rule does not provide employers and plan advisers with much certainty in resolving this question.

In response to continued requests, the U.S. Department of Labor (“DOL”) published final regulations in January intending to clarify when participant contributions will be considered to have been timely remitted to the plan. The general rule remains the same, but the following provisions of the final regulations do provide additional guidance for employers regarding the application of the general rule.