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May letter to clients
Dear Clients & Friends:
New 7 Day Safe Harbor for Small Employer Plans Depositing Employee Contributions
The Department of Labor has issued a safe harbor time period for small employer plans depositing employee contributions and loan repayments to employee benefit plans. A small employer plan is a plan that covers fewer than 100 participants. Large Employers must still comply with the current rule “as soon as practicable”.
Current Regulations
Small plan employers (those plans covering fewer than 100 participants) are required to deposit employee contributions withheld from wages “as soon as practicable” (i.e., on the earliest date on which such contributions can reasonably be segregated from the employer’s general assets). However, this date can be no later than the 15th business day of the month following the end of the month in which the contributions were withheld from the employees check. Unless, the plan is a Simple-IRA salary reduction plan, then the employee contributions should be deposited “as soon as practicable” into the employee’s plan, but in no case later than the 30th day of the following month. The current regulation places the burden on the employer to substantiate the time period for deposits as meeting the “as soon as practicable” requirement.
New Safe Harbor for Small Employer Plans
In January, the Department of Labor published an amendment to the above regulation providing a safe harbor period. The safe harbor for small employer plans (those plans covering fewer than 100 participants) is seven business days. This safe harbor applies to both retirement plans and health and welfare benefit plans and includes both the employee contributions and any loan repayments on participant loans. This safe harbor gives the employer seven business days following the payroll date to segregate and deposit the employee salary deferrals and loan repayments into the employee plan.
The 7 day safe harbor is not mandatory. So, if a small employer can substantiate they can not segregate and deposit the salary deferrals into the employee’s plan until a date later than the seventh business day following the payroll, the current regulation(15th business day of the following month) may still be relied upon. However, if an employer is depositing the employee salary deferrals “as soon as practicable”, which is later than the 7 business days, then under a Department of Labor audit the employer will have to substantiate the time period they are using to segregate and deposit the employee salary deferrals into the employees plan.
If the Department of Labor finds the employee’s salary deferrals could have been segregated and deposited into the employee’s accounts at an earlier time period, they can find the employer in violation. Penalties may apply from the Department of Labor and the Internal Revenue Service.
The safe harbor is available on a deposit-by-deposit basis. If an employer adopts the 7 day safe harbor and they fail to deposit the employee contributions to a plan for one payroll within the 7 business days, this will not result in the unavailability of the safe harbor on future payrolls. So if an employer misses the safe harbor on one payroll all other payrolls for the year may still use the safe harbor.
Although the 7 day safe harbor is not mandatory, we recommend small employers adopt the safe harbor to their plans. This will help remove the question of making timely deposits into employee’s plan for any salary deferrals and loan repayments. For any questions regarding the new safe harbor for small employers, please contact any of our offices.
Red Flags Rule have June 1, 2010 deadline
What is a Red Flag Rule? A good question that all businesses have and one you should not ignore.
The “Red Flags”, in effect since January 1st, 2008, but with a delayed start date until June 1st, 2010, requires many businesses and organizations to implement a written identity prevention program designed to detect the warning signs or “Red Flags” of identity theft in their day to day operations.
The identity theft prevention program requirements apply to two categories of businesses: (i) most financial institutions, and (ii) creditors, which are defined as businesses that allow customers to defer payment of debt or payment for purchases of property or services.
The Red Flags Rule sets out how businesses must develop, implement, and administer their identity theft prevention program. Your program must be appropriate to the size and complexity of your business or organization and the nature and scope of its activities. Many companies already have plans in place to combat identity theft and related fraud. If that’s the case for your business, you may be able to incorporate procedures that already have proven effective.
The Red Flags Rule is enforced by the Federal Trade Commission (FTC). Their website at www.ftc.gov includes additional information on the Red Flags Rule and also a how-to guide for businesses. If you have additional questions please give us a call or contact your attorney.
Sincerely,
SCHLENNER WENNER & CO.
Certified Public Accountants
& Business Consultants
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