403(b) Outlook Salary Reduction Plans: Timing of Contribution Remittances

March 12, 2008

403b Outlook Archive 403(b) Outlook Archive

What is the rule? Plan sponsors need to remit employee elective deferrals to the investment company (insurance company or other carrier) within 15 business days following the month in which these amounts were withheld from the employee’s pay. Section 1.403(b)-8(b)

What has changed? You should not need to make any changes if your salary reduction plan is subject to ERISA. Department of Labor (DOL) regulations already require plan sponsors to remit employee elective deferrals on the earliest date on which these contributions can be reasonably segregated from the employer’s general assets. However, it can be no later than 15 business days following the month in which the amount was withheld from the employee’s pay. So if your plan is subject to ERISA, this more rigid requirement will continue to apply.

If your institution’s salary reduction plan is not subject to ERISA, you will need to remit employee elective deferrals according to the 15-day rule. This new rule will apply to both non-ERISA salary reduction plans sponsored by private institutions as well as governmental plans. Please review your existing remittance procedures.

Reminder: The 15-day deadline does not apply to employer contributions.

Effective date is Jan. 1, 2009.

What happens if you fail to comply? If a contract includes amounts that fail to satisfy this requirement, then the contract could be disqualified. As a result, all contracts for all affected employees in this plan could become taxable and included in the employees’ gross income.

Read more about the 403(b) regulations.

Next week’s issue: Contract Exchanges/Plan-to-Plan Transfers

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