Under the restrictions of the Code, 403(b) plans must be funded through insurance annuity contracts or mutual fund custodial accounts. However, ERISA also imposes standards on when contributions must be made to such accounts under the plan. The requirements of ERISA address when plan assets must be deposited from the employer. The timing of the contribution deposit requirements depend on the type of contributions made under the plan.
Under DOL regulations, an employee’s salary reduction contributions under an ERISA plan must be deposited into an annuity contract or custodial account as soon as they can reasonably be segregated from the general assets of the employer, but no later than the 15th business day after the end of the month in which the employee would have otherwise received the contribution as pay.27 In other words, the employer must actually deposit each participating employee’s salary reduction contributions no later than the 15th business day of the next month.
Early in 2010, the DOL issued a special safe harbor deposit deadline for small plans.28 Under this safe harbor, a plan with fewer than 100 participants is deemed to satisfy the funding requirements of ERISA if employee contributions and/or loan repayments are deposited with the providers not later than the seventh business day following the date the employer receives the contribution or the date the amount would have otherwise been payable to the participant in cash.
Some states have requirements that impose a faster deposit requirement on employers and, where ERISA does not supersede state law, those faster deposit requirements would apply.
Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here.
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