The first summer after Enron, or honey, who shrank our retirement account balance? This column takes a look at a number of issues that are of particular importance to fiduciaries who administer 401(k) plans and to the employers that maintain those plans, including timely 401(k) deferrals and Enron-inspired legislation on blackout periods. (Legal Developments).

In the heat of late July, the stock market is withering, hopes of retiring early on the gains of the go-go years have faded, and each day brings news of another government investigation of corporate practices. Investor confidence has gone begging for some respire from the bad news that stretches from the front pages to the business sections of newspapers all across the country and around the world. And, Congress has finally passed its first post-Enron legislation to level the playing field for investors primarily through improved auditing practices. What will it take to get the private pension system out of the newspapers and onto the beach?

Timely 401(k) Deferrals

By regulation, the Department of Labor (DOL) has established when a participant deferral becomes a plan asset. For purposes of Title I of ERISA and Section 4975 of the Internal Revenue Code (Code) the assets of a plan include amounts (other than union dues) that a participant pays to an employer, or amounts that a participant has withheld from his or her wages by an employer, for contribution to the plan as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets. {29 C.F.R. [section] 2510.3-102(a)} With respect to an employee pension benefits plan, participant deferrals become plan assets by the 15th business day of the month following the month in which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or by 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). {29 C.F.R. [section] 2510.3-102(b)} This is the maximum time limit, and there should be some justification for taking this long to make the contribution to the plan.

With respect to a savings incentive match plan for employees (SIMPLE) that involves SIMPLE IRAs (i.e., Simple individual retirement accounts, as described in Code Section 408(p)), the applicable date is the 30th calendar day following the month in which the participant contribution amounts would otherwise have been payable to the participant in cash.

The maximum time period can be extended for an additional ten business days if the plan sponsor provides a true and accurate written notice distributed in a manner reasonably designed to reach all the plan participants within five business days after the end of such extension period. {29 C.F.R. [section] 2510.3-102(d)(1)} The notice must state that the employer elected to take the extension for that month; that the affected contributions have been transmitted to the plan; and with particularity, the reasons why the employer cannot reasonably segregate the participant contributions within the required time period.

Also, prior to the ten-day extension period, the employer must obtain a performance bond or irrevocable letter of credit in favor of the plan and in an amount not less than the total amount of participant contributions received or withheld by the employer in the previous month. Also, within five business days after the end of the extension period, the plan sponsor must provide to the Secretary of Labor a copy of the notice (to participants) along with a certification that the notice was provided to …