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Field Assistance Bulletin 2003-2

May 7, 2003

Memorandum for: Virginia C. Smith
Director of Enforcement, Regional Directors

From: Robert J. Doyle
Director of Regulations and Interpretations

Subject: Application of Participant ContributionRequirements to Multiemployer Defined Contribution Pension Plans

Issue

In the context of a multiemployer defined contribution pension plan, to what extent may collective bargaining, employer participation and similar agreements be taken into account in determining when participant contributions can reasonably be segregated from the general assets of participating employers?

Background

In 1996, the Department adopted final rules defining when amounts that a participant pays to, or has withheld by, an employer for contribution to an employee benefit plan are “plan assets” for purposes of Title I of ERISA. These rules are set forth at 29 CFR § 2510.3-102 (“Definition of plan assets – participant contributions”). In general, the rules provide that the assets of a plan include amounts that a participant or beneficiary pays to, or amounts that a participant has withheld from his 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.(1) With respect to pension plans, the rules also provide that in no event shall such date be later than the 15th business day of the month following the month in which the amounts were received by the employer (in the case of amounts paid to the employers) or in which the amounts would otherwise have been payable to the participant (in the case of amounts withheld by the employer from a participant’s wages).(2)

On the basis of information obtained by, and furnished to, the Department, many multiemployer defined contribution pension plans establish through collective bargaining, employer participation and similar agreements, the form, manner and timing of amounts for contributions to employee benefit plans, including participant contributions to defined contribution pension plans. Frequently, such agreements provide for contributions to be remitted to the plan at specific times, without regard to when any given participating employer might be able to mechanically segregate monies from its general assets. Such practices, therefore, have raised questions concerning the extent to which multiemployer defined contribution pension plan trustees and participating employers must disregard the terms of collective bargaining and employer participation agreements in order to ensure compliance with the terms of the plan assets - participant contribution regulation. Determining when participant contributions to a multiemployer, defined contribution plan become plan assets is critical to understanding the fiduciary obligations of plan trustees and participating employers in handling participant contributions.(3)

Analysis

In adopting changes to the plan assets – participant contribution rules in 1996, the Department recognized that plan sponsors and fiduciaries must weigh the costs and benefits, as well as risks presented to participants, of processes established for the transmittal and receipt of participant contributions.(4)  In this regard, many commenters on the proposed rules, while acknowledging that participant contributions could be segregated quickly and frequently into a trust established to temporarily hold such contributions until they could be reconciled, represented that the costs of establishing and administering such a trust would be considerable, outweighing any additional benefits to participants.(5)  Taking such comments into consideration, the Department indicated that, while the final rule significantly reduces the maximum period during which participant contributions may be treated as other than plan assets, the final rule “accommodates employers who are unable reasonably to segregate participant contributions from their general assets more frequently than in what appears to be a fairly standard monthly processing cycle for participant contributions to pension plans.”(6)

With regard to multiemployer plans specifically, several commenters on the proposed rules argued that, given the unique nature of such plans, multiemployer plans with participant contributions should either be exempt from the plan asset – participant contribution rules altogether or exempt from the maximum period within which contributions must be made. While the Department did not adopt either of these suggestions, the Department did determine that “the maximum time period for pension plans in the final rule was sufficient to accommodate multiemployer plans." The Department also recognized that transmission of participant contributions may be controlled by pre-existing collective bargaining agreements and, therefore, postponed the application of the final rule’s new maximum period (within which participant contributions must be transmitted to a plan) for collectively bargained pension plans.(7)

It is the view of this Office that the provisions of the participant contribution regulation apply in the same way to multiemployer plans that the provisions apply to single employer plans. That is, participant contributions deducted by or paid to an employer become plan assets as soon as they can reasonably be segregated from the employer's general assets. As is the case with single employer plans, if a multiemployer plan maintains a reasonable process for the expeditious and cost-effective receipt of contributions, this process may be taken into account in determining when participant contributions can reasonably be segregated from the employer's general assets. To the extent that a collective bargaining agreement, for example, describes such a process, then the collective bargaining agreement should be considered in determining when participant contributions become plan assets.

To be reasonable, a plan's process for receiving participant contributions should take into account how quickly the participating employers can reasonably segregate and forward contributions. The plan fiduciaries should also consider how costly to the plan a more expeditious process would be. These costs should be balanced against any additional income and security the plan and plan participants would realize from a faster system.

No matter how reasonable a pension plan's process, however, participants contributions become plan assets no later than the 15th business day of the month following the month in which the amounts were received by the employer (in the case of amounts paid to the employers) or in which the amounts would otherwise have been payable to the participant (in the case of amounts withheld by the employer from a participant’s wages). Thus neither a collective bargaining agreement, nor any other agreement between the plan and an employer, can justify a failure to comply with the maximum periods in the regulation.

Conclusion

In determining when participant contributions can reasonably be segregated from the general assets of any given contributing employer to a multiemployer defined contribution plan, it is the view of this Office that the time frames established in collective bargaining, employer participation and similar agreements must be taken into account to the extent such agreements represent the considered judgment of the plan’s trustees that such time frames reflect the appropriate balancing of the costs of transmitting, receiving and processing such contributions relative to the protections provided to participants and beneficiaries, provided that any such time frames do not extend beyond the maximum period prescribed in § 2510.3-102(b). As with other fiduciary duties, plan trustees must make such determinations prudently and solely in the interest of plans’ participants and beneficiaries.(8)

Questions concerning the information contained in this Bulletin may be directed to Louis Campagna or David Lurie, at 202.693.8510.

Footnotes

  1. See paragraph (a) of § 2510.3-102.
  2. See paragraph (b) of § 2510.3-102. Also note that paragraph (d) of § 2510.3-102 describes the circumstances under which the maximum time period may be extended.
  3. The obligation of a fiduciary to collect participant contributions from an employer is similar to the obligations of a fiduciary to collect contributions payable by an employer on its own behalf. In this respect, the Department has indicated that if a multiple employer trustee does not establish and implement collection procedures which are reasonable, diligent and systematic, it may be found to be engaging in prohibited transactions for failing to collect delinquent contributions. See section 406(a)(1)(B). Cf. Central States Pension Fund v. Central Transport, Inc., 472 U.S. 559, 574 (1985) where the Court interpreted 406(a)(1)(B) as creating a requirement that the plan trustee assure full and prompt collection of all contributions owed to the plan.
  4. See 61 Fed. Reg. at 41226.
  5. See 61 Fed. Reg. at 41222.
  6. See 61 Fed. Reg. at 41223.
  7. See 61 Fed. Reg. at 41228.
  8. The mere fact that plan settlors via collective bargaining establish specific dates for the transmittal of participant contributions does not relieve plan trustees from their fiduciary responsibility to determine that the established time frames reflect the appropriate balancing of costs and protections. If the trustees determine that time frames established in collective bargaining agreements fail to reflect the appropriate balance and, therefore, would result in an unreasonable delay in transmittal of participant contributions, the trustees must take steps to collect participant contributions from employers consistent with their fiduciary obligations.