Employee Benefit Plans: Contribution Remittances and COVID-19

When the COVID-19 pandemic began in March 2020, there were a significant number of companies and individuals affected by the sudden shutdown of the global economy, with many being forced to move to a remote work setting or even suspend operations temporarily. Additionally, some companies eliminated or consolidated positions as a result of reduced revenue

If the roles eliminated were within the payroll department, this may cause a delay in the timing of normal routine processes. The Department of Labor (DOL) recognized there were issues arising from the COVID-19 pandemic, and as a result, the Employee Benefits Security Administration (EBSA) issued Disaster Relief Notice 2020-01 on April 29, 2020. This notice outlines various relief items relating to employee benefit plans, which includes timeliness of remittance of employee contributions to the employee benefit plan. However, to understand this relief, we need to understand what is considered timely remittance.

Timeliness of Contribution Remittance Requirements

Under Code 29 of Federal Regulations § 2510.3-102, there is guidance on contribution remittances for two different sizes of plans – those that are considered a small plan (less than 100 eligible participants), and those considered a large plan (more than 100 eligible participants). For small plans, the DOL determined that a timely contribution remittance was when contributions were sent to the plan within seven business days from the date funds were withheld from the employee’s paycheck. For large plans, the DOL made the definition of a timely remittance a bit more nuanced, stating that employee contributions should be remitted as soon as they can be segregated from corporate assets but not later than the 15th business date of the month following the withholding. The DOL has clarified further that if an employer has proven that they have the administrative capability of withholding and remitting funds after a certain number of days, that anything in excess of that number may be considered late. For example, if an employer consistently withholds and submits employee contributions to the employee benefit plan after five business days, then anything in excess of that amount should be considered late because they have continuously proven that they have the administrative capability to do it in five days.

EBSA Disaster Relief Notice 2020-01

The DOL’s Disaster Relief Notice states that “the Department recognizes that some employers and service providers may not be able to forward participant payments and withholdings to employee pension benefit plans within prescribed timeframes during the period beginning on March 1, 2020, and ending on the 60th day following the announced end of the National Emergency. In such instances, the Department will not – solely on the basis of a failure attributable to the COVID-19 outbreak – take enforcement action with respect to a temporary delay in forwarding such payments or contributions to the plan. Employers and service providers must act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.” Based on this statement, only those remittances that were late as a direct failure caused by COVID-19 are eligible to receive this relief. However, remittances that were a result of cash flow issues that were caused by the COVID-19 pandemic do not qualify.

An example of a failure resulting from COVID-19 may be lay-offs that occurred within the payroll department, thus causing a delay in processing payroll and remitting the appropriate funds to the employee benefit plan. In this situation, documentation stating that these late remittances are a result of the COVID-19 pandemic will be paramount, as, typically, individuals are required to disclose late contribution remittances on their annual Form 5500 filing. Under this relief, the late remittance resulting from a failure caused by COVID-19 can be excluded from Form 5500. It’s also important to note that this relief will continue until 60 days after the end of the declared National Emergency. On Feb. 24, 2021, the President extended the National Emergency declaration for one year.

If you have uncertainties about classifying your late remittances, the experts at SST Accountants & Consultants are equipped and available to assist your organization in navigating these complexities. Additionally, if your organization is looking for counsel regarding your employee benefit plans, our team is here to help. Learn more about our service areas, or contact us today for immediate assistance.

Special thanks to SST Audit Manager Chris Adams for providing the content for this post. For additional audit or employee benefit plan support, contact Chris today.