United States: When Do Plan Loan Repayments Become Plan Assets? DOL Issues New Guidance

Under the U.S. Department of Labor’s general plan asset regulations, amounts withheld by an employer from a participant’s wages for contribution to a retirement plan become plan assets as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets, but in no event later than the 15th business day of the month immediately following the month in which the participant would otherwise have received the contributions as wages.

In Advisory Opinion 2002–02A, the DOL states that plan loan repayments are not subject to this general plan asset regulation. Rather, the DOL says, plan loan repayments become plan assets as of the earliest date on which such repayments can reasonably be segregated from the employer’s general assets. However, the DOL also says that it would have "concerns" as to whether an employer had forwarded the loan repayments to the plan as soon as they were reasonably segregable from its general assets if the employer holds plan loan repayments beyond the time limits set forth in the general plan asset regulation. Of course, if an employer fails to segregate the loan repayments in a timely manner, the DOL could treat the employer’s retention of the repayments as a prohibited transaction under ERISA section 406.

To avoid scrutiny by the DOL, employers should treat plan loan repayments as ordinary employee contributions that must be forwarded to the plan within the 15-day period described in the general plan asset regulation.