WASHINGTON - Industry experts have warned the Labor Department that proposals to accelerate deposits of employee contributions to defined contribution plans would be difficult, if not impossible, to implement.
That's the consensus of a sampling of more than 500 written comments and 22 in-person remarks made by industry experts. The written comments were received by the Labor Department in response to its proposal; 22 people also testified at a two-day hearing on the subject.
"There are very real reasons why (the proposed regulation) can't be done," Carolyn Kelley, director of government affairs for the American Payroll Association, Washington, said in an interview.
"What (the Labor Department) is doing is proposing a broad regulation that will punish large employers because of the fraudulent activity of a handful."
In a December media blitz, the Labor Department announced the proposed regulation, which officials said would provide more protection for defined contribution plan participants. The proposal would require sponsors to transfer employee contributions on the same schedule used to withhold income for employment taxes.
The regulation would take effect 60 days after being published in the Federal Register.
Current law says sponsors need to make the transfer as soon as possible, but no later than 90 days.
Most plan sponsors could handle a shorter contribution schedule, but many are fiercely opposed to the Department of Labor's shortened contribution period.
Several groups that submitted comments suggest the employee transfer should be made at the same time for all plans: 30 days after the end of the month in which the employee contribution is deducted from payroll.
Others said the transfer could be made 15 days after the end of the month in which the employee contribution is deducted.
In general, plan sponsors want one year before the regulation takes effect. They say they need the time to set up procedures and systems to comply with the rule.
Assistant Secretary of Labor Olena Berg would not say whether the Labor Department would change the proposed regulation to comply with plan sponsors' wishes.
Many who testified admitted employers who now transfer employee contributions 30 days after the end of the month in which the contribution is deducted from payroll earn between $9 and $11 in interest each year per participant.
The proposed regulation would require some larger plans to make the transfer within 24 hours. Smaller ones that are monthly depositors would have more time - until the 15th of the month, following the month the employee is paid.
In addition, plan sponsors and others are asking the final regulation not apply to health and other welfare plans.
Imposing the same schedule for both plan contributions and tax withholding would be costly, inefficient and, for some, impossible, many in the benefits community argue.
While both are withheld from the employee's paycheck, they are treated differently. Unlike taxes, plan contributions go into a separate account and are invested. Correcting a mistake in making the deposit can get very expensive, experts say.
Larger plans sponsors - which for the most part are following the law - also are upset that they would fall under the strictest guidelines.
"There's a tiny, tiny fraction of people who are not going to do the right thing no matter what," said David Wray, president of the Profit Sharing/401(k) Council of America, Chicago. "The department's (proposed) rules have no impact on that situation whatsoever."
According to a survey conducted in January by the Profit Sharing Council, nearly 77% of the 317 respondents would have to change their procedures to comply with the proposed regulation. In addition, 68.4% said they would absorb the additional compliance costs, 25% would charge additional costs to the plan, 3.6% would terminate their program and 3% would reduce their company contribution.
But Howard Golden, principal at Kwasha Lipton, Fort Lee, N.J., said plan sponsors would simply need time to adjust to the stricter rule the Labor Department is advocating.
Some sponsors of big plans already make deposits within 24 hours. According to the PSCA's survey, nearly 23% of the respondents make their deposits within at least one day of payroll.
Many, including Mr. Wray, agree the current 90-day window is too long; computer technology has improved and companies can make the employee transfer in a more reasonable amount of time.
And, while companies would probably need to adjust systems to comply with the 30-day schedule, it would not be impossible, said James Klein, president of the Association of Private Pension and Welfare Plans, Washington.
Gina Mitchell, director of government relations for the Financial Executives Institute, Washington, said it is imperative plan sponsors get one year to set up systems to comply with whatever rule is adopted.
Some have suggested the timing is political, and the Clinton administration wants to have the regulation in place to use in the re-election campaign.
Others said the administration needs to hear what plan sponsors and other experts are saying; if the regulation takes effect as proposed, plan sponsors probably would publicly fault the government for the increased costs and some would drop their defined contribution plans entirely, the PSCA's Mr. Wray said.
"The companies are not going to take responsibility for this; they'll pass it on to the federal government," Mr. Wray said.