Delinquent Contribution Prohibited Transactions (Posted February 15, 2005) Technical Tip 50: The following question and answer are from the DOL/EBSA website: What prohibited transactions result from an employer being delinquent in forwarding participant contributions to the plan? DOL Response: With respect to the prohibited transaction provisions of ERISA section 406, the employer of employees covered by the plan is a party in interest with respect to the plan under ERISA section 3(14)(C). The failure to segregate and forward participant contributions to a plan from the general assets of the employer in the time frames prescribed by 29 CFR § 2510.3-102 would result in a prohibited use of plan assets in violation of section 406(a)(1)(D) of ERISA. Similarly, because an employer who retains plan assets commingled with it general assets would be a fiduciary with respect to those assets pursuant to ERISA section 3(21)(A)(i), any actions taken by the employer with respect to the participant contributions that become plan assets, other than the actual contribution of such assets to the employee benefit plan’s trust or the actual payment of welfare benefits for employees, would be a violation of ERISA section 406(b)(1) and (2). Although the failure to forward participant contributions in a timely fashion would not, in itself, constitute an extension of credit between the plan and the employer in violation of section 406(a)(1)(B), depending on the particular facts and circumstances, a separate arrangement, agreement or understanding to extend credit to pay the delinquent amounts to the plan could occur that would give rise to a violation of section 406(a)(1)(B). Such arrangement, agreement or understanding could be express or implied. For example, a fiduciary’s consistent failure to exercise diligence in its collection efforts regarding participant contributions may serve as the basis to assert that an implied understanding existed to extend credit between the fiduciary and the employer. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.