Certified Plan Sponsor Professional (CPSP) Practice Exam

The late deposit of employee salary deferral contributions is considered what by the DOL?

1. A simple error

2. A prohibited transaction under ERISA

3. An administrative oversight

4. A common occurrence

The correct answer is: A prohibited transaction under ERISA

The late deposit of employee salary deferral contributions is classified as a prohibited transaction under the Employee Retirement Income Security Act (ERISA) by the Department of Labor (DOL). This regulation is crucial because it mandates that employee contributions to retirement plans be deposited in a timely manner to ensure that employees receive the benefits they are entitled to without unnecessary delays. When contributions are not deposited on time, it violates the fiduciary responsibility that plan sponsors have to act in the best interest of the participants. Timely contributions are essential for protecting the financial integrity of the retirement plan and ensuring that employees’ savings grow as intended. The consequences of late deposits can lead to penalties and the requirement to make up for lost earnings on the late contributions, emphasizing the seriousness of adhering to the timelines set forth by the law. The other options might imply a lack of gravity regarding the situation, which fails to acknowledge the legal implications and potential repercussions that come with such late deposits. This understanding helps plan sponsors and administrators recognize the importance of compliance and the fiduciary duties they uphold under ERISA.