Certified Plan Sponsor Professional (CPSP) Practice Exam

What is the consequence of violating the rules regarding late deposit of employee contributions?

1. An administrative warning only

2. Penalties which can include civil and possibly criminal penalties

3. Cancellation of participant accounts

4. Increase in employer contribution rates

The correct answer is: Penalties which can include civil and possibly criminal penalties

Violating the rules surrounding the late deposit of employee contributions can lead to serious consequences, particularly in the realm of fiduciary responsibility and compliance with ERISA (Employee Retirement Income Security Act) regulations. The correct answer points to penalties that can encompass both civil and potentially criminal implications. When an employer fails to deposit employee contributions in a timely manner, it not only jeopardizes the financial security of the employees' funds but also reflects a breach of fiduciary duty. Regulatory bodies, such as the Department of Labor, take these violations seriously, and the repercussions can include hefty civil fines and other corrective measures. In severe cases, if the late deposits are deemed fraudulent or willful, criminal charges could also arise against responsible parties within the organization. The other potential consequences, while relevant in some contexts, do not capture the full range of penalties for this violation. Administrative warnings might be issued, but they are generally not the primary consequence for serious breaches. Cancellation of participant accounts and increases in employer contribution rates are not typically direct outcomes of late contribution deposits, further highlighting why the potential for civil and criminal penalties is the most comprehensive answer regarding the consequences of such violations.