Certified Plan Sponsor Professional (CPSP) Practice Exam

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When must salary deferral contributions to a plan with more than 100 employees be deposited?

Immediately at the end of the payroll cycle
A reasonable time after amounts are withheld from employees' paychecks
At the end of the year
Monthly, regardless of withholding

The correct answer is: A reasonable time after amounts are withheld from employees' paychecks

Salary deferral contributions to a plan with more than 100 employees must be deposited within a "reasonable time" after the amounts are withheld from employees' paychecks. This requirement is in place to ensure that employees' contributions are not held for an extended period, maintaining the integrity of their investments and providing them with timely access to their retirement funds. The Department of Labor (DOL) provides guidance on what constitutes a reasonable time frame, emphasizing that plan sponsors should deposit contributions as soon as they are feasible. Typically, this time frame can range from a few days to a couple of weeks, depending on the circumstances of the employer's payroll process and the financial institution. This approach protects employees' interests by minimizing the risk of lost investment opportunities due to delays in contribution deposits. It helps to foster compliance with regulations and ensures that the funds are working for employees as intended in their retirement plans.