Why is an employer required to make deferral contributions to the plan each pay period?
Participant salary deferrals withheld by an employer for contribution to the plan are participant contributions that become plan assets as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets. An employer who holds these assets for an unreasonable amount of time will have engaged in a prohibited use of plan assets. If such transaction occurs with respect to a “disqualified person” (employer), the employer may be subject to an excise tax penalty on the transaction, be required to make an interest payment on the transaction and be subject to a Department of Labor penalty.
