Certified Plan Sponsor Professional (CPSP) Practice Exam

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A plan must use the IRC Sec. 415(c) definition of compensation for determining what?

The annual limits on contributions and benefits
The total number of participants
The types of investments available
The duration of employee participation

The correct answer is: The annual limits on contributions and benefits

The Internal Revenue Code (IRC) Section 415(c) specifically pertains to the contribution limits and benefits within qualified retirement plans, such as defined benefit and defined contribution plans. This section defines compensation in the context of calculating how much can be contributed to a retirement plan on behalf of each participant. When applying the IRC Sec. 415(c) definition of compensation, it's essential to ensure that contributions made to the plan do not exceed the allowed limits set forth by the IRS. This means that for the purposes of determining annual contribution limits, such as those for 401(k) plans or profit-sharing plans, the plan must utilize this specific definition. The other options do not pertain to the definition of compensation under IRC Sec. 415(c). The total number of participants, types of investments, and duration of employee participation are not directly influenced by the definitions provided in this section concerning annual contribution and benefit limits. Thus, the IRC Sec. 415(c) definition is crucial for assessing contributions and satisfying compliance with IRS limits on retirement plans.