Certified Plan Sponsor Professional (CPSP) Practice Exam

Can 401(k) plans permit distributions of employer profit-sharing contributions at a specified age or years of service?

1. Yes

2. No

3. Only for self-employed individuals

4. Only for employees with over 10 years of service

The correct answer is: Yes

401(k) plans can indeed permit distributions of employer profit-sharing contributions at specified ages or after a certain number of years of service. This flexibility is in line with the provisions allowed under the Internal Revenue Code, which enables plan sponsors to establish distribution rules for their plans. Typically, participants in a 401(k) plan can access their earnings and employer contributions under certain conditions, which can be specified in the plan document. For example, the plan may allow participants to take distributions of profit-sharing contributions once they reach a certain age, such as 59½, or after they have completed a defined period of service with the employer. This option is advantageous for both employees and employers, as it allows for the retention of employees while also providing access to funds under specific circumstances that align with the plan's goals and the company's financial structure. The provisions regarding distributions must be clearly detailed in the plan documents to ensure compliance with regulatory requirements, and they must be communicated to plan participants so they are aware of their rights and options for accessing their profit-sharing contributions.