Certified Plan Sponsor Professional (CPSP) Practice Exam

Can a plan require participants to reach the age of 21 and complete one year of service to qualify for contributions?

1. Yes, this is common practice

2. No, this is against ERISA regulations

3. Yes, but only for employee contributions

4. No, as all plans must allow immediate participation

The correct answer is: Yes, this is common practice

A plan can indeed require participants to reach the age of 21 and complete one year of service to qualify for contributions. This approach aligns with common practices within retirement plans, as it allows employers to establish eligibility criteria that can promote employee retention and ensure that contributions are made to employees who are more likely to remain with the company over a longer period of time. Under the Employee Retirement Income Security Act (ERISA), plans have a level of flexibility regarding eligibility requirements for participants. While there are certain standards that plans must adhere to, such as providing access to benefits, defining eligibility criteria, including age and service requirements is permissible. Many plans implement such requirements as a way to manage contributions more effectively and ensure that employer resources are directed towards employees who commit to longer service timelines. It's important to note that while immediate participation in certain types of plans is encouraged, particularly in the context of defined contribution plans like 401(k)s, plans are entitled to set reasonable conditions for participation within the guidelines set forth by ERISA.