Certified Plan Sponsor Professional (CPSP) Practice Exam

In a hybrid plan, what does the benefit value include?

1. Only the assumed interest credits

2. Annual contributions only

3. The value of contributions plus assumed annual interest credit

4. An estimated value based on past earnings

The correct answer is: The value of contributions plus assumed annual interest credit

In a hybrid plan, the benefit value is calculated by combining the value of contributions made to the plan with the assumed annual interest credits. This dual approach reflects the plan's nature, which shares characteristics of both defined benefit and defined contribution plans. Contributions are typically made by both the employer and the employee, and the assumed interest credits are intended to provide a certain level of growth on those contributions, helping to ensure that the value of the benefit remains competitive and sustainable over time. The inclusion of both contributions and assumed interest credits allows individuals to better understand the total value of their benefits at any point in time. It ensures that the participants know not only what they have contributed but also how their savings have grown due to the allocated interest credits, which are an estimate of the investment returns. While other options focus on singular aspects, such as interest credits alone or just annual contributions, they fail to provide a complete picture of the total benefit value in a hybrid plan. This comprehensive understanding is crucial for participants when planning for retirement and assessing their financial future.