Certified Plan Sponsor Professional (CPSP) Practice Exam

To enhance participant savings rates, which of the following methods is considered ineffective?

1. Automatic enrollment with escalating deferrals

2. Low-fee investment options

3. Stretch matching formulas

4. Regular financial education sessions

The correct answer is: Stretch matching formulas

The effectiveness of methods aimed at enhancing participant savings rates can vary significantly, and stretch matching formulas are generally viewed as less effective in this context. While matching contributions can incentivize participants to save more, stretch matching – which typically offers higher matching contributions only after participants exceed certain thresholds – may not provide the immediate motivation needed for many individuals to increase their savings rates effectively. Automatic enrollment with escalating deferrals effectively increases participation rates and encourages individuals to save more over time by gradually increasing their contribution rates. Offering low-fee investment options can lead to higher net returns for participants, thus indirectly encouraging them to save more as they see their account balances grow. Regular financial education sessions help participants understand the importance of saving for retirement, which can further motivate them to increase their contributions. In contrast, stretch matching formulas may not sufficiently motivate those who are hesitant to save more, as the benefits may not be immediately apparent to the participants. This can lead to a lack of engagement with their retirement savings plan, making it an ineffective method for enhancing participant savings rates.