Certified Plan Sponsor Professional (CPSP) Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Certified Plan Sponsor Professional Exam. Use flashcards and multiple choice questions with full explanations. Achieve exam success!

Start Multiple Choice Practice Test
Start Flash Cards

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What are the three most common benefit formulas for a Defined Benefit Plan?

  1. Flat dollar formula, final average pay formula, and career average pay formula

  2. Flat rate formula, cumulative pay formula, and average income formula

  3. Percentage-based formula, job level formula, and investment return formula

  4. Fixed amount formula, variable income formula, and retirement age formula

The correct answer is: Flat dollar formula, final average pay formula, and career average pay formula

The three most common benefit formulas for a Defined Benefit Plan are indeed the flat dollar formula, final average pay formula, and career average pay formula. The flat dollar formula specifies a fixed benefit amount that the participant will receive at retirement, regardless of their earnings history. This simplicity makes it straightforward for participants to understand their potential retirement income. The final average pay formula calculates retirement benefits based on the participant's average salary during the highest earning years of their career, typically over a period of three to five years before retirement. This approach rewards employees for their highest earning years, making it attractive as it more closely aligns retirement benefits with the employee's peak earning period. The career average pay formula, on the other hand, takes into account the participant's average salary throughout their entire career. This method provides a benefit that reflects overall earnings rather than just the highest earning years, which can be advantageous for those who experience salary growth over time. In contrast, the other options do not align with recognized formulas used in defined benefit plans. The second option introduces non-standard terms that do not typically apply to benefit calculations within this context. The third option refers to methods that focus on performance metrics rather than straightforward benefit calculations, and the fourth option provides terms that are irrelevant to defining

More Questions Like This