Certified Plan Sponsor Professional (CPSP) Practice Exam

What does a hybrid plan provide to participants?

1. A guaranteed benefit based solely on employer contributions

2. A guaranteed benefit expressed as the value of contributions plus interest

3. No guaranteed benefit, only account balance

4. A benefit that varies significantly year to year

The correct answer is: A guaranteed benefit expressed as the value of contributions plus interest

A hybrid plan is designed to combine elements of both defined benefit plans and defined contribution plans, which allows it to provide a unique feature to participants: a guaranteed benefit that reflects the value of contributions made to the plan, plus interest accrued on those contributions. In a hybrid plan, the benefits are typically determined based on a formula that considers both contributions from the employer and potentially the employee, along with interest that may be credited to the account. This structure helps to ensure that participants receive a predictable benefit while also allowing for the advantages of investment growth over time. This characteristic of guaranteed benefits—anchored in the security of contributions and interest—is what distinguishes hybrid plans from other offerings. While traditional defined benefit plans promise a specific retirement payout based on salary and years of service, a hybrid plan shares this promise with aspects of contribution-driven plans. The other options do not accurately capture the essence of what a hybrid plan provides. For instance, a guaranteed benefit based solely on employer contributions ignores the role of participant contributions and the interest earned. Similarly, stating there is no guaranteed benefit or only an account balance does not reflect the foundational structure of hybrid plans, which do provide guaranteed values tied to contributions and growth. Lastly, a benefit that varies significantly year to year