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!

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 does the compensation cap refer to?

The maximum employee contribution allowed
The maximum amount of compensation considered for benefit calculations
The minimum wage set for employees
The predetermined earnings limit for taxable income

The correct answer is: The maximum amount of compensation considered for benefit calculations

The compensation cap refers specifically to the maximum amount of compensation that is used for calculating benefits within certain retirement plans. This limit is critical as it defines the threshold for which contributions and benefit calculations will be made, ensuring that amounts above this cap are not considered for contributions or benefits in plans like 401(k)s, pension plans, and others. For example, in defined benefit plans, this cap ensures that only a specified portion of an employee’s earnings is considered when determining the pension benefit amount, thus maintaining a structured approach to benefit calculations in a way that aligns with regulatory requirements and organizational policies. Understanding this concept is essential for managing retirement plans effectively and ensuring compliance with IRS guidelines.