Certified Plan Sponsor Professional (CPSP) Practice Exam

What does the hours of service eligibility method require for 401(k) participation?

1. A minimal contribution requirement.

2. Employment of a minimum of 1,000 hours in a year.

3. Holding a position for at least 5 years.

4. Part-time employees being excluded.

The correct answer is: Employment of a minimum of 1,000 hours in a year.

The hours of service eligibility method for 401(k) participation specifically requires that employees accumulate a minimum of 1,000 hours of service in a qualifying period, which is typically a calendar year. This requirement is significant because it ensures that only employees who are engaged in a sufficient amount of work can participate in the retirement plan, thereby aligning participation with a reasonable level of employment activity. This approach helps to manage the plan's administration and financial obligations, ensuring that only employees who are seriously integrated into the workforce are afforded the benefit of participating in the plan. In relation to other options, the minimal contribution requirement does not specifically relate to the hours of service method, while holding a position for a minimum of 5 years pertains to vesting schedules rather than participation eligibility. The exclusion of part-time employees is not a requirement tied to the hours of service method since part-time employees can still qualify by reaching the 1,000-hour threshold, depending on their work pattern.