Certified Plan Sponsor Professional (CPSP) Practice Exam

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What is a common requirement for the eligibility criteria in many 401(k) plans today?

A specific age limit without service requirement
A one-year service requirement for all contributions
No service requirement for elective deferrals
A two-year service requirement

The correct answer is: No service requirement for elective deferrals

The common requirement for the eligibility criteria in many 401(k) plans today is that there is no service requirement for elective deferrals. This means that employees are allowed to start contributing to their 401(k) plans immediately upon hiring, regardless of the length of service. This approach encourages savings and participation among employees as it allows them to benefit from tax-deferred retirement savings as soon as they start their jobs, leading to higher participation rates. Some plans may still have longer waiting periods for employer matching contributions or other benefits, but the ability to make elective deferrals immediately is widespread in the current landscape of 401(k) plans. This reflects a trend toward making retirement savings more accessible to employees right from the start of their employment. In contrast, other options suggest service requirements or age limits, which are less common for elective deferrals under modern plans, aiming instead to reduce barriers to employee participation in retirement savings programs.