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 is a potential risk associated with hybrid plans?

  1. Guaranteed returns on investments

  2. Mismatches between plan investments and promised interest credits

  3. High administrative fees

  4. Lower employee satisfaction

The correct answer is: Mismatches between plan investments and promised interest credits

Hybrid plans often combine features of defined benefit and defined contribution plans, which can lead to a risk involving mismatches between plan investments and promised interest credits. This risk arises because hybrid plans typically promise participants a certain rate of return on their accumulated contributions, which may be influenced by market performance and investment decisions made by plan sponsors. When the actual returns on the plan's investments fall short of the promised interest credits, the plan sponsor may face funding challenges. This mismatch can create a scenario where the plan is underfunded if insufficient assets are generated to cover the guaranteed returns. Consequently, the risk of not meeting the anticipated returns can jeopardize the stability of the plan and the financial security of the participants. The other options present various considerations related to hybrid plans, but they do not specifically capture the unique financial risk linked with the potential for mismatched investment performance and guaranteed returns. This specific risk underscores the importance of effective investment management and strategy within hybrid plans to ensure obligations to participants are met.