Certified Plan Sponsor Professional (CPSP) Practice Exam

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Prepare for the Certified Plan Sponsor Professional Exam. Use flashcards and multiple choice questions with full explanations. Achieve exam success!

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What is one of the main reasons for maintaining compliance with IRS retirement plan requirements?

To ensure lower operational costs
To avoid tax penalties
To improve employee satisfaction
To streamline communications

The correct answer is: To avoid tax penalties

Maintaining compliance with IRS retirement plan requirements is critically important to avoid tax penalties. The IRS has established a set of regulations that retirement plans must adhere to in order to retain their qualified status. If a plan fails to comply with these regulations, it risks facing significant financial consequences, including penalties and taxes on both the employer and employee contributions. In some cases, non-compliance can even jeopardize the tax-deferred status of the retirement plan itself, resulting in tax liabilities that could have been avoided with proper adherence to IRS rules. Therefore, ensuring compliance is essential for safeguarding the financial interests of both the plan sponsors and participants.