Certified Plan Sponsor Professional (CPSP) Practice Exam

What is required for a 401(k) plan with an Eligible Automatic Contribution Arrangement (EACA)?

1. No requirement for annual notice

2. Annual notice must be given with 30 to 90 days' notice

3. Immediate enrollment without notice

4. Quarterly updates to participants

The correct answer is: Annual notice must be given with 30 to 90 days' notice

For a 401(k) plan that includes an Eligible Automatic Contribution Arrangement (EACA), providing an annual notice to participants is essential. This notice must inform employees about automatic enrollment and their rights under the plan. Specifically, the requirements stipulate that this notice needs to be communicated to participants between 30 to 90 days prior to the start of each plan year, giving them adequate time to understand how the automatic contributions will affect their savings and to make any necessary adjustments to their contribution rates. The annual notice serves multiple purposes: it ensures transparency and keeps participants informed about important aspects of their retirement plan, including their options, rights to opt out, and the specifics of how contributions will be made. By adhering to this requirement, plan sponsors help participants make informed decisions about their retirement savings. In contrast, the other options do not align with the specific compliance needs set forth for EACAs. There is indeed a necessity for annual notices, and immediate enrollment without notice would not adequately inform participants about the implications of automatic contributions. Moreover, quarterly updates, while beneficial for ongoing communication, are not mandated in this specific context.