Certified Plan Sponsor Professional (CPSP) Practice Exam

What must a 401(k) plan administrator provide to a participant requesting a lump sum distribution that qualifies as an eligible rollover distribution?

1. An IRC s402(f) notice

2. A distribution statement

3. A form to request a direct rollover

4. A termination notice

The correct answer is: An IRC s402(f) notice

The correct response is that the 401(k) plan administrator must provide an IRC §402(f) notice to a participant requesting a lump sum distribution that qualifies as an eligible rollover distribution. The IRC §402(f) notice, often referred to as a rollover notice, is crucial because it informs the participant about the tax implications and their options regarding the distribution. The notice outlines whether the distribution is eligible for rollover, the consequences of cashing out versus rolling over the distribution, and the deadlines for making a rollover decision. This helps participants make informed decisions about their retirement funds and understand the potential tax liabilities associated with their choices. While a distribution statement could provide detailed information about the specific distribution being requested, it does not encompass the essential information regarding rollover options and tax implications; hence it does not satisfy the requirement in this context. Similarly, while a form to request a direct rollover may be relevant, it is not mandatory as the IRC §402(f) notice provides the necessary information to make that choice. A termination notice is unrelated to the distribution process itself and is more associated with the overall termination of a plan rather than individual distributions. Therefore, the emphasis on the IRC §402(f) notice aligns with regulatory mandates for informing participants about their options and the