Certified Plan Sponsor Professional (CPSP) Practice Exam

What should plan sponsors consider regarding the communication of investment options to participants?

1. Minimize the number of investment options

2. Ensure all options are clearly communicated and understood

3. Limit communication to only mandatory information

4. Focus solely on riskier investments

The correct answer is: Ensure all options are clearly communicated and understood

Plan sponsors have a critical role in ensuring that participants in a retirement plan fully understand the investment options available to them. By ensuring that all options are clearly communicated and understood, sponsors help participants make informed decisions regarding their investments, which is essential for their long-term financial well-being. Clear communication fosters transparency and understanding of the different types of investments, their associated risks, potential returns, and the overall strategy behind the investment choices. Moreover, effective communication can enhance participant engagement and encourage them to take an active role in managing their retirement savings. This approach aligns with the fiduciary responsibility of plan sponsors to act in the best interest of the plan participants and to provide them with the necessary information to make informed investment choices. In contrast, minimizing the number of options may restrict choices that suit participants' varied financial goals, while limiting communication to only mandatory information could lead to misunderstandings about the investments. Focusing solely on riskier investments disregards the need for a well-diversified portfolio and understanding of participants' risk tolerance levels. Therefore, clearly communicating all options is the most effective approach to empower participants in their investment decisions.