Certified Plan Sponsor Professional (CPSP) Practice Exam

When must participants be notified of the default investment alternative if a plan adopts a qualified default investment?

1. At least 15 days before plan eligibility

2. At least 30 days before plan eligibility and before each subsequent plan year

3. At least 45 days before plan eligibility

4. At least 60 days before each subsequent plan year

The correct answer is: At least 30 days before plan eligibility and before each subsequent plan year

In plans that adopt a qualified default investment alternative (QDIA), the law mandates that participants must be notified at least 30 days before they become eligible for the plan and also before each subsequent plan year. This requirement is in place to ensure that participants have a clear understanding of the investment options that will be automatically selected for them if they do not make an investment choice on their own. Providing this notification allows participants to make informed decisions about their retirement savings and understand the nature and risk of their default investment. This timing requirement serves several important purposes: it helps participants prepare for their investment options, mitigates the risk of potential conflicts in investment philosophy or risk tolerance, and promotes overall participation in retirement savings. The notification allows for a period in which participants can seek further information or guidance, fostering better investment outcomes over the long term. While other choices might suggest varying notice periods or different conditions, the specified requirement of 30 days before eligibility and prior to each plan year is established to provide adequate time and transparency for participants regarding their retirement investment options.