Certified Plan Sponsor Professional (CPSP) Practice Exam

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Which of the following is true about matching contributions?

They must be automatically vested
They can only be based on a percentage of salary
They must match 100% of employee contributions
They can vary based on the plan document

The correct answer is: They can vary based on the plan document

Matching contributions are a flexible element of retirement plans that can vary based on the specifics outlined in the plan document. This means that the employer has the discretion to determine the structure of the matching contributions, including how much to match and under what circumstances, as long as these details are clearly stated in the plan. Employers might decide to implement different matching formulas – for example, a dollar-for-dollar match up to a certain percentage of the employee's salary, or a partial match. The variation can allow plan sponsors to tailor their matching contributions according to their financial situation and their goals for employee retention and engagement. This flexibility is an essential aspect of retirement plan design, allowing organizations to structure their contributions in a way that best suits their business objectives and enhances the retirement savings opportunities for employees. Other options suggest specific requirements or limitations that do not reflect the flexibility granted by the regulations governing retirement plans.