Certified Plan Sponsor Professional (CPSP) Practice Exam

Which of the following is NOT typically considered a failure related to 401(k) plans?

1. Failure to provide adequate investment options

2. Failure to follow the plan's definition of compensation

3. Failure to maintain accurate records

4. Failure to satisfy required minimum distributions

The correct answer is: Failure to provide adequate investment options

The assertion that "failure to provide adequate investment options" is not typically considered a failure related to 401(k) plans may stem from the understanding of fiduciary responsibilities and regulatory standards. While it is essential for a 401(k) plan to offer appropriate investment options to participants, the regulatory framework primarily targets compliance with laws governing plan operation rather than the breadth or adequacy of investment choices themselves. Often, the focus on adequacy is more about prudent investment management and fiduciary duty rather than a direct failure from a compliance perspective. Each option can reflect operational or regulatory shortcomings, but the others—such as failure to follow the plan's definition of compensation, maintain accurate records, or satisfy required minimum distributions—are more concrete violations of federal regulations under ERISA and the Internal Revenue Code, potentially leading to penalties or legal actions against the plan sponsor. Thus, while failing to provide adequate investment options could impact the plan's effectiveness or participant satisfaction, it does not constitute a regulatory failure in the same way the other options do, emphasizing a distinction between compliance failures and management efficacy in a 401(k) plan context.