Certified Plan Sponsor Professional (CPSP) Practice Exam

Which plan design options would best support sharing stock appreciation with employees?

1. 401(k) plans and profit-sharing plans

2. ESOPs and Stock Bonus Plans

3. Defined benefit plans and annuities

4. Health Savings Accounts and Flexible Spending Accounts

The correct answer is: ESOPs and Stock Bonus Plans

The best option for sharing stock appreciation with employees is through ESOPs (Employee Stock Ownership Plans) and Stock Bonus Plans. ESOPs are specifically designed to provide employees with ownership stakes in the company through stock. This not only incentivizes employees to contribute to the company's success but also allows them to benefit directly from any appreciation in the stock's value. As employees see direct rewards linked to the performance of the company’s stock, it can enhance motivation and retention. Stock Bonus Plans similarly provide employees with stock as part of their compensation, which can also appreciate in value. Such plans not only align employee interests with company performance but also serve as a valuable retention tool, encouraging employees to stay with the company to maximize their financial outcomes from the vested stock. In contrast, the other options do not primarily focus on providing employees with an ownership stake in the company or sharing in stock appreciation. 401(k) and profit-sharing plans primarily focus on retirement savings rather than direct stock ownership. Defined benefit plans and annuities involve predetermined benefits that do not offer direct participation in stock performance. Health Savings Accounts and Flexible Spending Accounts are health-related benefits and do not pertain to stock ownership or appreciation.