Certified Plan Sponsor Professional (CPSP) Practice Exam

Which plans require annual notices to participants before the start of each plan year?

1. 401(k) plans with voluntary employee contributions

2. 401(k) plans with Eligible Automatic Contribution Arrangements

3. 401(k) plans without automatic enrollment

4. Traditional pension plans

The correct answer is: 401(k) plans with Eligible Automatic Contribution Arrangements

Plans that incorporate Eligible Automatic Contribution Arrangements (EACAs) are mandated to provide annual notices to participants prior to the commencement of each plan year. This requirement aligns with participant education around automatic contributions and the specific characteristics of the EACA, which aims to facilitate employee enrollment while ensuring they are informed about the plan's structure and features. The annual notice typically highlights important details, such as the automatic contribution amounts, the employee’s rights to opt out, and any options available for investment of contributions. This proactive communication is essential for fostering participant understanding and encouraging informed decision-making regarding their retirement savings. While other plan types may have their own requirements or best practices for communication, they do not have the same regulatory obligation for annual notices as those with EACAs.