Certified Plan Sponsor Professional (CPSP) Practice Exam

Which statement about the notification of automatic contribution arrangements is true?

1. It may be sent after contributions begin

2. It must include a summary of investment options

3. It must be sent within 30 to 90 days before the plan year

4. It is optional for plan sponsors

The correct answer is: It must be sent within 30 to 90 days before the plan year

The correct statement regarding the notification of automatic contribution arrangements is that it must be sent within 30 to 90 days before the plan year. This requirement is in place to ensure that participants receive timely and clear information about their options prior to the start of the plan year, allowing them to make informed decisions regarding their contributions and investments. Timely notification is crucial since it gives participants the opportunity to understand how automatic contributions will affect their retirement savings and enables them to opt-out or make changes if desired. Adhering to this timeframe helps plan sponsors comply with regulatory requirements and contribute to participants' financial well-being by ensuring they are adequately informed. In contrast, sending the notification after contributions begin would not fulfill the intent of providing participants with necessary information in advance. Including a summary of investment options, while informative, is not a mandated requirement specifically tied to the notification of automatic contribution arrangements. Lastly, notifications are not optional; they are a mandatory element of automatically enrolling participants in retirement plans to ensure they are aware of the program's details.