Certified Plan Sponsor Professional (CPSP) Practice Exam

Which statement is true regarding the benefits and features provided by a plan?

1. They must not discriminate in favor of highly compensated employees

2. They can be adjusted based on employee performance

3. They are optional for the plan sponsors

4. They must include multiple investment options

The correct answer is: They must not discriminate in favor of highly compensated employees

The statement asserting that benefits and features provided by a plan must not discriminate in favor of highly compensated employees is grounded in the principles of non-discrimination under federal regulations, particularly the Employee Retirement Income Security Act (ERISA) and Internal Revenue Code (IRC). These regulations aim to ensure that retirement plans provide equitable benefits to all employees, regardless of their compensation levels. This is crucial for maintaining the plan's qualified status, which allows both employers and employees to enjoy tax benefits. Plans that favor highly compensated employees risk disqualification, leading to adverse tax consequences for both the employer and the employees involved. Non-discriminatory practices help ensure that all employees, including those who are lower compensated, have fair access to plan benefits. In contrast, the other statements either suggest variables that may be permissible but are not universally applicable to all plans or introduce optional features that do not align with regulatory requirements. Adjusting benefits based on employee performance can be utilized in some plans but is not a mandated feature across the board. Similarly, options like including multiple investment choices or making benefits optional for plan sponsors are more about plan design preferences rather than compliance requirements. Thus, the necessity for non-discrimination stands out as a paramount requirement in plan administration.