Chartered Retirement Planning Counselor (CRPC) Practice Exam

In a cross-tested plan, contributions are determined by a formula specified in the plan documents. This structure allows for greater flexibility in how contributions are allocated among participating employees, particularly when comparing contributions made on behalf of highly compensated employees to those made for non-highly compensated employees. Cross-testing helps ensure that the plan meets non-discrimination requirements, ensuring that contributions are fair and equitable across different employee classifications.

This method contrasts with simple percentage contributions, minimum contributions, or profit-dependent contributions, which do not take into account the specific formulas that can be established to allocate contributions based on various parameters like compensation levels or service. By specifying a formula in the plan documents, sponsors can tailor contributions to better satisfy the plan's objectives and compliance with regulatory standards.