General Securities Sales Supervisor (Series10) Practice Exam

What is true about non-qualified retirement plans for key employees?

1. Contributions are deductible to the employer when contributed to the plan

2. The plan is subject to ERISA funding regulations

3. The plan must offer the same benefit formula to all employees

4. The plan is not subject to ERISA funding, reporting and disclosure regulations

The correct answer is: The plan is not subject to ERISA funding, reporting and disclosure regulations

Non-qualified retirement plans for key employees are designed to provide additional retirement benefits to a select group of individuals, often including top executives. These plans differ from qualified retirement plans in several crucial ways, one of which is their regulatory framework. When stating that the plan is not subject to ERISA funding, reporting, and disclosure regulations, it accurately reflects the nature of non-qualified plans. ERISA, the Employee Retirement Income Security Act, sets stringent requirements for qualified plans, including rules on funding, reporting, and the disclosure of information to participants. However, non-qualified plans are exempt from these stringent ERISA regulations, allowing employers greater flexibility in designing these benefits specifically for key employees without the burdensome regulatory requirements that apply to qualified plans. As for the other choices, it is essential to note that contributions to non-qualified plans are generally not deductible to the employer when made; thus, the first statement is incorrect. Also, non-qualified plans do not have to provide the same benefits to all employees, which makes the third option incorrect as well. While some non-qualified plans might have a funding structure, they do not have to adhere to ERISA's funding regulations, affirming that they are indeed not subject to the same level of oversight as qualified plans. This characteristic